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by Dennise Williams
Friday, April 13, 2007
Financial analysts this week predicted that a feel-good, election budget was what minister of finance and planning Dr Omar Davies would present to the country yesterday.
However, one public policy analyst expected that the budget would have very little benefit for the Jamaican people.
"The feeling from the investing community is that because it is an election year there won't be any shocking things to occur in the budget," said Vernon James, head of the stockbroking division of Dehring Bunting & Golding. "It will be a feel-good budget, so to speak, to kind of assuage the public coming into the election."
Today's Money Ltd chairman Orville Johnson said, "I don't expect any new taxes".
What the investment community is focused on are the after-effects of the budget. Mark Croskery, deputy general manager of Stocks and Securities Limited, explained, "I do not expect the budget to have a major impact on our markets as it might have years ago. With this year being an election year, this is where the emphasis is currently in the minds of investors.
The view is that later on, after the election, some level of belt tightening will have to occur and maybe even another different tax package. Why? At some point in time, the fiscal numbers have to come back in line. I don't know how Davies can reduce expenditure without raising revenue. So later, a much more realistic adjustment will be made to the current budget."
Johnson saw the Government stepping up its tax collection efforts to raise revenue. "I expect the Government to focus on collecting taxes and improving the efficiency of the tax collection department," he said. "Last year, the collection was up 17 per cent. I think the Government will be banking on strategies of negotiation, that is a more soft approach to get people to come in and make payment. And they will hope that the economy continues on its growth path, which grows revenues."
International rating downgrade
Earlier this month, Bear Stearns downgraded its market perform to an under-perform recommendation on Jamaican bonds. The decision was taken, Bear Stearns said, because it did not expect "any positive surprises coming out of the budget debate".
The impact of the budget on Jamaica's standing in the international capital markets has gained the attention of the analysts.
According to James, "The downgrade will have a negative effect on bond prices, and it could make it more difficult for the Government to raise money, especially because of the fiscal performance. Bond prices will fall off but they are very resilient and Jamaica has been downgraded before. The Government will have to make tough decisions to get fiscal numbers back in line."
Croskery added, "When estimates were announced in February and it was clear that the Government was going to miss the numbers again or not balance the budget, the markets, local equities and Government of Jamaica Global Bonds, did not flinch or react negatively to this as one would have thought. What does this mean? Possibly that the local market has become used to this over the past three to four years, and expects business to carry on as usual regardless."
According to Johnson, "Not having achieved fiscal targets is still an issue for the Government to deal with. This year, there were no hurricanes, no major drought, flood, there were good inflation numbers, and so missing the fiscal numbers looks bad. That is going to be a challenge as to when we are going to get to the stage of balancing the budget. The longer you put that away, the more difficulty you are in because the debt is so high."
China syndrome
The Government pre-funded the budget in March by borrowing US$350 million on the capital markets. Johnson noted that with this money in government's coffers, the administration need not make any substantive changes to the budget because of the international credit rating downgrade.
Davies, on March 25, stated that recent pressure on the Chinese stock market made it necessary to borrow the US$350-million before it was actually needed. "In weighing all things, although we would have more difficulty, all other things being equal, all other things are not necessarily equal if China catches a cold," Davies told Parliament. "So what we had to decide is whether we should make double certain and borrow in advance."
Public policy and development analyst Anthony Woodburn insisted that Davies was seeking to capitalise on the international carry trade benefit. "Jamaica is such a small player in the international capital market that what happens in China would not produce a blip to investors looking at Jamaican bonds," he said.
What is of concern is the prospect of an interest rate increase by the Bank of Japan.
"There is talk that the Japanese interest rates are to increase shortly from the current two per cent, so capital market players are seeking to quickly use financial arbitrage," said Woodburn. "A lot of money is flooding the international capital markets before Japanese interest rates rise in August or September."
Jamaican development
Woodburn argued that the budget's purpose would be to satisfy international interests and not the development of Jamaicans. "In terms of the budget, I am not expecting to see the level of development that one would crave for," he said. "There is no long-term strategy. We are not seeing the kind of expenditure in human development - health, education and infrastructure."
Woodburn cautioned against thinking that highway building equates to infrastructure. "Yes, we are going to build highways, but what are they carrying? They are carrying imported goods from developed countries to our country.
Yet those same containers are not taking out our exports to the developed countries. So in terms of the budget, what are you proposing to enhance the development of the people in Jamaica? That is what Davies must talk to me about. If they are not going to talk about that, then there is nothing in the budget for the Jamaican people."
