General Economic Information of Jamaica
In 1997, the overarching policy objective of Government
was to be achieved through a financial programme aimed at: lowering money
supply growth to less than 1.0% per month, (10.9% for the year); reducing
the fiscal deficit to 2.0% from 6.0% of GDP; maintaining a stable exchange
rate; a gradual lowering of interest rates; lowering inflation to single
digit (8.0% to 9.0%); and generating GDP growth of between 2.0% and 3.0%.
The longer term framework rests against the background
of the National Industrial Policy (NIP), which was released in 1996.
The NIP, which builds on the Medium Term Policy Framework (MTPF) for 1996/97
to 1998/99 and several sectoral policies, such as the Energy Sector Plan,
the Land Use Plan, and the National Environmental Action Plan, NEAP), further
reinforces the private sector-led growth strategy which underpinned the
reform efforts of the 1980s and early 1990s.
Growth and Investment Strategy
Government has continued its efforts to encourage
private sector led investment and growth by providing a stable macro economic
environment, developing a strong regulatory framework in critical sectors;
and establishing a financing facility to stimulate private investment in
infrastructure. Other initiatives include: facilitating export markets;
product adaptation; market penetration; collaborating with the private
sector in labour training; encouraging private sector free zones including
those for single factories, to stimulate expansion in manufacturing; and
support for small business development through increased credit and technical
services.
Growth is being facilitated by increased investment
and export promotion in collaboration with the private sector, with special
efforts to attract higher levels of foreign direct investment in tourism,
by providing support for infrastructure, and improving security.
Additionally, in 1997 there continued to be support for diversification
into non-traditional agriculture, divestment (sale and lease) of public
lands and provision of suport services to farmers, to enable them to meet
European Union quotas in sugar and bananas. These strategies are
aimed at incresed output, foreign exchange earnings and rural incomes.
Monetary Policy and Inflation
The monetary authorities were successful in containing
the growth in money supply during the year. Broad money (M2) increased
by 13.4%, a continuation of the trend in 1996 when M2 increased by 14.5%.
This monetary restraint resulted in the economy's first year of single
digit inflation in almost a decade. In 1997, the CPI grew by 9.2%
compared with 1988 when it was 8.5%. The inflation outcome was also
due to the 4.0% nominal appreciation in the rate of exchange, which averaged
J$35.58 to the US dollar compared with J$37.02 for 1996. The exchange
rate was subject to strong speculative pressure during the year, but stability
was maintained by the use of just over US$152.0 million of the Net International
Reserves.
Fiscal Policy and the Public Debt
The fiscal deficit for the first three quarters of
the fiscal year increased, due largely to the cost of servicing the domestic
debt, higher than projected wages and salaries, and lower than projected
tax revenues. The deficit stood at just over $20.0 billion at 1997
December, the second successive year of deficit, signalling a reversal
of the 1991 to 1996 period of fiscal surpluses. Contributing heavily
to this deficit was the servicing of domestic debt, the stock of which
totalled $101.4 billion by December 1997.
Balance of Payments:
The Balance of Payments recorded a deficit of over
US$330.0 million on the current account, more than doubling the 1996 deficit
of US$139.3 miillion. The deficit during the 1990 to 1997 period,
has been produced by the increase in the merchandise trade deficit to US$1.7
billion at year end, averaging almost US$1.2 billion, an increase of some
13.3% per year.
In 1997, imports increased by 6.5% to US$3.1 billion, compared with
US$2.9 billion recorded in 1996. Merchandise exports remained flat
at US$1.4 billion, reflecting largely the bouyancy in the international
alumina market, rather than the strong supply-side responses in the domestic
economy.
Sectoral Performances
Agriculture:
The sector's contributions to total GDP has risen
steadily during the 1990s moving from 6.2% to 8.4% in 1996. Foreign
exchange earnings have increased steadily averaging US$192.3 million, representing
16% of the average of just over US$1.2 billion per year of total exports.
With a workforce of over 206,000, the sector now ranks as the country's
second largest employer, behind Community, Social and Personal Services,
and representing approximately one fifth of the employed labour force.
Nevertheless, the GDP data reveal a declining trend
in overall growth of the sector between 1990 and 1996 when growth peaked
at 12.9%(1992) but fell steadily to 3.3% by 1996. Export agriculture,
on the other hand, grew by 10.2% in 1996, but declined in three (1992,1994
and 1995) of the previous four years.
