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IMF says Jamaica faces undesirable options to meet wage bill target

Published:Thursday | September 24, 2015 | 9:00 PM

The International Monetary Fund (IMF) says the Jamaican government will face what it calls undesirable policy options like tax increases and job cuts, if it wants to meet a public sector wage target under the four-year loan programme. 

The IMF made the assertion in its latest Country Report on Jamaica.

It says Jamaica would be limited to the undesirable policy options if it is to achieve the target of cutting public sector wages to nine percent of gross domestic product (GDP) which is the total value of goods and services produced. 

The fund notes that the government has signed new wage agreements with the Jamaica Confederation of Trade Unions and the Jamaica Teachers' Association which together represent about 80 percent of public sector employees. 

It says based on the agreement with those unions, the wage bill for the current 2015/2016 financial year is projected at 10.1 percent, exceeding the nine percent target with other wage talks yet to be concluded. 

Jamaica has already committed to reducing the wage bill to nine percent of GDP for the upcoming 2016-2017 financial year, a target to which the IMF says Jamaica remains committed. 

However, the fund is warning that meeting that target would require more measures to supplement others like attrition, voluntary separation and other reforms which are under consideration. 

It is also warning that the costs to the economy for failing to contain the wage bill to the nine percent of GDP are likely to be high.

The IMF says with the need to offset the additional wage expenses, the options facing the government would be limited to undesirable policy choices of either compressing non-wage primary spending or raising additional revenue.

Raising additional revenue could include announcing new taxes.

The IMF says any decision to cut spending would come at a time when economic growth is weak.

In August, when the government signed the wage deal with the JCTU, finance minister, Dr Peter Phillips said the deal exceeded projections.

Under the deal workers will get a seven percent increase on their basic salaries,

Dr Phillips said some provisions in the budget will either be abandoned or postponed in order to contain expenditure and accommodate the deal.