Making his contribution to the 2021/22 budget debate in parliament yesterday, Golding said “the devaluation of the Jamaican Dollar effectively operates as a tax on the purchasing power of the Jamaican people, the majority of whom live off a fixed Jamaican dollar income.”
“Madame Speaker, rice, flour, cooking oil, mackerel, medicine and other basic necessities of life that are imported into Jamaica have all gone up very substantially over this period, in large part because of this same devaluation that has resulted in these profits for the BOJ,” Golding proclaimed.
“Madame Speaker, this disproportionately hurts low-income people. Their wages have not kept pace with the rate of these increases. People with investable income can invest in assets (like real estate and shares) that increase in value as the currency weakens, but low-income Jamaicans have not been able to make those investments. They are suffering the full brunt of these massive price increases on the items they rely on to survive.
“In using this $17.9 billion from BOJ to fund the budget, the Government is essentially treating the devaluation as a form of tax. It is a regressive, indirect form of taxation, paid in particular by less well-off Jamaicans,” the Opposition Leader pointed out.
Displaying a firm grasp of development economics, Mr. Golding, in responding to the Finance Minister’s claim that $33 billion in dividend from the Bank of Jamaica (BOJ) will be paid to the Government to finance the budget, explained that, an examination of the financial statements of the BOJ, reveals that the profits for those three years from foreign exchange trading and from net gains on the BOJ’s holdings of foreign currency assets, were J$6.3 billion in 2018, J$7.3 billion in 2019, and J$4.3 billion in 2020. This totals J$17.9 billion.
“Therefore, J$17.9 billion, which is 52% (i.e. more than half) of the BOJ’s $34.7 billion of profits over the three years, came from foreign exchange trading and from net gains (in Jamaican dollar terms) on the BOJ’s holdings of foreign currency assets,” Golding said.
“The Minister told us last week Tuesday that only about 20% of the BOJ’s profits over the three years 2018-2020 came from realized foreign exchange gains. However, he did not mention that, in addition to that, over 30% of the BOJ’s profits over the three years came from unrealized foreign exchange gains.
“What is the main source of these unrealized foreign exchange gains? The BOJ’s assets are predominantly (66%, or two-thirds) comprised of foreign currency assets, which greatly exceed the value of the BOJ’s foreign currency liabilities.
“This means that the BOJ has a very substantial long position in foreign currency. As the Jamaican Dollar depreciated in value over the three years, the BOJ made a massive foreign currency gain from this long position. So, in essence, the BOJ has profited from the volatility and devaluation of the Jamaican currency over the three years. That is the same devaluation which has made life harder for the Jamaican people, Golding informed.
“The devaluation of the Jamaican Dollar effectively operates as a tax on the purchasing power of the Jamaican people, the majority of whom live off a fixed Jamaican dollar income,” the Opposition Leader told Parliament.
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