September 1, 2022
The Bank of Jamaica (BOJ) shared that the country has adequate gross and net international reserves to finance its obligations, cushion against exogenous shocks, and address near to medium-term eventualities.
Addressing the BOJ’s digital quarterly media briefing on Friday August 19, Senior Deputy Governor, Dr Wayne Robinson, reported that the gross reserves total US$4.3 billion, representing 129 percent of the level deemed sufficient in accordance with the International Monetary Fund’s (IMF) measure of reserve adequacy.
Gross reserves measure the total value of foreign exchange and monetary gold reserves, special drawing rights, IMF reserve positions, and other assets denominated in dollars.
Dr Robinson further advised that the NIR was approximately US$3.7 billion as at August 17, 2022. The NIR reflects the difference between gross reserves and the country’s IMF loan debts.
Dr Robinson assured that while the total NIR is 6.7 percent below the level at the beginning of October 2021, when the Bank adopted a more stringent policy stance in relation to inflation “we have… more than sufficient reserves.”
He informed that the factors considered when determining the level of reserves deemed adequate are the quantity of foreign exchange needed as a cushion in the event of a fallout in export earnings due to adverse exogenous shocks, such as COVID-19; the amount that would be required to service the government’s external obligations; and the sum needed in the event of a sudden surge in capital outflows.
“So, when we are deciding what is an adequate level of reserves, the Bank uses the IMF’s measure of reserve adequacy, which takes into account all of these factors, and you’ll realise that it is broader than the commonly used measure of weeks of imports,” he said.
The deputy governor informed that over the last 10 months, between October 2021 and August 17, the Bank sold nearly US$1.5 billion directly to the market, via the BOJ Foreign Exchange Intervention Trading Tool (B-FXITT) window, and to the energy sector, specifically Petrojam and the Jamaica Public Service Company (JPS).
“We also provide foreign exchange to meet the Government’s external debt payments and other obligations, when needed,” he indicated.
Dr Robinson noted that the Central Bank also purchases foreign exchange from the market daily via its surrender requirements.
Under this arrangement, banks are required to sell 20 percent of their daily gross purchases to the BOJ, while 15 percent is derived from cambios.
“We purchased approximately US$2 billion… from the market. So, on net, we have bought approximately US$500 million,” the deputy governor indicated.
Dr Robinson said the reserves are also buoyed by inflows from the Government’s external borrowings, noting that just under US$300 million was derived from loans, mainly during the January to March 2022 quarter.
“But, also, we have had to make significant debt service payments on behalf of the government, running close to a little bit over US$1 billion, and this largely reflects a very large Eurobond maturity in the March quarter,” he pointed out.
The deputy governor maintained, however, that “when we look ahead to see what is happening in the Balance of Payments [and] what could happen to the various flows that I mentioned, we still expect that the reserves will remain above 100 per cent of the adequate level.”
“So, the bottom line is, although the reserves have declined, they are still adequate,” he added.
Dr Robinson underscored that the BOJ considers maintaining an adequate level of reserves as “one of the key pillars of underwriting and ensuring macroeconomic stability.”
“We just want to reassure Jamaica that as the guardians of the country’s savings, the Bank of Jamaica is fully cognizant of the need to maintain an adequate level of gross reserves, given our vulnerability to a myriad of shocks, and we will ensure that the reserves remain adequate,” he said.
Governor, Richard Byles, in his remarks, said the foreign exchange market has remained relatively stable “reflecting, in part, the actions taken by the Bank in response to the higher than targetted inflation.”
He said the bank projects that the gross reserves will continue to remain adequate in the medium-term.
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