Incremental improvement in economic activity – BOJ

The Bank of Jamaica (BOJ) is reporting that signs are emerging showing an incremental improvement in economic activity. This is supported by buoyant flows in the foreign exchange market, a sustainable balance of payments position, adequate reserves and inflation contained within the four-six per cent corridor.

BOJ Governor Richard Byles, who made the announcement, declared that,” the economy is beginning to show signs of recovery, even though the future remains clouded with much uncertainty. The most recent real gross domestic product (GDP) out-turn published by STATIN (Statistical Institute of Jamaica) indicated that domestic economic activity contracted by 10.7 per cent for the September 2020 quarter.”

This, he pointed out, is an improvement relative to the June 2020 quarter, which saw a significant contraction of 18.4 per cent. Speaking at the BOJ’s quarterly news briefing on Friday last, Byles argued that the improvement is evident when consideration is given to the quarter over quarter change in de-seasonalised real GDP. The BOJ governor contended that “using this measure, the economy declined by 15.3 per cent in the June 2020 quarter relative to the previous quarter but grew by 8.3 per cent for the September quarter when compared with the June 2020 quarter.”

Governor Byles argued that the same pattern of improvement is evident in the labour market. The latest data released by STATIN, he pointed out indicated an unemployment rate of 10.7 per cent at October 2020, an improvement relative to the 12.6 per cent recorded at July 2020, but still up from 7.2 per cent recorded a year earlier. 


When account is taken of the seasonal patterns in employment, the BOJ governor asserted that “these statistics suggest that more than 40 thousand jobs were restored in the December quarter, following the COVID-19-related loss of close to 80,000 jobs in the September quarter.”

Loan growth, he said, has remained fairly resilient, with the stock of private sector loans and advances recording year-on-year growth of 11.5 per cent at November 2020 compared to growth of 16.5 per cent at February 2020. Although the pace of growth in loans has moderated, it remains above expectation in the context of the sharp fallout in economic activity, bolstered by continued demand for loans by businesses for working capital needs.

While the domestic financial system has also been impacted by the pandemic, it continues to remain resilient and sound. This is evidenced by deposit-taking institutions’ (DTIs) balance sheets showing that they are well capitalised and in compliance with prudent liquidity standards. 


Loan quality for the system, while naturally showing a small deterioration, remains well below our threshold. The BOJ is, however, keeping a watchful eye on the resolution of a substantial block of loans on moratorium.

The BOJ boss gave a commitment that the central bank will continue to take steps to ensure that the financial system remains adequately funded. He made reference to the BOJ’s request, which it received the commitment of Financial Holding Companies (FHCs) and DTIs to make only limited dividend distributions in May 2020 in an effort to encourage the preservation of DTIs capital in light of the pandemic.

Byles told financial and business journalists that in December 2020, this understanding was further strengthened with the DTIs agreeing not to declare or pay any dividend over the next two quarters until June 2021.

FHCs may declare dividends, however, the payment will be limited to shareholders owning 1 per cent or less of the outstanding shares in the FHC.

In concluding, Governor Byles expressed the view that, “the contraction in the Jamaican economy is past its worst and the outlook is for continued, albeit more gradual improvements in economic activity. Notwithstanding this improvement, the bank continues to project that, for the full 2020/21 fiscal year, real GDP will contract in the range 10 per cent to 12 per cent.” 


The BOJ further project that a partial rebound of at least four per cent in economic activity will commence in FY2021/22, and could possibly be as high as eight per cent if there is a strong recovery in tourism. This projected growth in FY2021/22 represents a first step in getting the economy back to levels of economic activity observed prior to the novel coronavirus pandemic, possibly in FY2022/23.

Turning to the foreign exchange market, the BOJ reported that overall inflows into the foreign exchange market have remained healthy. Between March 2020 and January 2021, daily purchases of US dollars by authorised dealers and cambios from end users averaged US$31.2 million, slightly lower than the average of US$33.4 million recorded last year.

Similarly, daily sales to end users averaged US$27.7 million over March 2020 to January 2021, slightly lower than the average of US$29.0 million a year earlier.

Governor Byles made the point that “where we identify temporary shortfalls in the market, we have intervened.” Total B-FXITT flash sale operations since the onset of the crisis in March 2020 has amounted to US$381.0 million.