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Page 6

2016-2017 JAMAICA BUDGET STATEMENT II

DETAILS OF REVENUE AND LOAN RECEIPTS

JAMAICA INFORMATION SERVICE

1 Sales of Publications and Advertising (50% of Gross Receipts) 0 0

2 Public Relation Fees (50% of Gross Receipts) 0 0 3 Printing Services (50% of Gross Receipts) 0 0

4 Radio Programmes (50% of Gross Receipts) 0 0 5 Editorial Revenue (50% of Gross Receipts) 0 0 6 Television Revenue (50% of Gross Receipts) 0 0 7 Administration (50% of Gross Receipts) 0 0 8 Computer Services and Research Services (50% of Gross

Receipts) 0 0 9 Regional Services (50% of Gross Receipts) 0 0

10 Photography Services (50% of Gross Receipts) 0 0

TOTAL - JAMAICA INFORMATION SERVICE 0 0 - - 0

TOTAL - OFFICE OF THE PRIME MINISTER AND DEPARTMENTS 16,952,568 1,000,000 35,676,414 1,400,000 (34,276,414)

OFFICE OF THE CABINET

3,847,635 1 Miscellaneous Receipts 6,300 100,000 11,195 20,000 8,805

TOTAL OFFICE OF THE CABINET 3,853,935 100,000 11,195 20,000 8,805

MINISTRY OF TOURISM & ENTERTAINMENT

1 Fees - Travel Agencies Registration Act 90,500 0 0 2 Fees - Registration of Clubs Act 545,500 0 0 3 Miscellaneous Receipts 30,000 9,968 20,000 10,032

TOTAL - MINISTRY OF TOURISM & ENTERTAINMENT 636,000 30,000 9,968 20,000 10,032

MINISTRY OF FINANCE AND PLANNING

1 Fees - Banking Licence Registration 1973 149,747,621 175,855,590 82,597,595 196,531,350 113,933,755

2 Profits on Government owned Companies - Dividends and Financal Distribution 13,846,010,500 13,627,000,000 16,527,456,703 15,535,304,003 (992,152,700)

3 BOJ Profits 0 0 4 Sale of Unserviceable Stores 33,046,013 34,969,340 16,388,108 34,969,340 18,581,232 5 Sale of Gazettes 1,263,145 1,279,970 232,950 1,800,000 1,567,050

6 Fees - Scotia Bank Jamaica Economic Growth Fund 0 0 7 Provident Fund 51,043,385 50,617,210 7,665,384 15,850,000 8,184,616 8 Fees - FIA Licence Registration 5,502,025 6,301,060 10,156,534 6,841,540 (3,314,994) 9 Fees - Building Societies 21,484,711 25,955,690 0 51,190,610 51,190,610

10 Sale of Forfeited goods - F I D 2,041,425 35,316,000 282,493 35,316,000 35,033,507 11 Cash Seized and Forfeited 357,972,028 107,523,950 260,203,994 408,523,950 148,319,956 12 Miscellaneous Receipts 4,844,539 156,227,700 1,300,414,445 40,000,000 (1,260,414,445) 13 Forfeiture of loan Agreement (MDB) 1,423,045 6,000,154

TOTAL - MINISTRY OF FINANCE AND PLANNING 14,472,955,392 14,221,046,510 18,206,821,250 16,332,326,947 (1,879,071,412)

ACCOUNTANT GENERALS DEPARTMENT

1 Pension Contributions: Widows and Orphans 753,823,073 856,228,000 945,634,479 1,006,155,085 60,520,607

2 Pension Contributions: Members of the Legislature 8,953,994 14,121,608 7,471,844 7,950,042 478,198

3 Pension Contributions: Other Government Authorities for Seconded Officers 5,586,457 5,094,952 2,875,203 3,059,216 184,013

4 Registration of Jamaica Investment Capital Growth Funds 0 0 0 5 Fees on Government Guaranteed Loans 0 0 0 6 Recovery of Pension and Salary 83,545,590 24,795,428 7,241,531 15,541,284 8,299,754 7 Chancery Fund Commission 451,869 701,780 499,069 531,009 31,940 8 Sale of Receipt books 1,791,000 2,135,777 2,050,292 2,181,510 131,219

