The Budget Debate for 2014-2015 has begun. The Governor General has given his throne speech and the Minister of Finance and Planning, Dr. Peter Phillips, has presented his “Stay the Course” budget. Budgets are not exciting documents and reading through and digesting those figures is often a laborious task.
The Jamaican government has estimated that they will spend $540.1 billion this fiscal year. As Dr. Phillips intimated, it is a budget that calls for more sacrifice and continued austerity on the part of the Jamaican people.
Essentially for the last 40 years, the Jamaican people have been living high on the hog. In other words, the country has been living above its means. For 40 years, there has been very little expansion of Gross Domestic Product and even less increase in labour productivity.
Governments including the People’s National Party and the Jamaica Labour Party have handled the fiscal affairs of the nation with indiscipline and resorted to a culture of escapism. Rather than tightening our belts, Jamaican governments kept borrowing and borrowing to mask the economic stagnation to the point that the accumulated debt in 2013-2014 was 146 percent of the Gross Domestic Product (GDP). The country borrowed to the point that it could not borrow anymore, as there were no bankers foolish enough to lend to a hopelessly indebted economy.
The Jamaican fiscal situation is similar to that of a heroin addict who has to
go cold turkey to save his life or die from an overdose.
Phillips reports that Jamaica is turning the corner on the chronic state of
indebtedness. Beginning in 2013-2014, the government put aside a
primary surplus of 7.5 percent to pay down the debt and for 2014-2015,
the early estimate is that there has been a reduction of 5 percent. The chronic
fiscal deficits have been arrested and in the last fiscal year and this fiscal year,
revenues are sufficient to balance the budget.
In this 2014-2015 budget presentation, the Finance Minister argued
that some modicum of growth has returned to the Jamaican economy. In
the quarterly data from June to September and from October to December there
was economic growth, 0.5 and 1.7, respectively. Also in the first quarter of
2014, there was continuation of miniscule growth and the expectation is that
the Jamaican economy in 2014 will grow by 1 percent of GDP.
The Economic Reform Program aims to facilitate changes in the
bureaucracy and in tax policy to stimulate private investment that will produce
not only an expansion of production but lead to a sizeable reduction
in unemployment.
Jamaica has endured a long history of high rates of unemployment. A safety
net is non-existent and the export of labour to Panama at the beginning of
the twentieth century, to Cuba and to Central America in the early
twentieth century, to Britain after World War 11 and to the United States
after 1965 has served as a life line to a multitude of Jamaican families. But
chronic unemployment has also led to an undermining of this social fabric and is
at the heart of our problem of youth violence.
The present unemployment rate is over 14 percent of the labour force
and even though there has been some meager job creation in the last year,
the persistence of high unemployment remains a critical issue in a Jamaica
where a safety net is non-existent and glaring income inequality persists.
The tenacity to stay the course is indeed challenging. The monetary
policy is to allow the Jamaican currency to be determined by
market forces and the Jamaican dollar has been trending down in respect to
the American dollar. Phillips points out that such depreciation of the
currency creates opportunity for the expansion of exports as prices of
goods hailing from Jamaica become more competitive on the world market.
There has been some progress in reducing imports and there has
been improvement in narrowing the gap between imports and exports. In
addition, the international reserves have been bolstered by 40 percent.
Jamaica imports much of its necessities for life and the depreciation of
the Jamaican dollar has triggered an inflationary spirit. The inflation rate for
the last fiscal year was 8.3 percent and more inflation is anticipated for
this fiscal cycle. Particularly for the poor, inflation has exacerbated already
tough living conditions.
Phillips makes frequent references to the hardships that families
are forced to endure. The nation might be forced to stay the course but
the governmental spokesperson has the responsibility to provide people
with hope. How unending is the austerity tunnel and at what stage
will there be some light at the end of the tunnel?
The Jamaican government has articulated a strategy for
economic growth. Part of that strategy is to make loans available
through the Jamaica Development Bank to micro-enterprises. But it is clear
that Jamaica’s economic salvation rests heavily on maximizing the capacity of
the private sector to export and to compete globally. The depreciation
of the currency sets the stage for stimulating exports but government needs
to lead this initiative and not be a spectator. It can learn from countries
like Singapore and South Korea where government is a catalyst in the
developmental process.
