Fri | Jan 18, 2019

'Too early to relax primary surplus target'

Published:Wednesday | November 26, 2014 | 12:00 AM
Colin Bullock, director general of the Planning Institute of Jamaica.
Bank of Jamaica Governor Brian Wynter.
Head of the International Monetary Fund mission to Jamaica, Dr Jan Kees Martijn. - File Photo

McPherse Thompson, Assistant Editor - Business

Three technocrats have suggested that it would be unwise for the Government to deviate from the 7.5 per cent of gross domestic product (GDP) primary surplus target agreed under Jamaica's economic support programme with the International Monetary Fund (IMF).

In separate press briefings over the past week, Bank of Jamaica (BOJ) Governor Brian Wynter; director general of the Planning Institute of Jamaica (PIOJ), Colin Bullock; and IMF mission chief to Jamaica, Dr Jan Kees Martijn, were asked whether the target should not be lowered in view of recent suggestions along that line.

"The position that I have indicated ... is that we've made progress," said Wynter, adding that "there's still work we have to do. We know where we need to be on the fiscal side and we know that we are not there. We also know how to get there and that's to pay down debt. And the way to get there is" to run consistent fiscal surpluses.

"That's the programme. It hasn't changed," he added.

Wynter, addressing the quarterly briefing on monetary policy, said one of the arguments put forward for lowering the primary balance is that it is a way to achieve greater economic growth.

Can't Switch

He acknowledged that a discussion about the level of the primary surplus was not something from which to shy away. "But, my point is that you can't start and say this is what I'm doing, with all the reasons we gave and all the sacrifices and commitments people have made, and then little way into it you say, 'Well, I've changed my mind. I want to do something different'," the central bank governor reasoned.

Bullock, fielding questions following his review of the economic performance for the quarter to September, said he was not aware of any initiative on the part of the Government to renegotiate the parameters of the IMF programme.

He accepted that the 7.5 per cent fiscal surplus target was challenging and that it has implications for what the Government can do. "On the other hand, there is the reality of the public debt," he said, noting that servicing that obligation in the past has now absorbed a large portion of the budget.

"The way we look at the programme is that there is tremendous sacrifice upfront," Bullock said. "But that sacrifice is necessary to actually reduce that pre-emption of government resources by debt. So in other words, the fiscal adjustment, it is painful in the short run, it is even deflationary in the short run. But it is a sacrifice which, if we can sustain, will lead us to a place where Government will be using less of its budget to service debt and will have more resources to pay its workers, buy ambulances, buy police cars, equip schools as the case may be."

Dr Martijn, in a statement following the mission's sixth review under the IMF programme, urged the Government to maintain the 7.5 per cent primary surplus.

Asked to expound on the reason in light of suggestions that it should be renegotiated, he said the Government has embarked on the programme to correct imbalances caused by expenditure over the years which exceeded revenues.

Stay the Course

"Debt is coming down and the investor community has noticed," Dr Martijn said. "We think it's very important to stay that course, not only because you want to get debt levels down ... to reduce the vulnerabilities that come with it, but also to signal that the promise of improvement is taken very seriously so that investors can be reassured of Jamaica's commitment to improving the situation, which is a critical part of improving investor confidence, which, in turn, comes back to ensure sustainable economic growth, which is the ultimate objective," he explained.

"Relaxing those constraints at this early stage might do more harm to growth than good," Dr Martijn added.

According to the Government's latest fiscal policy paper, the 2014-15 Budget was developed in harmony with the objectives of the medium-term economic programme.

The focus, therefore, was on strategies geared at maintaining the primary surplus at 7.5 per cent of GDP, equivalent to $121.27 billion, as an operational instrument for achieving the objective of reducing the debt and maintaining it at sustainable levels.