Revenue collection in Grenada surpassed projections for the period January to June 2022 while real GDP growth is projected to reach 3.3% by year-end.
According to a mid-year review prepared by the Ministry of Finance, public finances improved in 2022 with revenue collections for the first 6 months exceeding the target and the comparable period of 2021 by $62.2Mn and $67.4Mn, respectively.
The improvement in revenue came on the back of the administration’s decision to remove the cap on freight and petrol, as this allowed revenue collection agencies to earn more than what had been projected in the 2022 Estimates of Revenue and Expenditure.
Notably, the recovery in the economy will continue to support revenues in the form of higher tax collection through wages due to higher employment, increased production, and consumption. Further, as the economy continues to recover, foreign direct investment should also improve bolstering economic output, as well as increasing foreign exchange inflow from pent-up tourism demand.
Further, a primary surplus including grants of $58.2Mn is estimated for 2022, surpassing the budgeted deficit of $34.2Mn while a modest overall deficit of $1.6Mn is estimated at the end of this year compared to a budgeted deficit of $97.9Mn.
The Bank of England told lawmakers that several pension funds were hours from collapse when it decided to intervene in the U.K. long-dated bond market last week.
The central bank’s Financial Policy Committee stepped in after a massive sell-off of U.K. government bonds — known as “gilts” — following the new government’s fiscal policy announcements on Sep. 23.
The emergency measures included a two-week purchase program for long-dated bonds and the delay of the Bank’s planned gilt sales, part of its unwinding of pandemic-era stimulus.
The plunge in bond values caused panic, particularly for Britain’s £1.5 trillion ($1.69 trillion) so-called liability-driven investment funds (LDIs). Long-dated gilts account for around two-thirds of LDI holdings.
Many LDIs are owned by final salary pension schemes, workplace pension plans popular in the U.K. that provide a guaranteed annual income for life upon retirement, based on the worker’s final or average salary.
Oil prices held near three-week highs on Thursday, Oct 6 after OPEC+ agreed to tighten global crude supply with a deal to cut production targets by 2 million barrel per day (bpd), the largest reduction since 2020.
Brent crude futures gained 15 cents, or 0.2%, to $93.52 per barrel by 1340 GMT after settling 1.7% up in the previous session.
S. West Texas Intermediate (WTI) crude futures rose 14 cents, or 0.2%, to $87.90 after closing 1.4% up on Wednesday, Oct 5.
The agreement between the Organization of Petroleum Exporting Countries (OPEC) and allies including Russia, a group known collectively as OPEC+, comes ahead of a European Union embargo on Russian oil and will squeeze supplies in an already tight market, adding to inflation.
For August 2022, output prices for producers in the Mining & Quarrying industry declined by 0.4%. Similarly, output prices for manufacturers declined by 0.6% for the second consecutive month.
The decline in the Mining & Quarrying industry was mainly attributed to a 0.4% fall in the index for the major group ‘Bauxite Mining & Alumina Processing’. There was also a decline in the index for the other major group, ‘Other Mining & Quarrying’, which moved down by 0.1%. Meanwhile, the decline in the Manufacturing Industry was attributed to the 2.8% decline in the index for the major group ‘Refined Petroleum Products’.
Overall, for the period August 2021 – August 2022, the index for the Mining & Quarrying industry increased by 3.2% primarily as a result of an upward movement of 3.0% in the index for the major group ‘Bauxite Mining & Alumina Processing’. The point-to-point index for the Manufacturing industry moved up by 19.6%, due to increases in the index for the major groups; ‘Refined Petroleum Products’ (50.0%), ‘Food, Beverages & Tobacco’ (14.7%), and ‘Chemicals and Chemical Products’ (8.8%).
The Government has decided not to complete the Bank of Bahamas’ rescue by injecting $167Mn in cash to replace a “promissory note” after efforts to recover the latter’s toxic commercial loans proved “trickier” than anticipated.
The Bahamas International Securities Exchange (BISX) listed institution’s 2022 full-year financial statements, released last week, revealed that the Government has instead agreed to a three-year roll-over or extension to the maturity of the note that had been due for repayment at end-August 2022.
Simon Wilson, the Ministry of Finance’s financial secretary, explained that it had proven “much more complex” than thought for the Bahamas Resolve to realise and sell the assets that were pledged as collateral to secure the Bank of the Bahamas’ previous delinquent commercial loans.
The Bahamas Resolve is the special purpose vehicle (SPV), created in 2014, to which the Bank of Bahamas’ toxic commercial credit was transferred to prevent the latter’s collapse and thus facilitate its rescue. To fill the gap created by the transfer, two promissory notes were injected into the bank’s balance sheet, worth $100Mn and $167Mn, respectively, in 2014 and 2018.
The latter was due for redemption or payout by the Government at end-August, which would have required the promissory note’s replacement with liquid cash provided by the Bahamian taxpayer - the final step in the bail-out. However, the Bank of Bahamas’ annual financial revealed: “The promissory note with a maturity date of August 31, 2022, was extended by three years to August 31, 2025, at 4% fixed interest rate with quarterly interest payments.”
