New data shows economy under pressure
Published:Friday | November 18, 2011 | 12:00 AM
by Dennis Morrison
The recently released balance of payments report by the Bank of Jamaica (BOJ) for the January-June 2011 period has shown up serious problems in the Jamaican economy.
Most important, it revealed that the current account, which covers export and imports of goods, services, remittances and other economic activity, has continued to move on a negative track with a deficit of US$805.4 million, which was US$587 million, or 209 per cent, worse when compared with the similar period last year.
The main factor driving the escalation was the near US$630 million, or 29 per cent, increase in imports which swamped the substantial rise of US$175 million in exports.
As a result, the deficit in the balance of trade widened by US$455 million, or more than 30 per cent.
It is noteworthy that the deterioration in the current account was broad-based, with only the category that covers remittances - current transfers - registering an increase in inflows.
The driving factor behind the runaway imports was the escalating fuel bill which went up by nearly US$443 million, and accounted for 70 per cent of the increase in total imports. This jump in the fuel bill dwarfed the increase of around US$124 million in alumina exports which was the biggest item in total exports.
In fact, the additional amount spent on importing fuel was responsible for more than 80 per cent of the deterioration in the current account deficit.
The all-round worsening performance of the balance of payments is also reflected in the reduced surplus in the services category, which includes the inflows from the tourism sector, one of the three main sources of foreign-exchange earnings.
After a strong winter season, the sector experienced a slow down in the growth of visitor arrivals and actually saw a decline in the month of May. This contributed to the fall in the level of the surplus from the services category, which is usually critical to offsetting Jamaica's large trade deficit.
Current transfers was the only category to register an increase -US$31.5 million - arising from the continuing improvement in remittances.
The rate of increase in inflows has moderated as economic recovery has slowed in the major source countries - such as the United States and United Kingdom - but these flows remain the largest net source of foreign exchange for Jamaica. In the January to June period, there was a net increase of US$48.6 million in remittances from Jamaicans overseas.
Apart from the balance of payments data for the first half of the year, information from the BOJ on the movement in the net international reserves (NIR) has indicated a declining level of reserves, while there has been a stepping up in the level of intervention in the foreign-exchange market.
At the end of October, the NIR stood at approximately US$2.03 billion, down from approximately US$2.16 billion in July and US$2.6 billion in April. The uptick in remittance inflows as the peak Christmas season approaches is usually important in meeting increased demand for foreign exchange to cover the hike in imports for the season.
It is not surprising that the rising oil bill remains the 'Achilles heel' of the Jamaican economy, since the country has missed the opportunity of the last three years of lower energy prices to diversify its fuel source from a total dependence on oil.
Though the pace of increasing oil prices has slowed in recent months, we can expect that as crude markets firm up this will put pressure on our balance of payments.