Editorial | Extracting full value from the Budget
Dr Nigel Clarke’s little nod last week to Maynard Keynes was wholly appropriate. However, the finance minister must now offer a fuller analysis of his expectations from the additional J$6 billion of capital expenditure, coming halfway through the fiscal year and, critically, whether the projects for which the money is earmarked have the capacity to absorb it. For, like us, the last thing Dr Clarke would want in this environment is for there to be wastage and leakages, which is too often the case with expenditure by the Government.
Just ahead of the full onset of the coronavirus pandemic earlier this year, Dr Clarke unveiled an annual Budget in which he proposed to spend J$853.8 billion, of which J$74.4 billion, approximately 3.3 per cent of gross domestic (GDP), was for the Government’s capital projects. His calculations, however, were soon upended by COVID-19, as countries, including Jamaica, shut down their economies to slow the spread of the virus.
Indeed, within weeks Dr Clarke was back in Parliament with a reorganised Budget. He snipped two per cent in spending. Significantly, 38 per cent of the retrenchment was on capital spending, which fell to J$46 billion. That reduction was to allow space for increased expenditure on COVID-19-containment programmes, as well as to cushion some of the impact on tens of thousands of people who lost jobs, or had their sources of livelihood disrupted.
In that first Supplementary Budget, the Government projected that tax collection would be J$81 billion, or 14 per cent, lower than in the previous fiscal year. It was also predicated, Dr Clarke reported, on a 5.1 per cent slump in GDP. But while the minister pushed back by two years, to 2028, the date by which Jamaica would reduce its debt-to-GDP ratio to 60 per cent – it’s now 98 per cent – he maintained a commitment to a primary balance of 3.5 per cent of GDP. The debt-to-GDP ratio, admittedly, was 1.9 percentage points lower than the Government’s target heading into the fiscal year, but ratcheted down after it sold state assets and used the proceeds to pay down debt.
However, last week Dr Clarke was compelled to return to Parliament for approval of another restructuring of the Budget. While tax collection for the year is expected to be a percentage point better than projected, the prolonged epidemic has worsened growth prospects. The economy is now expected to slide by 7.9 per cent, or 2.8 percentage points worse than initially projected. The Government is also having to spend more on COVID-19-related programmes.
The upshot: Dr Clarke has pushed his Budget back to the level – J$853.8 billion – at which he started in March and intends to accommodate some of the increased spending by lopping 0.4 per cent of GDP off his primary surplus target, which is now lowered to .1 per cent of GDP. This should leave him with close to J$9 billion to spend in areas other than debt servicing.
Six billion dollars of the net additional spending is for capital works, of which 77 per cent is allocated to the two big highway projects on the island’s south coast, which the finance minister hopes will help to “revive economic activity and maintain jobs” and send a signal to the private sector of “the Government’s confidence about the future”.
Government spending on capital works, and social programmes, in times of severe economic stress, is Keynesian economics that governments around the world have embraced in this pandemic. Jamaica’s tight fiscal space, however, limits its ability for these interventions. When it commits to them it must ensure the return on the investment is worthwhile.
Building and expanding highways on the south coast makes sense. What is not clear is whether, with the inevitable slowdown on these projects over several months, there is capacity for the mobilisation necessary to extract value from the expenditure over the remainder of the fiscal year. There may be questions, for instance, of whether it might not have been more efficient, and of equal or even greater value, in the longer run, if the allocation were for providing tablets and laptops for students, facilitating Internet connectivity in schools and communities, and in other ways closing the yawning technological divide that has become so obvious as teachers attempt to deliver education in the time of COVID-19. Minister Clarke perhaps has answers.