Sat | Dec 15, 2018

Densil Williams | It’s not the debt, Stupid!

Published:Sunday | March 11, 2018 | 12:00 AM
Densil Williams

Finance Minister Audley Shaw has delivered his third Budget presentation since 2016, with his usual evangelical zeal. His style makes the presentation less boring and motivates one to watch this annual ritual. As expected from a perusal of the Estimates of Expenditure, there are no surprises in this year's Budget.

A close examination shows that in nominal terms, the increase over 2017-18 is merely 8%. Note that I am comparing budgeted presentations, not the expenditure after the supplementary budget. When one takes in expected inflation for the fiscal year, which should be around 5-6%, the real increase in the Budget is merely 2-3%.

Further, if one were to take out the debt figures, i.e., subtracting interest and amortisation payments, the real increase over 2017-18 will be in the region of 14-15%. This is not unsurprising, given the buoyant performance on the revenue side of the Budget for 2017-2018. This shows that the disciplined approach to our economic management is now paying dividends.

However, a 15% increase in the Budget is still not sufficient to deal with our myriads of social issues. But given the still, very tight fiscal space within which the Government has to operate in order to ensure that it further entrenches the much-needed stability in the macroeconomy to lay a more solid foundation for further growth, it is understandable that the increase is within reasonable limits.

For, although the prospects of the Jamaican economy are looking good, we are still not out of the woods. Macroeconomic stability, a key enabler of sustained economic growth, is not yet fully entrenched in the Jamaican economy. So, with reckless fiscal management, Jamaica can easily slip back into the dark and gloomy days in the management of its economic affairs.

It is, therefore, encouraging to see the medium-term forecast for the expenditure side of the Budget being presented in this year's Estimates of Expenditure. It shows that, ceteris paribus, we will have a very tight Budget for the next three years, which clearly is aimed at ensuring fiscal prudence in order to meet the required debt-to-GDP ratio of below 100% and nearing the 60% mark by 2026.


Debt and Growth


The various political administrations since 2010 have to be congratulated for their stewardship of the country's debt profile. Moving from a high of 70 cents out of the dollar being used to repay interest and amortisation on debt to a low of only 37 cents in this current Budget is no mean feat. This required hard work, sacrifice and discipline.

Some persons in my lifetime did not know we could have lived to see the day when Jamaica was not using more than half its revenue to pay down debt. However, despite the debt-to-GDP ratio trending down and debt-servicing costs also in decline, there is still an unsettling truth that must be faced. The economy is not delivering the type of growth that is needed to achieve a reasonable standard of living for all Jamaicans.

Those persons who peddle economics as their trade give the impression that once the debt-to-GDP ratio falls and the debt servicing cost is reduced, there is an automacity to growth. Unfortunately, if that works in larger and more developed markets, that has not been the case in Jamaica, a small, open economy with a significant number of structural problems that are impeding sustained high growth.

Economists who continue to treat social phenomena in an atomistic way have missed the critical nature of social actors and agents in the growth process and, as such, make deterministic statements about debt and growth, which just cannot be realised.

While there are many structural factors, such as class division, inter- and intra-state dependence, weak human capital, crime and violence, among others, that impede Jamaica's growth prospects, it is clear that the most urgent to be fixed is the human capital element.

Jamaica's human capital resource is not competitive in the new knowledge-driven and highly inhospitable globalised economy. Of the estimated 1.2 million persons in the labour force, only a small percentage (estimated to be around 18%) have certification at the tertiary level. Indeed, with the gross enrolment rate at tertiary-level educational institutions in Jamaica being roughly around 28%, it is no secret that the labour force will suffer from a lack of highly qualified workers. Incidentally, studies have also shown that this impacts on voter turnout in elections.

No modern economy can attain sustained and high levels of growth with that low level of human capital development. Jamaica needs to be targeting between 60-80 percent of its workforce to have tertiary qualification. It should therefore, have close to 80% gross enrolment rate in tertiary education.

For, it is the competitive and sophisticated human capital that will be needed to compete effectively in today's global economy, not merely the physical presence of the human capital.

Therefore, while we appreciate the increased allocation to education in the 2018-2019 Budget, there is still a greater need to have more resources dedicated to building higher levels of human capital. This is especially so for the most vulnerable groups in the society who have the capacity and the aptitude for tertiary education but cannot afford it. If Jamaica is to stimulate growth in the economy in any sustainable way, the cohort of persons in quintiles 1-3 of the income ladder, who have annual consumption spend of roughly J$150,000 per year, which is half the average expenditure on tertiary education, has to find away to Access tertiary education. If this cohort can have access to tertiary training, this will add significantly to the competitiveness of the human capital in the labour market. This has to be a priority over the medium term. We cannot leave it to chance.

Clearly, making tertiary training and education more accessible is necessary but not sufficient to drive the growth agenda.

There has to be greater alignment with tertiary institutions and industry in order to meet the current needs of industry while also foreseeing future industry needs so that there is no significant structural unemployment when economic life cycles change. It is this close working relationship between tertiary education and industry that will deliver the long-term and sustainable high growth rates, which Jamaica so desperately needs.

Our future budgets have to prioritise investment in this area similar to how previous Budgets prioritised paying down the debt, which is now reaping some rewards.

It will require serious planning and visioning to do this, but it is not beyond reach. Let's get it done.

- Densil A. Williams is professor of international business at the UWI. Email feedback to and