Friday, April 13, 2007
Financial analysts this week predicted that a feel-good, election budget was what minister of finance and planning Dr Omar Davies would present to the country yesterday.
However, one public policy analyst expected that the budget would have very little benefit for the Jamaican people.
"The feeling from the investing community is that because it is an election year there won't be any shocking things to occur in the budget," said Vernon James, head of the stockbroking division of Dehring Bunting & Golding. "It will be a feel-good budget, so to speak, to kind of assuage the public coming into the election."
Today's Money Ltd chairman Orville Johnson said, "I don't expect any new taxes".
What the investment community is focused on are the after-effects of the budget. Mark Croskery, deputy general manager of Stocks and Securities Limited, explained, "I do not expect the budget to have a major impact on our markets as it might have years ago. With this year being an election year, this is where the emphasis is currently in the minds of investors.
The view is that later on, after the election, some level of belt tightening will have to occur and maybe even another different tax package. Why? At some point in time, the fiscal numbers have to come back in line. I don't know how Davies can reduce expenditure without raising revenue. So later, a much more realistic adjustment will be made to the current budget."
Johnson saw the Government stepping up its tax collection efforts to raise revenue. "I expect the Government to focus on collecting taxes and improving the efficiency of the tax collection department," he said. "Last year, the collection was up 17 per cent. I think the Government will be banking on strategies of negotiation, that is a more soft approach to get people to come in and make payment. And they will hope that the economy continues on its growth path, which grows revenues."
International rating downgrade
Earlier this month, Bear Stearns downgraded its market perform to an under-perform recommendation on Jamaican bonds. The decision was taken, Bear Stearns said, because it did not expect "any positive surprises coming out of the budget debate".
The impact of the budget on Jamaica's standing in the international capital markets has gained the attention of the analysts.
According to James, "The downgrade will have a negative effect on bond prices, and it could make it more difficult for the Government to raise money, especially because of the fiscal performance. Bond prices will fall off but they are very resilient and Jamaica has been downgraded before. The Government will have to make tough decisions to get fiscal numbers back in line."
Croskery added, "When estimates were announced in February and it was clear that the Government was going to miss the numbers again or not balance the budget, the markets, local equities and Government of Jamaica Global Bonds, did not flinch or react negatively to this as one would have thought. What does this mean? Possibly that the local market has become used to this over the past three to four years, and expects business to carry on as usual regardless."
According to Johnson, "Not having achieved fiscal targets is still an issue for the Government to deal with. This year, there were no hurricanes, no major drought, flood, there were good inflation numbers, and so missing the fiscal numbers looks bad. That is going to be a challenge as to when we are going to get to the stage of balancing the budget. The longer you put that away, the more difficulty you are in because the debt is so high."
China syndrome
The Government pre-funded the budget in March by borrowing US$350 million on the capital markets. Johnson noted that with this money in government's coffers, the administration need not make any substantive changes to the budget because of the international credit rating downgrade.
Davies, on March 25, stated that recent pressure on the Chinese stock market made it necessary to borrow the US$350-million before it was actually needed. "In weighing all things, although we would have more difficulty, all other things being equal, all other things are not necessarily equal if China catches a cold," Davies told Parliament. "So what we had to decide is whether we should make double certain and borrow in advance."
Public policy and development analyst Anthony Woodburn insisted that Davies was seeking to capitalise on the international carry trade benefit. "Jamaica is such a small player in the international capital market that what happens in China would not produce a blip to investors looking at Jamaican bonds," he said.
What is of concern is the prospect of an interest rate increase by the Bank of Japan.
"There is talk that the Japanese interest rates are to increase shortly from the current two per cent, so capital market players are seeking to quickly use financial arbitrage," said Woodburn. "A lot of money is flooding the international capital markets before Japanese interest rates rise in August or September."
Jamaican development
Woodburn argued that the budget's purpose would be to satisfy international interests and not the development of Jamaicans. "In terms of the budget, I am not expecting to see the level of development that one would crave for," he said. "There is no long-term strategy. We are not seeing the kind of expenditure in human development - health, education and infrastructure."
Woodburn cautioned against thinking that highway building equates to infrastructure. "Yes, we are going to build highways, but what are they carrying? They are carrying imported goods from developed countries to our country.
Yet those same containers are not taking out our exports to the developed countries. So in terms of the budget, what are you proposing to enhance the development of the people in Jamaica? That is what Davies must talk to me about. If they are not going to talk about that, then there is nothing in the budget for the Jamaican people."
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