Gov't urged to make fiscal discipline last beyond IMF
Published:Wednesday | March 26, 2014 | 12:00 AM
Daraine Luton, Senior Staff Reporter
A LEADING economist has urged the political directorate to demonstrate fidelity to fiscal prudence, arguing that despite the passage of fiscal rules legislation, Jamaica's record of fiscal mismanagement does not inspire much confidence in investors.
Dr Damien King, head of the Department of Economics at the University of the West Indies, Mona, said investors would have to be convinced that Jamaica's commitment to fiscal discipline will outlast the current economic programme with the International Monetary Fund (IMF).
He was speaking at a Gleaner Editors' Forum on the 2014-2015 Budget, held at the newspaper's Kingston offices on Monday.
"Governments pass laws and pass new laws to undo old laws," King noted, adding that "fiscal responsibility gets you so far, but not all the way, and so some uncertainty and lack of confidence is justified."
Both houses of Parliament last week passed amendments to the Financial Administration and Audit Act and the Public Bodies Management and Accountability Act, which forms the framework for enhanced fiscal rules.
The rules, for example, impose limits on the finance minister, placing a burden on him to attain certain fiscal targets. For instance, as at the end of the 2017-2018 fiscal year, the minister is required to take appropriate measures to attain a fiscal balance, as a percentage of GDP, which would allow the debt-to-GDP ratio to fall to 60 per cent or less by 2026. The minister is also required to reduce the ratio of public-sector wages as a per cent of GDP to nine per cent by March 31, 2016.
At the time the IMF agreement was inked last April, Jamaica's debt was 145 per cent of GDP and has since decreased to 139 per cent of GDP.
TESTING PARLIAMENT'S RESOLVE
Finance Minister Dr Peter Phillips said the new rules would test the collective resolve of the Parliament.
The minister told legislators that "the international community, the financial markets, the multilateral agencies, the private and official lenders are not convinced that we collectively have the fiscal discipline to prevent the future run-up of our debt".
Last Friday, Justice Minister Mark Golding, in piloting the bills through the Senate, said they seek to lay the foundation for a better Jamaica, regardless of the political, social, or economic differences.
The parliamentary Opposition has given unreserved support to the amendments to the legislation, with one member in the Upper House saying they should be entrenched.
Senator Nigel Clarke argued that since Jamaica's Constitution guarantees that creditors be paid from the Consolidated Fund, there is the need for Parliament to send the signal that the law governing fiscal rules will not change.
"Economic agents, consumers, investors, business people alike will greet the bill with glee, but the benefit really extends until the next financial year because there is no assurance that four years from now everybody in here is replaced and you could come and change the 60 per cent [debt-reduction target] to 80 per cent," Clarke said.
"You don't need to repeal the bill to make it redundant. You just have to change one of the central criteria, and this does not inspire long-term confidence," he added.