Economic developments since the circulation of the Staff Report to the Board are positive requiring no change in the thrust of the staff appraisal. The program remains on track with domestic interest rates continuing to decline along with inflation and spreads on international bonds, the foreign market-funding target for 2001/02 secured in the first quarter of the year with net international reserves rising, and further progress achieved on privatization of intervened financial institutions. Developments include:
The government has secured the planned US$400 million in foreign financing from the international capital markets for the fiscal year 2001/02. After having issued a ten-year U.S. dollar bond of US$275 million yielding 12 percent in early May (at a spread of 671 basis points over comparable U.S. Treasury bonds) the government increased the size of the issue by US$125 million on May 23, at a yield of around 11½ percent (and a spread of 650 basis points) following favorable market conditions. While this breaches their end-June and end-September borrowing limits under the SMP, it represents a bringing forward of borrowing planned later in 2001/02 and is in line with the limit for the year as a whole.
Domestic interest rates have continued to decline, with the yield on the six-month treasury bill falling by 1 percentage point in May to 15½ percent by May 22. The Bank of Jamaica reduced its reverse repo rates by around 1 percentage point, with the 30-day rate now at 14¾ percent. The authorities have commenced preannounced monthly auctions of local registered securities, with the mid-May auction results showing 12-year securities yielding 17¼ percent (subject to a 25 percent withholding tax on interest).
The 12-monthly inflation rate declined to 5.8 percent as of end-April, compared to 6.4 percent as of end-March 2001 with the April inflation rate 0.4 percent compared to 0.5 percent for March 2001.
During the fiscal year 2000/01—through March 2001—the real effective exchange rate remained broadly constant. The foreign exchange market has been broadly stable in May, with limited net sales of foreign currency by the central bank following the issuance of the U.S. dollar bond. The Jamaican dollar was trading at about J$45.75 per U.S. dollar as of May 23.
Net international reserves were US$1.5 billion as of May 23, 2001, US$0.2 billion above the end-March level.
FINSAC announced on May 18 the sale of the government’s 76 percent shareholding in Life of Jamaica to a group led by Barbados Mutual Life. FINSAC will receive J$2.1 billion (US$46 million, 0.5 percent of GDP). The new owner is expected to capitalize the company for between US$25-35 million.
On May 22, the Jamaican authorities submitted to Parliament a White Paper on the Reform of the Pensions System which, inter alia, proposes that pension funds be supervised by the newly created Financial Services Commission.