9 Executive Agency Investment Fund Management Fees 25,000 0 0 0 10 Recovery of Prior Years Expenditure 302,183 283,321,746 301,454,337 18,132,592 11 Processing Fees - salary deduction 2,148,105 2,932,079 2,184,845 2,324,675 139,830 12 Miscellaneous Receipts 355,188,132 330,312,085 117,686,562 125,218,502 7,531,940

TOTAL - ACCOUNTANT GENERALS DEPARTMENT 1,211,790,403 1,236,346,709 1,368,965,570 1,464,415,662 95,450,092

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June 12, 2021


Page 19

Medium-Term Debt Management Strategy FY2020/21-FY2023/24 10 | P a g e

3.1 Interest Cost

Table 2 depicts a weighted average interest cost of 5.9 percent for Central Government debt at

end-December 2019, which represented a 0.2 percentage point reduction when compared to

end-March 2019. The reduced interest cost was attributed to a 0.1 percentage point reduction in

both the domestic and external portfolios. This lower borrowing cost was driven by the

accommodative monetary policy stance of the Federal Reserve (FED) and the BOJ, as well as

high levels of domestic market liquidity and increased investor demand for GOJ securities during

the review period.

Domestic fixed-rate bonds were the most costly instruments with an average interest cost of

8.6 percent at end-December 2019. The average interest cost on domestic variable-rate bonds

was 6.5 percentage points lower than domestic fixed-rate bonds. Global fixed-rate bonds were

the second most expensive cost drivers for the debt portfolio with an average interest cost of

7.8 percent. Fixed-rate multilateral/bilateral loans were the least costly instruments in the

external portfolio with an average interest cost of 2.3 percent, approximately 0.4 percentage point

lower than variable-rate multilateral/bilateral loans (see Figure 3).

Figure 3: Weighted Average Implied Interest Costs by Instrument

Source: Ministry of Finance and the Public Service

3.2 Interest Rate Risk

Interest rate risk relates to changes in debt service costs resulting from variability in market

interest rates.3 A portfolio’s exposure to interest rate risk is usually determined by the share of

3 The 3-month T-bill rate and the US-Libor serve as reference rates for domestic and external debt, respectively.

8.6%

2.1% 2.3% 2.7%

7.8%

3.9%

FR BINs VR BINs FR Official Creditors VR Official Creditors

JAMAN Global Bonds

Commercial Bank Loans

Domestic External

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June 12, 2021


Page 20

Medium-Term Debt Management Strategy FY2020/21-FY2023/24 11 | P a g e

existing floating-rate debt and fixed-rate debt that falls due within 12 months and needs to be

rolled over.

Figure 4 highlights a downward trend in benchmark interest rates for the debt portfolio during

calendar year 2019. The BOJ reduced its policy rate four times, from 1.75 percent to its current

level of 0.50 percent per annum. This monetary easing was geared towards stimulating the

expansion of private sector credit in order to spur a higher level of economic activity. In an effort

to mitigate the potentially negative effects on the US economy from increased geopolitical

tensions, rising trade uncertainty and slowing global growth, the Fed reduced its policy rate three

times, cumulatively by 75 basis points (bps) during calendar year (CY) 2019. The policy actions

of both monetary authorities resulted in downward trends in the 3-month Treasury bill (T-bill)

rate and the 3-month US dollar Libor (see Figure 4). The 3-month T-bill rate was 1.32 percent in

December 2019, 95 bps lower than January 2019. This compared to an 87 bps reduction in the

3-month US Libor to 1.91 percent at end-December 2019.

Figure 4: Reference Rates for the Debt Portfolio

Source: Bank of Jamaica and the Federal Reserve Bank of St. Louis

There was general improvement in the portfolio’s exposure to interest rate risk, reflected in

increases in the average-time-to-re-fixing (ATR) and debt re-fixing within one year. The ATR

measures the weighted average time until all principal payments in the debt portfolio become

subject to a new interest rate. Over the review period, the ATR for Central Government debt

portfolio increased by 1.3 years from 8.5 years at end-March 2019 to 9.8 years at

end-December 2019. This was as a result of a 0.4 year and 1.8 years increase in the domestic and

external debt portfolios, respectively.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19

BOJ policy rate Eff Fed Rate 3-month T-bill 3-month US-Libor

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June 12, 2021


Page 100

Ministry of Finance and the Public Service Fiscal Policy Paper 2021 Page 100

FY 2021/22 there is a 50.0% probability that the real GDP growth outturn will be between 2.9% and 7.5%. Figure VII (c): Fan Chart Showing Real GDP Growth Uncertainty

