economic overview – march 2017the merchandise trade deficit of us$3.5b for january-november 2016...

1 PREPARED BY: VMWM Research Department; March 20, 2017

Economic Overview – March 2017

EXECUTIVE

SUMMARY The budget has been cast

on the macroeconomic

assumptions of 2%-3% real

economic growth, low

inflation and a relatively

stable FX rate. The priority

objectives for FY2017/18 and through the medium term, as articulated by the finance minister are to grow the

economy, create meaningful jobs and, in so doing, to facilitate a faster and sustainable reduction of the public

debt. That said, the expenditure budget’s focus is on adopting strategies geared toward achieving the primary

surplus target of 7% in order to attain a debt/GDP ratio of 89.5% by FY 2019/20.

Locally, performance in key economic variables for the past month included:

Inflation for February 2017 was driven mainly by higher prices for starchy foods & vegetables, higher rates

for water & sewage and higher wages for some artisans. The 12-month point-to-point rate increased to

3.6%.

Yields on Treasury Bills in February were higher on the 28-day, 91-day and 182-day tenors. Additionally, the

Bank of Jamaica (BOJ) announced that the 28-day tenor will be discontinued as of April.

The fiscal accounts were ahead of budget for the January-January period of the fiscal year 2016/17.

In February, the stock of Net International Reserves (NIR) rebounded to a level of US$2.54B.

The merchandise trade deficit of US$3.5B for January-November 2016 was 8.8% smaller than for the similar

period in the prior year.

The local currency depreciated in February, bringing down the 12-month rate of depreciation to 5.62%.

However, movements have remained within a band, with day-to-day movements varying between

depreciation and appreciation.

The stock market has been buoyant since the start of 2017, with the Main Market up 16.19%, the Junior

Market up 15.77% and the US Market up 37.37% as at March 15.

Overseas, the US Federal Reserve raised its benchmark interest rate to a range of 0.75% to 1%, its

second rate hike in 3 months.

1 As at March 17, 2017

Summary Economic Indicators

2016 2017

Actual (A) Projections (P) Dec Jan Feb Mar Dec

12M PTP Inflation (%) 1.77 2.59 3.57 4.08 3.91

Interest Rates

180D T-Bill (%) 6.56 6.27 6.12 6.02 5.48

Overnight Rate (%) 3.00 3.00 3.00 4.00 4.00

30D BOJ Repo (%) 5.00 5.00 5.00 5.00 4.50

J$/US$ (EOM) 128.44 128.26 129.11 128.88 (A1) 132.67

NIR (US$B) 2,719.37 2,469.43 2,615.25 2,650.00 3,000.00

Net Remittances (US$M) 202.20 140.00 (P) 165.00 (P) 180.00 210.00

Economic Report (Mar-17)


DOMESTIC ECONOMIC INDICATORS

Gross Domestic Product Annual Growth Rates (%) 2014 2015 2016

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42

Total Value Added at Basic Prices -1.4 -0.3 0.4 0.8 1.7 0.9 0.8 1.4 2.0 1.3

Goods Producing -8.1 -3.9 -0.4 0.9 3.9 1.2 0.9 3.3 6.4 3.0

Agriculture, Forestry & Fishing -22.3 -13.3 -0.6 0.5 4.7 -3.6 3.0 9.4 29.1 16.0

Mining & Quarrying -2.0 -1.9 0.7 5.7 -0.8 -2.1 -0.8 -1.9 2.0 -12.0

Manufacture -6.7 -1.4 -2.0 0.3 8.9 6.7 0.3 0.6 0.1 0.2

Construction 2.0 1.5 1.4 0.9 1.2 1.0 0.3 1.6 -0.7 0.8

Services Industry 0.8 0.8 0.6 0.7 0.8 0.7 0.9 0.8 0.6 0.8

Electricity & Water Supply -0.9 -2.4 -2.8 0.8 3.1 4.5 5.3 5.0 2.5 2.3

Wholesale & Retail Trade, etc. 0.5 0.4 0.3 0.6 0.6 0.6 0.5 0.5 0.5 0.6

Hotels and Restaurants 4.1 5.6 4.1 1.3 1.2 0.9 2.4 1.3 2.2 2.7

Transport, Storage & Communication 0.7 1.3 1.1 1.5 1.7 0.7 0.4 0.7 0.5 0.8

Finance & Insurance Services 0.5 0.8 0.2 0.5 0.5 0.7 1.5 1.4 1.2 1.5

Real Estate, Renting & Business Activities 0.4 0.4 0.4 0.6 0.6 0.5 0.4 0.5 0.4 0.5

Producers of Government Services -0.2 -0.1 -0.1 -0.2 -0.1 -0.1 -0.1 -0.1 0.0 -0.2

Other Services 1.9 1.6 1.5 0.9 0.9 1.1 0.3 0.6 0.5 0.5

The Planning Institute of Jamaica (PIOJ) estimates that the economy grew by 1.4% in Q4, with economic growth

for the full calendar year coming in at 1.3%. For Q4, the main economic drivers were recovery in the

agriculture, forestry & fishing sector and increased activity in the tourism sector (mainly captured in Hotels and

Restaurants) and electricity & water.