The maturity extension will give Bahamas Resolve, in particular, as well as the Government extra time and breathing room to realise more funds from selling off the loan collateral. Previous projections have suggested that Bahamas Resolve could realise up to $67Mn from these secured assets, which would substantially reduce the Government and taxpayer’s liability to the Bank of Bahamas down to around $100Mn.
As part of the Government’s efforts to alleviate the impact of external shocks on the Grenadian population, Cabinet has approved the adjustment of freight in the calculation of duties and taxes on imported goods to reflect 2019 freight costs.
The freight cap will be applied to the importation of all goods landed in Grenada during the period 1 October 2022 to 31 March 2023. The implementation of the cap will see only minor changes in the current processes of Customs Brokers and Importers, who will follow existing processes in preparing the customs declaration.
For commercial imports, there will be a requirement to identify freight actually paid on the Valuation Note of the Customs Declaration.
In the case of non-commercial imports, agents will input actual freight paid in the preparation of the Simplified Administrative Document (SAD). The Customs Computerised System, ASYCUDA World, will make the necessary adjustments and apply the reduced freight for the calculation of duties and taxes. All other clearance processes remain the same.
There are growing fears of a housing market crash in the U.K., after a swathe of tax cuts announced by the government sent interest rate expectations soaring, driving up lending rates for homebuyers.
Finance Minister Kwasi Kwarteng’s so-called mini-budget on Sept. 23 spooked markets with £45Bn ($50.5Bn) of debt-funded tax cuts, triggering a massive spike in government bond yields. These are used by mortgage providers to price fixed-rate mortgages.
The Bank of England responded to the market mayhem with a temporary purchase program of long-dated bonds, which brought some fragile stability to the market. However, Oxford Economics Chief U.K. Economist Andrew Goodwin suggested that there could be more pain ahead — particularly when it comes to the housing market.
Oxford Economics estimates that if interest rates remain at the levels currently being offered, house prices are approximately “30% overvalued based on the affordability of mortgage payments.”
A number of banks suspended mortgage deals for new customers, and many have now returned to the market with significantly higher rates.
Looking ahead, whether the fixed rates on mortgages remain elevated or begin to moderate will depend on the trajectory of interest rate expectations. These have come off previous highs of over 6% after the government U-turned on its plan to scrap the top rate of income tax, but analysts do not expect this to quell the market’s skittishness.
Canadian economists are scrambling for a reliable measure to track underlying inflation as large and frequent revisions have dented the credibility of a key Bank of Canada yardstick, even as the central bank said it was sticking with its core measures.
Canada's central bank has three preferred measures of core inflation - CPI-common, CPI-median and CPI-trim. CPI-common once touted as the best gauge of the economy's performance has been subject to repeated revisions since the start of this year.
Those same revisions show that price moves originally identified as transitory turned out not to be transitory at all, highlighting the measure's ineffectiveness when prices rise rapidly and calling into question its value, said analysts.
With CPI-common's usefulness now in question, and the odds of a recession rising, the central bank should be taking a hard look at how it tracks core inflation, said analysts.
"The Bank's challenge is walking the extremely fine line between tightening enough to get inflation back to target while not tightening so much that it causes a major recession," said Stephen Brown, senior Canada economist at Capital Economics.
Some analysts say the Bank of Canada should return to CPIX or simply track how many index components are rising more quickly than the 2% target.
The Bank of Jamaica (BOJ) continues its series of policy rate hikes by increasing its policy rate to 6.50% from 6.00% as at September 29, 2022, which represents the 10th consecutive rate hike since a similar period last year.
At its meetings on September 27th and 28th, the Monetary Policy Committee (MPC) noted that, while the key drivers of inflation and other economic indicators are trending in the right direction, conditions have not sufficiently solidified to ensure that inflation is sustainably on a downward path.
This higher rate will filter through to make credit more expensive, which should temper investments and consumer demand. Further, the MPC noted that the pace of monetary tightening among Jamaica’s main trading partners such as the US has accelerated. This more aggressive stance by the US in particular could result in US dollar assets becoming more attractive relative to those denominated in Jamaican dollars.
This could cause capital outflows, prompting a faster pace of exchange rate depreciation and, consequently, a derailment of the Bank’s efforts to manage inflation. Therefore, to mitigate these risks and to facilitate a return of inflation to the target range in the shortest possible time, the MPC unanimously agreed to further increase the policy rate to 6.50%.
The International Monetary Fund (IMF) predicts that with the rapid pace of oil production in the Stabroek Block, Guyana is expected to grow by 57.8% in 2022. In light of the extent to which oil accounts for this, the financial institution urged that there be greater efforts towards addressing institutional weaknesses and the diversification of the economy.
The IMF Directors noted that the country’s oil production has increased significantly and Gross Domestic Product (GDP) for oil is expected to grow over 100% in 2022 (with just two ships in operation), and about 30% on average per year during 2023-26.
It was also noted that Guyana’s commercially recoverable petroleum reserves are expected to reach over 11Bn barrels, one of the highest levels per capita in the world. That said, the magnitude of the oil wealth could help Guyana build up substantial fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs.
Nevertheless, considering the potential challenges related to volatility in global oil prices and effective management of natural resources, the Agency highlighted the need for continued prudent policies and structural reforms to avoid the build-up of macroeconomic vulnerabilities.