The PIOJ's Agricultural Production Index, which measures
the volume of production of a selected number of crops, estimated that,
for 1997, the agricultural sector recorded its first decline in output
since 1991, down by 17% compared with 1996. This performance is also
reflected in the export side, where the Index estimated that production
for exports declined by 10%. These outcomes resulted from the effects
of the country's worst drought in three decades.
Mining:
The Mining sector, through mainly the bauxite/alumina
industry, contributed heavily to the Jamaican economy by providing just
over one half of total foreign exchange earnings, and an annual average
of 9% of GDP for the 1990 to 1996 period. The sub sector recorded
an average annual growth of 4.8%, recovering form the 0.8% growth of the
decade of the 1980's. Increased capacity and high levels of utilization
have been the source of this growth. Capacity utilization within
the industry ranged between 80% and 90% since 1994. Alumina production
peaked at 3.4 million tonnes in 1997. As a capital intensive industry,
it provided jobs for approximately 6,000 people, less than 1% of the employed
labour force.
Manufacturing:
Prelimminary indications are that the manufacturing
sector in 1997 continued to decrease at an average annual rate of 1.0%
a characteristic of the past five years. Nonetheless, the upward
trend in the annual average export earnings of 6.5% also continued.
The overall performance of the sector has been adversely
affected by: high financing and operating costs, linked partly to high
interest tates; increased competition from imports in a liberalized domestic
market; an appreciating exchange rate; high costs linked to low efficency
levels; and drought related cutbacks in agricultural inputs. In addition,
the sector has traditionally been the one most affected by industrial action,
with work stoppages averaging 23.0% per year between 1992 and 1997.
This represented almost one third of the average 61 per year over the same
period, for the entire economy.
The sector remaines a relatively large employer of
labour at just under 89,000 workers, in 1997, representing 9.4% of the
country's work force. Foreign Exchange earnings averaged US$430 million
per year over the 1990 to 1997 period, a quarter of total Merchandise exports.
The sector has remained a major contributor to GDP, of about 18.0%.
Consequently, Government has implemented specific strategies to increase
output. In 1997, most of Government's efforts were directed at assisting
the sector through preferential loan financing schemes and loans for debt
restructuring, administered through the development banks and the National
Investment Bank of Jamaica (NIBJ).
THE SERVICE SECTOR
Financial Service
The economy went though the first full year of the
financial sector fall-out in 1997, the crisis having emerged in the latter
half of 1996. Early in 1997, the Government created the Financial
Sector Adjustment Company Ltd. (FINSAC). to rescue and restructure troubled
entities. In addition, the Government accelerated its program of
strengthening its regulatory framework thorough amendments to the Banking,
Financial Institutions, Building Societies, and Industrial and Provident
Societies Acts, by increasing the intervention powers of the supervisory
and regulatory authorities in the Bank of Jamaica, the Superintendent of
Insurance and the Ministry of Finance.
The extent of the problem as it emerged by year end
is reflected in the fact that Government had to intervene in 4 banks, and
five insurance companies. The Government's injection, in paid out
cash or commitments, was some $35 billion; $30 billion of which was in
the form of low interest rate loans ($21.3 billion mainly to insurance
companies), and the rest as equity. These advances are secured by
assets either pledged by, or acquired from the financial institutions concerned.
Despite the problems in the banking and insurance
industries, the stock market recorded its best year since 1992 when it
recorded a year on year gain of almost 20.0% on the Jamaican Stock Exchange(JSE)
Index, to close the year at 19, 847, continuing its steady recovery since
its record breaking rise and fall of 1992. Market capitalization
also increased by over 20% to $80 billion. However, the market reflected
the realities of the economy, because most of the listed companies were
less profitable than the few spectacular gainers. Another reflection
of the sluggish economy in the past few years is the fact that, since 1995,
there has not been a new listing on the JSE, but rather a number of delistings
over the period, several of which have been prompted by insolvency.
Lower interest rates and an increase in investment activity in the real
sector are necessary to improve the fortunes of the stock market.
Tourism
The tourism industry continued to be the major source
of foreign exchange in the services sector and the economy in general.
Between 1990 and 1997 net earnings from the industry averaged US$835 million
per year, averaging some 70% of total merchandise exports. The cruise
passengers sub category has more than doubled over the past ten years,
while the foreign national stop-over category increased by over 40%.
These statistics may well be reflecting some level of adjustment in both
the local and the global tourism industries.
KEY ECONOMIC INDICATORS (1995-1997)
