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2003/2004 Jamaica Budget - Opening Presentation Dr The Hon Omar Davies, MP - April
18, 2002
Review of 2002 and Fiscal Year 2002/2003 |
In reviewing the calendar year and fiscal year 2002/03, given the level of
documentation provided, I will only speak briefly to some of the major highlights. I will
not review the fiscal outturn in this section as that will be given extensive treatment on
its own.
GDP
The GDP for the calendar year 2002 recorded growth of 1%. For fiscal year
2002/03 the estimate is that this had increased to 1.7%.
Although these growth levels are still low, they are positive given the background of
domestic and external factors.
Major areas which contributed to growth in the calendar year – mining and
quarrying which grew by 3.4%, electricity and water which grew by 4.8% and transport and
communication which grew by 5.6%.
For the calendar year the major sector showing decline was agriculture (mainly domestic
agriculture). This declined by 8.3%. This result is not surprising given the impact of
unusual weather conditions. However, the improved outturn for fiscal vs. the calendar year
(1.7% vs. 1%) is due mainly to the significant recovery in domestic agriculture as more
normal weather conditions have prevailed.
INFLATION
Inflation for calendar year 2002 was 7.3% compared to 8.8% for 2001. That
marked the sixth consecutive calendar year of inflation below 10% (single digit). We have
to go back forty years to find a comparable period.
The figure for fiscal year 2002/03 was even lower than for the calendar year, 6.2% -
seven consecutive years below 10%. Again we have to go back forty years to find a
comparable period.
Two additional points must be made about inflation. The first is that a major question
following liberalization of the foreign exchange market in the early 90s and the
consequential period of high inflation was whether the inflation psychology was now a
permanent feature of the macro-economic landscape. Although the battle is never won, it is
clear that much progress has been made whereby workers, householders have come to expect
single digit inflation, thus laying the basis for greater social stability.
The second point relates to the pass through resulting from the depreciation of the
currency. Again, this was once automatic e.g. in calendar year 1991 inflation was 80% and
fiscal year 1991/92 106%.
One of the benefits of increased competition is that such automatic pass through in
prices could place a businessman in jeopardy in terms of his market share. Hence, despite
significant depreciation of the currency, particularly in the last four (4) months, the
inflation outturn is better than the previous year.
EMPLOYMENT/UNEMPLOYMENT/POVERTY
The unemployment level remained flat, approximately 15.1% in 2001. However, the
chronic problem of the gender differential rates remains - female unemployment remains
twice as high as that of males. Similarly the high level of youth unemployment continues
to be a difficulty which needs to be addressed.
POVERTY
The 2002 the SLC indicated that there was a national
increase in the poverty level, moving from 16.8% in 2001 to 18.2% in 2002.
The preliminary tables which are available to me demonstrate that this increase is
mainly related to the parishes most affected by floods e.g. Portland, St. Thomas, St. Ann
and Clarendon.
On the other hand, the parish of St. Mary is an interesting case – it shows more
than 55% reduction in poverty between 1998 and 2002 – from 38.2% to 16.8% - that is
below the national average.
This reduction was partly due to the result of the significant increase in the level of
public investment in that parish following the 1998 survey.
All the major trends that the SLC monitors (health, education, housing etc.) remained
stable for the 2002 survey. The implication of this finding is that the policy thrust,
focusing on the elderly, on health care reform, pension reform and improving the social
safety net are the correct ones.
In terms of the increase in poverty levels, as indicated by the SLC, I urge that we do
not draw too many conclusions based on the one year change but to look at the data for the
next survey to see whether the impact of the floods would have been reversed.
What is incontestable is that if we look at the trend from 1992 to 2002, there is a
steady long term decline of poverty but the challenge is to maintain that trend even
whilst we make the necessary adjustments to the economy.
BALANCE OF PAYMENTS
Major developments of the BOP in 2002 were:
the merchandise trade deficit of US$1,795 million an increase of US$176 million over
the previous year.
A surplus of US$295 million in the service account, a reduction of US$87 million
compared to the previous year.
An increase in the deficit in the current account which grew to US$940 million and a
decrease in the NIR of US$240 million.
Total export earnings decreased by $110 million due mainly to the decrease in earnings
from traditional merchandise.
In terms of the imports, general merchandise imports grew by $45 million with increases
in consumer goods of $72 million – motor cars, durable goods and food imports.
Capital goods imports increased by $33 million, mainly telecommunications equipment.
There was a contraction of $110 million in net earnings from travel. The causes of this
reduction are interesting – part was reduced spending by visitors to Jamaica of some
US$58 million but of greater significance was increased spending by Jamaicans travelling
overseas, of about the same amount.
RESERVES/FOREIGN EXCHANGE MARKET
During the calendar year the NIR fell by $238 million to $1.6 billion. By the
end of March it had decreased further to $1.3 billion representing 22.5 weeks of imports.
The reduction for calendar year was due to lower inflows of foreign exchange as well as
the intervention by the BOJ in the foreign exchange market.
The main reasons for the reduction between December and March in the NIR was that the
BOJ utilized reserves to make payments for the GOJ Euro Bond which matured in February.
TOURISM
The tourism sector has been faced with many challenges including the plight of the
major airlines in the U.S., which impacted negatively on the travel trade internationally.
In the Caribbean region there was a decline in stopover arrivals of more than 7% in
2002. Some countries actually recorded a double-digit decline.
Jamaica saw some fallout in that stopover arrivals were down less than 1%, although
earnings were eroded by weak market conditions which required discounting.
January/February combined saw a revival in stopover visitors with an increase of 12%,
although March arrivals slipped to a 0.3% increase, reflecting international events.
Despite the March outturn, the first quarter, January to March reflects a 7.2% increase
over 2002.
Cruise arrivals - January through March- were up 45%. This significant improvement
reflects increased calls from new ships as well as arrivals of larger vessels.
Immediately after the war broke out in Iraq, bookings slowed down. Indications are that
things have now bottomed out and bookings are stabilizing.
The JTB is hard at work mapping out a strategy to return the momentum experienced in
the first three months of the year.
The new Board is presently studying a draft of a report commissioned to review the
organization. The major objective is to utilize modern practices and technology to make
significant savings in administering expenses thereby allowing the reallocation of more
resources into marketing and promotion.
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