Outlook:

For Q1 the PIOJ is projecting growth in the range of 1.0% to 2.0%, led by continued recovery in agriculture and

underpinned by continued low inflation and strengthening in consumer and business confidence.

Both the domestic and external environments are conducive to accelerating economic activity. Additionally, the

government has given specific priority to stimulating economic growth and its Economic Growth Council has

taken on the audacious task of achieving 5% growth in 4 years. With one year down, some progress has been

made, but significant work is yet to be completed.

2 Preliminary estimate from the Planning Institute of Jamaica (PIOJ)



Labour Market

2015 2016

July October January April July October

Labour Force 1,320,500 1,325,400 1,341,700 1,353,500 1,363,300 1,355,500

Employed Labour Force 1,147,500 1,146,800 1,163,600 1,168,600 1,186,900 1,180,800 Unemployed Labour Force 173,000 178,600 178,100 184,900 176,400 174,700 Outside the Labour Force 765,300 761,700 746,100 735,400 727,100 736,000 Unemployment Rate (%) 13.1 13.5 13.3 13.7 12.9 12.9

Inflation

1,020,000

1,040,000

1,060,000

1,080,000

1,100,000

1,120,000

1,140,000

1,160,000

1,180,000

1,200,000

Oct

ob

er

Ap

ril

Oct

ob

er

Ap

ril

Oct

ob

er

Ap

ril

Oct

ob

er

July

Jan

uar

y

July

Jan

uar

y

July

Jan

uar

y

July

Jan

uar

y

July

Jan

uar

y

July

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Employed Labour Force

Year Month CPI Index

Monthly %

Change

Calendar YTD %

Change

Fiscal YTD %

Change

12-Month

Point-to-Point

% Change

2016

Sep 234.2 0.5 0.9 2.1 1.8

Oct 234.8 0.2 1.1 2.4 1.8

Nov 235.6 0.4 1.5 2.7 1.6

Dec 236.3 0.3 1.8 3.1 1.8

2017 Jan 237.3 0.4 0.4 3.5 2.6

Feb 237.8 0.3 0.6 3.7 3.6



Inflation, as measured by movement in the Consumer Price Index (CPI), was 0.2% in February, resulting in a 12-

month point-to-point rate of 3.6%. Inflationary drivers during the month were price increases for starchy foods

and vegetables, higher rates for water and sewage and higher wages for some artisans. Inflation was tempered

by lower fuel prices locally.

Producer price increases eased on a 12-month basis in January with prices in Mining & Quarrying showing a

movement of 6.0% vs. 14.2% in December while Manufacturing prices accelerated with a movement of 7.5% vs.

a 5.6% movement in December. Manufacturing’s acceleration was due in large part to a 33.2% increase in the

major group ‘Refine Petroleum Products.’

DIVISION % Change

Food and Non-Alcoholic Beverages 0.3

Alcoholic Beverages and Tobacco 0.3

Clothing and Footwear 0.1

Housing, Water, Electricity, Gas and Other Fuels 0.6

Furnishings, Household Equipment and Routine Household Maintenance 0.1

Health 0.0

Transport -0.3

Communication 0.0

Recreation and Culture 0.0

Education 0.0

Restaurants and Accommodation Services 0.0

Miscellaneous Goods and Services 0.3

All Divisions – All Items 0.3

The regional indices showed month over month changes for all 3 regions as:

‘Greater Kingston Metropolitan Area’ up 0.3%,

‘Other Urban Centres’ up 0.3%, and

‘Rural Areas,’ up 0.1%.



