Sun | Dec 15, 2019

Mark Ricketts | The economy, the Budget, and JPS shares

Published:Sunday | November 17, 2019 | 12:31 AM
Mark Ricketts

Sometimes I wonder when governments prepare budgets if they do not believe that the consequences of misjudgments, misplaced priorities, and overly ambitions forecasts will not come back to haunt them and the society.

Prime Minister Andrew Holness made a promise to Jamaicans that once he was elected, they would be able to sleep with their windows and doors open. Yet, in his 2017 Budget, there was literally no increase for the security sector. In my columns then I questioned the logic of this fallacy.

Mr Holness had also promised the electorate that when in office, he would give taxpayers earning less than $1.5 million annually, tax relief. Even though there was an increasingly greater reliance on indirect taxation, such as GCT, as against direct taxation, the Government had to ante up $33 billion in the first year to satisfy the $1.5 million threshold tax.

The Jamaica Labour Party (JLP) administration, like the previous People’s National Party (PNP) government, continued to earn kudos from the International Monetary Fund (IMF) for their commitment to macroeconomic stability. In my columns on the Budget at the time IMF was doing a review of the government’s performance, I could not believe that Holness, who assured the country of prosperity, would have implemented the taxation measure before committing the necessary resources to combat our horrific crime situation.

As I said then, “While we are scoring big with the IMF, I sometimes wonder if Jamaica is another country. The Budget has been passed, the security sector (police, army, prisons, the courts) in terms of adequate increased allocation was bypassed; social dysfunction, crime; and lawlessness are out of control; and the minister of national security tells the nation that besides limited resources, the JCF is currently short 3,000, this at a time when communities are terrorised and high school students are being enticed to become gang members.

“If IMF scores our macroeconomic performance, who scores the underperformance of government, who evaluates its ordering of priorities, and who remembers that the first task of government should be the safety and security of its citizens?”

PRESSURE ON THE DOLLAR

Today, the police are short 5,000, crime continues unabated, communities are still being terrorised, and high school students going to and from school are the targets of robbers.

Why couldn’t a government, assuring its people of prosperity, not attend to the safety and security needs first, then, in a year or two, satisfy its taxation-threshold election promise? The country continues to pay a huge price for misplaced priorities.

Come 2019, Finance Minister Dr Nigel Clarke got rave reviews for this year’s Budget from institutions and organisations. It was wittingly described in The Gleaner as ‘Santa Clarke’s’ budget because some tax burdens were reduced (fiscal easing).

But as I noted in my columns at that time, such fiscal easing along with expansionary monetary policies would place additional downward pressure on our dollar. When the dollar devalues, the government has to find more Jamaican dollars to pay our overseas debt in which a large portion is denominated in foreign exchange. This puts additional pressure on the government to satisfy all its expenditure demands even when it takes comfort in eventually preparing a supplemental budget as it did a month ago.

To understand how much pressure the government is under at present, just listen to Stephen Shaw, the communications director at the National Works Agency as residents block roads in disgust to gain the attention of their MP, their councillor, or the prime minister.

Shaw always tries to placate the residents of every community. Sometimes he is very disappointed the money isn’t there to attend to some situations that are past dire.

In my column on the Budget, I had said, “Clarke, in foregoing billions in stamp duties and taxes on real estate transactions, without corresponding increases in property taxes in the high-end market, will inflate asset pricing as against real growth. Coming at a time of a decrease in the primary surplus, against a backdrop of supply constraints, the net effect is continued widening of our annual trade deficit, which now exceeds US$4billion.

“With the country’s supply side impediments, misallocation of resources, labour market rigidities, and an open economy, expansionary monetary policy affects not only variables in the domestic economy, such as consumption and investment spending, but also variables in the foreign sector such as the exchange rate.”

And that is our current problem.

Since those observations, Clarke has had to deal with JISCO shutting down. There has been some good news involving Azan’s foray into agriculture, ongoing growth of the BPO sector, and a continuation of strong earnings performance in the hospitality sector, but JISCO’s two-year closure and the Planning Institute’s forecast of 2019-2020 economic growth below one per cent would put unnatural strain on any economy, especially one so highly indebted as ours.

DON’T SELL JPS SHARES

Inspite of all that, we should not sell our JPS shares. In my column ‘Please Mr Holness, do not sell JPS shares’ , in the Sunday Gleaner, November 3, I offered six compelling reasons why we shouldn’t. The government owns nearly 200 companies and agencies, and I have been advocating that it sell most of these.

Even those with potential are often undercapitalised and are afflicted by cronyism, poor governance, and the influence of garrison-style politics, which diminishes competence and elevates loyalty.

The JPS, which has access to capital markets, increased its profits by 26 per cent last year, and the electricity sector has spent $1.2 billion in new investments in the sector over the last five years.

JPS chairman Seiji Kawamura referenced the company as constructing the largest energy storage system in the world to support more renewable energy, rolling out smart meters and adopting distribution automation and distribution-generation application.

Nearly 20 per cent of that company is owned by all Jamaicans. Why would the government want to dispose of its citizens’ equity stake in such a profitable enterprise with excellent potential for asset appreciation?

It will then sell the shares on the Jamaican Stock Exchange to some Jamaicans, Americans, Koreans, Canadians, British, etc. Remember the PM first announced the sale of the shares in Korea and told his listeners to keep an eye out for when the shares hit the market.

I was so disappointed when the finance minister, in a column in Tuesday’s Gleaner November 5, ‘Mark Ricketts, you are wrong’, did not offer a rebuttal of my reasons for not selling the shares.

I am comforted, however, by some readers seeing me in public, humourously blurting out, “You wrong to trouble Nigel. you wrong.”

- Mark Ricketts is an economist, author, and lecturer. Email feedback to columns@gleanerjm.com and rckttsmrk@yahoo.com