Sat | Dec 3, 2022

Clarke tells investors not to worry about inflation

Published:Friday | January 14, 2022 | 12:06 AM

Finance Minister 
Dr Nigel Clarke.
File Finance Minister Dr Nigel Clarke.

Minister of Finance Dr Nigel Clarke is downplaying inflation concerns, as the market begins to weigh the expected impact on investment decisions and returns. “I do not believe that inflation ought to be a long-term concern,” Clarke said on...

Minister of Finance Dr Nigel Clarke is downplaying inflation concerns, as the market begins to weigh the expected impact on investment decisions and returns.

“I do not believe that inflation ought to be a long-term concern,” Clarke said on Wednesday at the regular Mayberry Investor Forum, in answer to a query posed by the brokerage, which plans to spend at least US$20 million on new investments.

Chairman of Mayberry Investments Limited Christopher Berry did not disclose the asset classes the company plans to target, but expressed concern about inflation and growth.

“In our group that we lead, we are planning US$20 million to US$50 million worth of investments this year, so we want to have your perspective on where Jamaica is right now. Are you more concerned about growth or inflation now?” said Berry in his query to Clarke, who described the question as a false dichotomy before responding.

Higher importation and food prices are driving inflation, which was estimated at 7.8 per cent over 12 months to November. That’s well above the target inflation range of 4.0 to 6.0 per cent, but Clarke, citing central bank technocrats, says he expects inflation to “cool” by the fiscal year end in March.

The annual inflation rate in November was down 70 basis points from October, when the out-turn was 8.5 per cent. However, the Bank of Jamaica, BOJ, has said it does not expect inflation to return to the target range until around midsummer, that is, within the third calendar quarter of 2022.

To help cool inflation, BOJ has been raising interest rates — moving the policy rate from its historic 0.5 per cent low to 2.5 per cent in three strides since last September.

In late 2021, domestic interest rates rose as a result, which has already led to brokerages, such as NCB Capital Markets, paying out higher returns to clients.

On Wednesday, Clarke said that moderate levels of growth in the next fiscal year could result in Jamaica achieving higher gross domestic product, GDP, than prior to the pandemic. That’s due to the “buoyant growth” this fiscal year, on track to hit 7.0 to 9.0 per cent.

“There is every indication that we are likely to achieve that level of economic output in the next fiscal year, and it would be a big deal,” the finance minister said.

Clarke remarked that Jamaicans usually see GDP growth as a record of past performance, having no practical usage, but asserted that they would have witnessed its benefits this year with the expansion of the budget from $831 billion to $867 billion, as captured in the First Supplementary Estimates in October, to $893 billion in the Second Supplementary Estimates released this week, on Tuesday.

“There was an increase of $62 billion in a year. That happened because there was growth in the economy,” said Clarke.

Clarke’s comment implies that the Jamaican Government is spending more because it has a bigger economy to sustain. It comes within the context of 5.8 per cent growth in the September quarter and historic growth rates that resulted from the ongoing recovery of the pandemic-decimated economy.

Historically, however, supplementaries or budget revisions have not always been driven by economic growth.

The finance minister also said at the Mayberry forum that Jamaica’s low interest rate regime has allowed entrepreneurs to finance the buildout of several high-rise complexes since the pandemic. Now, this mentality needs to be adopted by the productive sector, he said.

“We need a similar risk-taking attitude when it comes to building new factories,” Clarke said. “We can build a factory in the way we build a building. Our future will depend not only on policy, but the risk-taking attitude of our entrepreneurs.”

The Second Supplementary Estimates that Clarke tabled in Parliament on Tuesday reflected higher recurrent or operational expenditure and higher debt servicing costs, while the capital budget was unchanged.

To finance the latest additional spending, the Ministry of Finance is banking on $11.2 billion in additional revenue flows, and will tap $9.2 billion from cash resources. Additionally, the government will be borrowing $5.3 billion more.

The additional recurrent expenditure arises mainly from public-sector wage increases and COVID-19 compensation to health workers. Some 31 groups of public-sector workers concluded wage talks, with only two major groups outstanding: teachers and the police force. The supplementary budget also increased the allocation for COVID-19 health workers, who are working longer hours.