Yesterday, March 17, 2020, Dr. The Honorable Nigel Clarke, Minister of Finance and the Public Service, announced a ‘Fiscal Stimulus Response to the COVID-19’. Altogether, the fiscal measure will be about J$25 billion, which the Government will allocate in the following ways:
COVID Allocation of Resources for Employees (CARE)
- Business Employee Support and Transfer of Cash (BEST Cash) – this will provide temporary cash transfer to businesses in targeted sectors based on the number of employees they keep employed;
- Supporting Employees with Transfer of Cash (SET Cash) – this measure will provide temporary cash transfer to individuals subject to verification that they lost their jobs since March 10th (when the first COVID-19 case was announced);
- Special Soft Loan Fund to assist individuals and businesses that have been hard hit;
- Supporting the poor and vulnerable with special COVID related grants
The Minister also noted that BPO facilities will be allowed to relocate equipment to facilitate remote working. In addition to the special fiscal stimulus, recall that there is also the reduction in GCT from 16.5% to 15%, which will add about J$14 billion to consumers, and the J$1 billion MSME tax credit.
With enough volatility, manic and fear to go around, now more than ever, demands a deliberate and conscientious assessment of market realities and of the measures proposed to solve those issues. Consequently, we, at Barita, have asked ourselves, what do these proposed fiscal measures mean for the capital markets going forward? And, ultimately, what does it mean for our clients’ investments?
To answer those questions, we reflected on the lessons contained in a World Bank 2019 publication “A Decade after the Global Recession-Lessons and Challenges for Developing and Emerging Economies”. The World Bank argued that the biggest lesson any developing economy could learn coming out of the crisis ten years ago is “the importance of strengthening their economic ability to avoid or minimize the effects of adverse shocks and of having in place the policy room to act when such shocks inevitably occur” to accomplish that goal, three specific measures could be pursued:
- Rebuilding fiscal space
- Raising foreign reserves when they are insufficient
- Further strengthening policy frameworks
If the World Bank were Jamaica’s headmaster, then Jamaica would be a straight A student! Across successive political administrations, Jamaica made the very difficult decisions to implement all those necessary changes across all three measures itemized above: you probably have heard mention of many of those, from the independence of the Central Bank and establishment of a Fiscal council, to a serious reduction in Debt-to-GDP and our record non-borrowed Net International Reserves: It is because of those difficult decisions that Jamaica now has the ‘fiscal space’ to accommodate a J$25 billion spend to fight the COVID-19 shock, in addition to pursuing other expansionary fiscal measures, such as reducing the GCT rate.
So, what does this mean for my investments?
Economic shocks inevitably occur and will express themselves through volatile price movements: but, like driving, when you fall into a nasty pothole, it really helps when you have good shocks. Jamaica has built up its economic shock absorbers, which will enable the country to rebound much quicker from the COVID-19 shock, but most importantly, without little need for the Government to borrow/raise taxes, and thereby crowding-out private investments: the upshot is that the capital markets is likely to ramp-up its activity to the pre-COVID19 period.
Therefore, shrewd investors should:
- Remember their investment objectives
- Remember their investment horizons,
- Remember, do not make irrational decisions out of fear or panic: you have not realized a loss, until you sell.
We cannot know for sure how things will turn out even as Jamaica takes aggressive measures to reduce the COVID-19 community spread, and even as the USA begins to ramp-up its own fiscal interventions. Amidst the uncertainty, we must look for opportunities in companies with strong balance sheets (little debt or adequate debt coverage ratios, strong cash position etc), companies in sectors that are likely to pull-back the least, or which could benefit at this time. This COVID-19, like economic shocks before, has come only to pass, but this time, we are a bit more prepared.
Disclaimer: This review is for information purposes only. The information stated herein may reflect the opinion of the analyst. Any opinion, estimates or forecasts reflects judgment as at the date of the report in relation to available data and market conditions. This does not constitute any representation or warranties in relation to investment returns and the credibility of the sources of information relied upon in the preparation of this report, without further research and verification. The value of any securities or securities for any issuer referred to in this document may rise or fall for several reasons including but not limited to market conditions. Before making any investment decision, please consult an investment advisor at Barita Investment Limited