1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J

2012 2013 2014 2015 2016 2017

12-Month Point-To-Point Consumer Inflation



Interest Rates TENOR Overnight 28-Day 91-Day 182 Day 273 Day

Instrument

Month BOJ CD (%) T-Bill (%) BOJ CD (%) T-Bill (%) T-Bill (%) T-Bill (%)

2016

Oct 3.00 5.78 5.00 5.70 5.83 N/A

Nov 3.00 5.70 5.00 5.70 6.20 6.74

Dec 3.00 5.64 5.00 5.68 6.56 N/A

2017

Jan 3.00 6.20 5.00 5.62 6.27

Feb 3.00 6.08 5.00 5.92 6.12 6.49

Mar 4.00 6.10 5.00 6.13 6.32 N/A

The Ministry of Finance & the Public Service has announced that, with effect from April, the 28-Day tranche

Treasury Bill will be discontinued. In its release, it stated that the action is expected to synchronize short-term

domestic issuances from the BOJ and MOF and facilitate greater efficiency in the management of liquidity in

the domestic market.

In March’s auctions, all 3 T-Bill tenors were significantly oversubscribed and the average yields all increased

relative to February’s yields. The BOJ also offered a 365-Day CD this month, which yielded 6.89%, which was 10

bps lower than the yield on January’s offer.

5.00

5.50

6.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50

Jan

May

Sep

Jan

May

Sep

Jan

May

Sep

Jan

May

Sep

Jan

May

Sep

Jan

2012 2013 2014 2015 2016 2017

T-Bill Yields

28-Day 91-Day 182-Day 273 Day



GOJ Fiscal Operations

JMD Million Fiscal Year-to-Date Apr 2016-Jan 2017

Provisional Budget % Deviation

Revenue & Grants 391,714.2 372,456.6 5.2

PAYE 54,517.9 51,666.0 5.5

Companies (ex Bauxite/Alumina) 24,094.5 22,087.7 9.1

GCT (Local) 62,665.5 62,381.1 0.5

GCT (Imports) 61,716.6 63,435.2 -2.7

Custom Duty 29,842.8 28,639.1 4.2

Expenditure 420,698.5 429,466.4 -2.0

Interest 115,615.0 119,833.4 -3.5

Capital Expenditure 32,534.3 38,496.0 -15.5

Fiscal Surplus -28,984.3 -57,009.8 49.2

Primary Surplus 86,630.7 62,823.6 37.9

The budget has been cast on the macroeconomic assumptions of 2%-3% real economic growth, low inflation

and a relatively stable FX rate. The priority objectives for FY2017/18 and through the medium term, as

articulated by the finance minister are to grow the economy, create meaningful jobs and, in so doing, to

facilitate a faster and sustainable reduction of the public debt. That said, the expenditure budget’s focus is on

adopting strategies geared toward achieving the primary surplus target of 7% in order to attain a debt/GDP

ratio of 89.5% by FY 2019/20.

The tax measures, not so much to plug any gap in the budget, but to compensate for the loss in revenue from

the promised increase in the personal income tax threshold, are summarized as follows:

Measure (Effective Date) J$B

Increase in specific SCT rate on alcohol from $1,120 to $1,230 per LPA3 (Mar 13) 0.403

Increase in specific SCT rate on fuels (Mar 15)4 7.459

Increase in SCT on tobacco products from $14 to $17 per stick (Mar 13) 0.826

Reduction in zero-rated residential electricity consumption threshold from 350kWh to 150 kWh (Apr 3)5 1.498

GCT imposed on Group Health Insurance Schemes (Apr 3) 1.884

Withholding Tax on insurance premiums paid overseas (yr of assessment ending Dec 2017)6 0.990

Increase in Motor Vehicle License and related fees (Mar 13) 0.464

Total Additional Revenue Measures 13.524

Increase in the Income Tax Threshold to $1.5M (Apr 1) 14.200

Net Revenue Intake -0.676

Modifications to Property Tax Framework (Local Gov’t) (Apr 1) 3.930

3 Litre of pure alcohol

4 This has the double impact of increasing both the specific SCT rate and the additional ad valorem SCT payable, which is

imposed on the price inclusive of the specific-rate SCT. 5 Will move the percentage of JPS customers being subject to the tax from 6.4% to 40%.

6 PWC’s assessment is that this proposal is unclear as it would seem to be a retroactive imposition since 2017 has already

begun. They also believe there could be unintended consequences where alternative local insurance may not be available.



