Gross reserves total US$4.3 billion, representing 129 per cent of the level deemed sufficient

Durrant Pate/Contributor

The Bank of Jamaica (BOJ) is trumpeting 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.

Jamaica’s gross reserves total US$4.3 billion, representing 129 per cent 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.

Jamaica’s Net International Reserves (NIR) totalled US$3.7 billion as at August 17, 2022. The NIR reflects the difference between gross reserves and the country’s IMF loan debts.

NIR dips but still healthy

BOJ Senior Deputy Governor Dr Wayne Robinson points out that the total NIR is 6.7 per cent below the level at the beginning of October 2021, when the Central Bank adopted a more stringent policy stance in relation to inflation. However, he boasted, “we have more than sufficient reserves … . So, the bottom line is, although the reserves have declined, they are still adequate”.

Addressing the BOJ’s digital quarterly media briefing recently, Robinson informed that the factors considered when determining the level of reserves deemed adequate includes 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. This, is in addition to 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.

According to the BOJ senior deputy governor, “when we are deciding what is an adequate level of reserves, the BOJ uses the IMF’s measure of reserve adequacy, which takes into account all of these factors, and you’ll realize that it is broader than the commonly used measure of weeks of imports”.

He underscored that the BOJ considers maintaining an adequate level of reserves as “one of the key pillars of underwriting and ensuring macroeconomic stability”.

Said Robinson: “We just want to reassure Jamaica that as the guardians of the country’s savings, the BOJ 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.”

B-FXITT operations

The deputy governor told the audience of mostly business journalists and financiers that over the last 10 months, between October 2021 and August 17, the BOJ sold nearly US$1.5 billion directly to the market, via its Foreign Exchange Intervention Trading Tool (B-FXITT) window, and to the energy sector, specifically Petrojam and the Jamaica Public Service Company (JPS).

BOJ 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.