Source: BOJ, MOFPS Box VII (a): Depiction of Uncertainty Surrounding Baseline Real GDP Growth Forecast

The relationship between tax revenue and nominal GDP can be measured using tax buoyancy, where a buoyancy of 1.0 suggests that a 1.0% increase in GDP would result in a 1.0% increase in tax revenue. Buoyancy greater than 1.0 would result in a more than proportionate increase, whereas buoyancy less than one would lead to a less than proportionate increase in tax revenue. Figure VII (d) shows buoyancy estimates for the period FY 2010/11 to FY 2019/20 and the average estimate for the period. The average buoyancy of 1.3 suggests that where nominal GDP increases (decreases) by 1.0%, tax revenue is expected to increase (decrease) by 1.3%. This result was used to inform a shock scenario in which nominal GDP growth for FY 2021/22 is 2.0 percentage points lower than projected (see Figure VII (e)). In the year of impact (FY 2021/22) tax revenue would fall by $13,231.07 million or 2.3% relative to the baseline.

-12.0

-8.0

-4.0

0.0

4.0

8.0

12.0

16.0

-12

-8

-4

0

4

8

12

16

Y- O

-Y P

er ce

nt C

ha ng

e in

R ea

l G DP

min (95%) low (90%) low (80%) low (70% low (60%) low (50%) high (50%)

high (60%) high (70%) high (80%) high (90%) Max (95%) Midpoint

The solid line in Figure VII (c) shows actual fiscal year Real GDP growth for the 3-year period from FY 2017/18 through to FY 2019/20 and the estimated growth for FY 2020/21, while the broken line represents the 4-year medium-term baseline projections (from FY 2021/22 to FY 2024/25). The fan chart utilises the standard deviation of the forecast errors to determine the spread of the fan opening around the projected baseline values at different confidence levels. The blades nearest the centre of the fan chart in dark green define the range of projections corresponding to a 50.0% probability of occurrence, based on historical outturns. As the probability of occurrence increases, the colour is progressively less saturated and the spread between the maximum and minimum values rise.

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June 12, 2021


Page 102

Ministry of Finance and the Public Service Fiscal Policy Paper 2021 Page 102

Figure VII (f): Annual Point to Point Inflation Projections vs Actual Outturns

Source: STATIN, BOJ, MOFPS

Note: Projections and actual outturns read in percentage and forecast errors read in percentage point. Interest Rates The Government’s exposure to changes in interest rates is measured by the share of variable rate, and near to maturity fixed rate debt in the debt portfolio. In an effort to reduce this risk, the GOJ’s debt management strategy features the issuance of mainly fixed-rate debt instruments. At end-December 2020, the share of variable-rate debt in the GOJ’s portfolio was 27.2 percent, a 4.2 percentage point reduction from end-March 2020 (see Table VII (b)).

Table VII (b): Interest Rate Composition of Debt Stock

end-March 2020

end-December 2020

Change

Domestic Debt 36.1 23.9 (12.2)

External Debt 28.5 29.1 0.6

Total Debt 31.4 27.2 (4.2)

Source: MOFPS The 3-month Treasury Bill rate and the 3-month USD LIBOR are the reference rates primarily used to reset interest rates on the variable rate portion of the domestic and external debt portfolios, respectively. The onset of the COVID-19 pandemic has led to the US Federal Reserve (Fed) reducing the federal funds rate by a total of 150 basis points during the 2020 calendar year, in an effort to stimulate economic activity. This accommodative monetary policy action has influenced a decline in the 3-month USD LIBOR rates which fell by 87 basis points to end the calendar year at 0.23 percent (see Figure VII (g)). In the domestic market, the Bank of Jamaica (BOJ) has maintained its policy rate at 0.50 percent since August 2019. This has supported a reduction in the cost to service domestic debt, with the 3-month Treasury bill rate falling from 1.25 percent in January 2020 to 0.77 percent in December 2020 (see Figure VII (h)).

-2.0

0.0

2.0

4.0

6.0

8.0

FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Pe

rc en

t ( %

)/ Pe

rc en

ta ge

P oi

nt

(p p)

Forecast Error Projection Actual

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June 12, 2021


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