Budgetary allocations:

$B 2017/18 Budget 2016/17 Projection 2016/17 Budget

Total Expenditure 709.998 592.744 579.934

Recurrent 484.909 463.528 459.373

Capital 225.090 129.216 120.561

Debt Servicing 310.401 224.541 216.019

Interest Repayment 137.853 140.126 138.459

Amortization 172.5487 86.043 77.560

Ministry of Education 100.430 96.471 93.134

Ministry of Finance (excluding debt service) 75.404 57.677 73.538

Ministry of Health 63.797 58.595 54.449

Ministry of National Security 60.690 64.794 59.474

Ministry of Economic Growth & Job Creation 32.1348 22.800 19.692

The Minister spoke on Public Bodies Financial Management Reform, which would include integrating some

entities that are fully dependent on revenues that are considered taxes. In this regard, revenues to the

following entities would be de-earmarked and go directly to the Consolidated Fund:

CHASE Fund

Ja Civil Aviation Authority

Tourism Enhancement Fund

Budgetary allocation will instead be made. Additionally, expected surpluses of $1.9B from public bodies will go

towards the Consol Fund this year.

The Minister also spoke of moving toward a full-fledged inflation targeting regime. This year, the BOJ’s

operational independence will be reviewed with a view to ensuring its ability to pursue this priority mandate.

Revision of the BOJ Act to adopt stricter limits on lending to government & modernize arrangements for paying

dividends and making BOJ Board appointments will also be pursued.

Exchange Rates February 2016 February 2017

Rate per

unit of FX

Change (%) Rate per

unit of FX

Change (%)

1-Month 12-Month 1-Month 12-Month YTD

JMD/USD 121.37 -0.78 -4.57 129.11 -0.66 -5.62 -0.52

JMD/GBP 169.60 2.53 5.32 159.91 0.09 6.06 -1.56

JMD/CAD 90.03 -4.78 2.90 97.80 -0.27 -7.94 -3.46

JMD/EUR 133.10 -0.27 -2.61 136.36 2.08 -2.39 -1.06

7 Includes repayment of J$ Benchmark Investment Notes of $75.979B vs $6.484B in 2016/17

8 Increase is mainly on capital expenditure, particularly for road construction/repairs of arterial roads, allocation of which

is $18.986B vs $9.789B in 2016/17 under the Major Infrastructure for Development Programme (MIDP) funded by the China Exim Bank.



Balance of Payments

External Merchandise Trade

Jan-Nov 2016 US$ Million

2016 2015 Difference % Difference

Expenditure on Imports 4,284.3 4,633.0 -348.7 -7.5

Earnings from Exports 1,086.0 1,154.5 -68.5 -5.9

Trade Balance -3,478.5 -3,198.3 280.2 8.8

The decline in imports was mainly due to “Mineral Fuels,” manufactured goods & articles, chemicals and food.

Meanwhile, for exports, the decline was mainly due to Traditional Domestic Exports. Non-Traditional Domestic

exports recorded a 2.4 % increase over the comparable 2015 period.

The trade deficit with CARICOM of US$345.9M, represented a decline of US$152.5M. Again, imports from the

region declined, most notably in the categories of mineral fuels, chemicals, beverages & tobacco and food.

However, imports of manufactured goods from CARICOM countries increased by 16.1% to US$21M. Exports to

the region increased by 45.3% to value US$83.6M.

120

130

140

150

160

170

180

190

200

70

80

90

100

110

120

130

140

Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan

2012 2013 2014 2015 2016 2017

JMD

/GB

P

JMD

/USD

,JM

D/C

AD

Jan 2012- Feb 2017

JMD/USD JMD/CAD JMD/GBP



Net International Reserves

NET INTERNATIONAL RESERVES

Year Month Stock (USD M) Monthly ∆ (USD M)

Gross Reserves in

Weeks of Goods

Imports

Gross Reserves in

Weeks of Goods &

Services Imports

2016

Sep 2,463.01 -52.51 36.30 20.60

Oct 2,443.23 -19.78 35.32 20.49

Nov 2,556.43 113.20 36.55 21.20

Dec 2,719.37 162.93 38.40 22.27

2017 Jan 2,469.43 -249.94 35.55 20.62

Feb 2,615.26 145.84 37.23 21.59

In February, the increase in the NIR was due to net purchases of foreign exchange by the BOJ. This was despite

the local currency depreciating by 0.7%, the first monthly decline since October last year. Notably, the Jamaican

dollar has resumed its overall revaluation in March, with inter-day fluctuations in either direction. The market,

it appears, has bought into the government’s and central bank’s suggestion that the local currency is correctly

valued and that market factors should determine the movement in the exchange rate in either direction, rather

than the one-way bet we have become accustomed to. Additionally, the appreciating trend is supported by the

5.00

10.00

15.00

20.00

25.00

30.00

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

Jan

May

Sep

Jan

May

Sep

Jan

May

Sep

Jan

May

Sep

Jan

May

Sep

Jan

2012 2013 2014 2015 2016 2017

We

eks o

f Go

od

s & Se

rvices Im

po

rts U

S$M

NIR Gross Res in Weeks Benchmark Gross Res in Weeks



BOJ’s steady increase in its cash reserve requirements for FX accounts to stem the “high incidence of deposit

dollarization.” The BOJ also removed the interest on USD reserves held there.

