No sign of public information campaign on fiscal rule
Published:Wednesday | January 22, 2014 | 12:00 AM
The International Monetary Fund (IMF) has encouraged the government to consult widely in preparing the specific elements of pending fiscal rule legislation, but there is as yet no signal of a structured public-education campaign relating to that proposal.
The new fiscal rule, a March 2014 structural benchmark set by the IMF, aims to entrench fiscal discipline and consolidate the gains of fiscal consolidation in the medium term by constraining the annual budgets.
The IMF mission which conducts quarterly reviews of Jamaica's economic support programme under the four-year extended fund facility has encouraged the Government to consult widely in preparing the specific elements of the new regime and seek to bolster support for the new rule.
Consequently, the Government committed itself to "initiate a broad public-information campaign on the objectives and features of a new fiscal rule before its legal implementation," according to the latest memorandum of economic and financial policies submitted to the Fund.
According to the IMF's December 2013 number 13/378 report on Jamaica, to support the process and help prepare the legislation, further technical assistance is foreseen for early 2014.
It said that important issues that need to be elaborated include the approach for incorporating the actual or contingent fiscal liabilities associated with private-public partnerships, in consultation with other international financial institutions.
It also incorporates the specifics on the escape clause in case of major adverse shocks, further elaboration on the automatic consolidation measures in case of major deviations from fiscal targets, and options for strengthening the sanctions regime.
reduce public debt
The IMF report said the framework aims to limit the annual budgeted overall fiscal deficits of the public sector, covering all fiscal activities, to achieve a reduction in public debt.
The rule will establish an automatic correction mechanism that would be triggered by substantial cumulative deviations from the annual overall balance target.
Ex-post deviations from the fiscal balance target will be debited in a notional account. Once the cumulative deviations exceed a pre-specified threshold, additional fiscal adjustment would be required in subsequent fiscal years to correct for these deviations to bring fiscal performance back in line with the fiscal rule, the report said.
The rule will also include an escape clause, limited to major adverse shocks and triggered only with parliamentary approval. The clause will predefine a clear list of events or shocks that could have a serious adverse impact on public finances, and specify measurable conditions for triggering the clause, such as declines in gross domestic product or fiscal revenues.
Independent validation of the event or shock will be required before the escape clause can be initiated by the Ministry of Finance and Planning, said the report.
The effectiveness of the current enforcement and compliance regime will be further enhanced to encourage greater ex ante compliance with the new rules-based framework, the IMF report said.
Measures will include transparency and accountability through parliamentary hearings and public statements by officials. The minister of finance and planning will be required to explain deviations from the fiscal rule in a mid-term budget review in Parliament and outline corrective steps to get back on track with the annual fiscal rule target.
The Government said it would amend the Financial Administration and Audit Act, the Public Bodies Management and Accountability Act, and the Public Debt Management Act to implement the fiscal rule.
"As experience is gained under the rules-based framework, consultations with public stakeholders will continue on possible steps for further strengthening the legal foundations of the fiscal rule," the IMF report said.