EDITORIAL - Sliver of light in Budget

As much as we are inclined to commend the Government for the Budget it tabled in Parliament last week, we will reserve comment until the finance minister, Peter Phillips, presents the rest of his funding programme, including the allocations for the multilateral financial institutions (MFIs).

For, as they say, the devil's in the detail. Further, as is evidenced by its failure so far to tie up arrangements with the MFIs, this Government does not inspire confidence in its ability to accomplish anything within its promised time frames.

The consequence of its failure to formally conclude the US$750-million extended fund facility with the International Monetary Fund (IMF) has been a sliding domestic currency and, worse, collapsed business and consumer confidence. Further, the administration has shown itself shy about, if not inept at, explaining its economic strategies and tactics - assuming it has these - to the Jamaican people and mobilising them around the programme, as it promised to do.

Our fear, in this regard, is that things will again be run off the rails and this new round of hardships by Jamaicans will be for naught. All, however, is not yet lost for the Budget reveals a first sliver of light.

There is consensus that the crux of Jamaica's economic crisis is its debt, now at 140 per cent of GDP; built up by the Government which borrowed excessively to maintain its size rather than live within its means. There are signs that should another administration not lose the plot, we might finally be serious about tackling the problem.

Government expenditure for 2013-2014 is projected, year-on-year, to decline by 14 per cent. But when inflation is taken into account, the real drop will be more than a fifth.

Such a deep cut in government spending, allied with a J$19-billion tax package previously announced, will obviously impact economic activity. But it may not be as bad as it first appears. A substantial portion of the savings, nearly J$150 billion, will be from debt-servicing costs, which will still take up 43 per cent of the Budget, but 10 percentage points lower than the previous fiscal year. Allocation to capital works will be not be substantially affected.

Short-term palliative

Further, a freeze on the basic wages of public-sector employees will sharply moderate the Government's pay bill over the next few years, hopefully a short-term palliative while the fundamental issue of public-sector reform is addressed.

These, however, won't be sufficient for the Government to meet its primary surplus of 7.5 per cent of GDP, part of its strategy to bring the public debt to under 100 per cent of GDP over seven years.

It has to have a strategy to improve tax collection.

The administration also has to address a worsening current account, for which a depreciating Jamaican dollar is a two-edged sword. In an open, import-dependent economy, the absence of an export-led, foreign exchange-earning strategy could worsen domestic imbalances without delivering export-competitiveness.

In the short term, bringing the IMF, the World Bank, the Inter-American Development Bank and the European Union on board is critical to help shoring up current and capital balances. This part of the sequencing the Government didn't get right.

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