Remittances

Stock Market

OVERSEAS ECONOMIC NEWS BITES

Commodities

Rapidly rising US inventories are thought to have caused a fall in crude oil prices, despite an ongoing production

cut by OPEC members. Meanwhile, the International Energy Agency (IEA) has warned that if a sharp decline in

investment by the petroleum industry in 2015 and 2016 isn’t reversed, supply could stop growing by 2020 and

demand is likely to outstrip supply.

2009 2010 2011 2012 2013 2014 2015 2016

Other 112.0 126.8 139.1 138.5 142.7 147.3 150.2 147.1

CAY 157.6 143.4 136.4 124.3 123.3 124.3 123.6 137.7

CAN 144.3 193.8 227.9 240.6 245.9 251.1 226.8 231.3

UK 289.0 331.7 349.7 338.3 326.7 347.3 331.5 304.2

USA 907.5 1,109.7 1,165.7 1,195.1 1,226.1 1,289.6 1,394.4 1,476.1

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

Gross Remittances by Source Country (Jan-Dec)

Stock Market Summary –March 15, 2017

% Change Avg Annual % Change

Index Value Daily WTD MTD YTD 1 YR 5 YR 10 YR

JSE Market Index 223,404.54 -1.08 -1.45 -3.27 16.19 47.49 28.73 15.15

JSE Select Index 7,254.95 -1.11 -1.52 -2.68 13.29 39.71 32.81 18.54

JSE All Jamaican Composite 245,184.27 -1.10 -1.39 -3.25 16.68 45.74 30.62 16.42

JSE Junior Market Index 3,002.69 -0.72 -3.01 -2.79 15.77 53.14 77.01 N/A

JSE USD Equities Index 226.13 1.26 -2.18 1.16 37.47 53.95 N/A N/A



Meanwhile, lower prices have made natural gas the worst-performing commodity this year, with prices likely to

post further declines. With winter ending, demand should fall, even as several reports have forecast significant

increases in natural gas production.

Capital Markets

For the first time, the price of one bitcoin, having more than doubled over the past 12 months, was worth more

than one ounce of gold.

North America

The US Federal Reserve raised its benchmark interest rate to a range of 0.75% to 1%, its second rate hike in 3

months. The US trade deficit in January was US$48.5B, marking the biggest trade deficit since March 2012.

Imports increased 2.3% compared with December, while exports rose 0.6%.

Europe

Resulting from Germany’s strong economy and record-low unemployment, its National Statistics Office is

reporting a record budget surplus for 2016.

The Greek government has requested financial & technical assistance from the World Bank, which didn’t

previously play a part in its bailout.

Asian Pacific

Chinese businesses and individuals have continued to move money abroad to avoid further losses from the fall

in the value of the yuan, despite the government’s efforts to halt the flow. Additionally, a sharp acceleration in

imports in February gave China its first trade deficit since 2014. The People’s Bank of China announced it

added 10 bps to several key short-term interest rates. This is the 2nd increase since January and came

just hours after the Fed’s announcement of its own rate increase.

Japan’s corporate goods price index, the benchmark for wholesale prices, posted a 1% year-over-year gain in

February, the strongest advance since December 2014. The increase was driven largely by global commodity &

energy prices.

Sources: Statistical Institute of Jamaica (STATIN), Ministry of Finance and the Public Service (MOF), Bank of

Jamaica (BOJ), Jamaica Stock Exchange (JSE), Reuters, OilPrice.com (UK), Bloomberg, Deutsche Welle

(Germany), Kathimerini (Greece), TechCrunch, Nikkei Asian Review (Japan), Market News International,

MarketWatch, The New York Times, The Standard (Hong Kong)

Disclaimer: This Research Paper is for information purposes only. The information stated herein may reflect the opinion

and views of VM Wealth Management in relation to market conditions and does not constitute any representation or

warranties in relation to investment returns and the credibility of the sources of information relied upon in the preparation of

this report, without further research and verification. Before making any investment decision, please consult a VM Wealth

Management Advisor.

economic overview – march 2017the merchandise trade deficit of us$3.5b for january-november 2016...

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