Jamaica’s trade performance in 2018: A widening trade deficit
By Elizabeth Morgan
A trade deficit or negative balance of trade occurs when the value of imports of goods and services (amount being spent) exceeds the value of exports of goods and services (income earned). This excess expenditure has to be met from other resources (savings/reserves), aid (development support), loans, etc.
It has been stated repeatedly that, as a small, open economy, achieving robust, sustained economic growth in Jamaica depends a lot on the country’s performance in international trade (export and import of goods and services). I have also pointed out in articles that full implementation of the United Nations Sustainable Development Goals (UN SDGs) will depend more on Jamaica’s ability to earn from international trade than from donor financing for development support.
Over the last 10 years Jamaica has sought to improve macro-economic stability focused on reducing the debt-to-GDP (gross domestic product) ratio and the current account-to-GDP ratio. In this regard, we need to place more emphasis on improving our trade performance in the export of goods and services. You should note that trade performance cannot be properly assessed by only focusing on merchandise (goods) trade. Services trade must also be examined.
In an article in the Sunday Gleaner of December 16, 2018, Dr Andre Gordon looked at the ‘Prospects for Export-led Growth in Jamaica’, and made the point that the only lever Jamaica has to drive significant and sustained increases in growth above the anaemic one per cent to two per cent is through increases in net exports. He concluded that Jamaica needs a central strategy for a significant and sustained expansion in net exports. Dr Gordon omitted to mention the launch in October 2018 of the National Foreign Trade Policy. He could be forgiven for overlooking this policy as it got so little press coverage.
Trade in goods
In August 2018 the Statistical Institute of Jamaica (STATIN), in a press release, reported that Jamaica’s overall deficit on merchandise (goods) trade had worsened by 9.4 per cent for the review period, January to June, as spending on imports had increased. I noted that this press release received minimal media coverage. There seemed to be little interest in the widening trade deficit.
On December 31, 2018 STATIN issued another press release for the period January to October 2018. In this release, STATIN reported that Jamaica’s overall trade deficit for the period was US$3.5 billion, a 2.4 per cent increase over the comparable period in 2017. Expenditure on imports was US$5 billion, a nine per cent increase over the same period in 2017. Total exports were valued at US$ 1.4 billion for the period, an increase of 29.6 per cent over the 2017 period. The increase in exports is positive, but it hardly put a dent in the overall merchandise trade deficit.
In the breakdown of bilateral trade, the sparse media coverage of the press release focused on the increase in the deficit with CARICOM. STATIN had also pointed out that imports from Jamaica’s primary trading partner, the USA, had increased by 10.8 per cent, while exports increased by 10.3 per cent. For the 2018 period, however, the trade deficit with the USA had actually increased by 10.9 per cent over 2017.
Jamaica used to have a consistent trade surplus with the European Union (EU), including with the United Kingdom (UK), and with Canada. For a number of years the surplus with the EU has become a deficit. For the 2018 review period, Jamaica recorded a trade deficit with the EU of US$215.1 million. Imports and exports increased over 2017. Jamaica also recorded a trade deficit with the UK. Exports to the UK declined over 2017, while imports increased. Jamaica continues to have a surplus with Canada.
For CARICOM, STATIN reported that the trade deficit increased by US$351.3 million, with imports increasing by 20.7 per cent and exports decreasing by 5.9 per cent over the 2017 period. On imports, it should be recalled that exports of oil products from Venezuela declined and had to be replaced from other sources.
For me, the important information is the increase in Jamaica’s trade deficit with the world and the low level of exports to all trading partners, in spite of increases registered. Jamaica has not recovered ground lost in exports from previous years. In the 1990s, for example, the gap between earnings from exports and imports was quite narrow.
Trade in services
As I stated, in assessing trade performance, it is necessary to look at international trade in services which include tourism (travel and leisure), transport, financial services, cultural services (entertainment/sports), education, and business process outsourcing (BPO), etc. Tourism is the main service traded by Jamaica.
In a previous article, I noted that Jamaica is increasingly a services economy with services overall contributing about 70 per cent to the GDP. However, statistics for international trade in services are only collected for the balance of payments (BOP). Services trade is not recorded in the same detail as is goods trade. It cannot be broken out by trading partner and specific services except for tourism. The private sector needs to be more supportive of the work being done by STATIN and Bank of Jamaica (BOJ) to collect and analyse services data.
The BOP summary from the International Monetary Fund (IMF) shows Jamaica’s net earnings from services in fiscal year 2016/2017 was US$1.01 billion and the estimated net earnings for 2017/2018 is US$1.2 billion. Tourism contributed US$2.6 billion for 2016/2017 and US$2.9 billion for 2017/2018. Due to tourism receipts, Jamaica has a surplus in trade in services.
However, in the total trade in goods and services the surplus in services does not come close to bridging the gap with the deficit in goods. Thus Jamaica has an overall trade deficit.
So, while in 2018 there was an increase in export of goods, in tourist arrivals, and BPO activities, as Dr Andre Gordon said in his article, Jamaica needs to make a more concerted effort to further increase exports of both goods and services to realise a strong increase in the growth rate that would be in the region of four per cent to five per cent per annum.
This is dependent on a number of factors, including the outlook for expansion of international trade in 2019 and Jamaica’s ability to increase investments, diversify exports, add value, increase production, and compete in global markets.
Elizabeth Morgan is a specialist in international trade and politics.