By Lavern Clarke, Staff ReporterFINANCE Minister Dr. Omar Davies signalled a real concern Tuesday that the economy was off-track and still moving in the wrong direction, and gave every indication that Government would be taking some tough spending decisions in order to contain the runaway budget deficit.
"This deficit level is not sustainable," said the Minister, adding that at its present level, it could impact confidence in Jamaica's debt on both the domestic and international capital markets.
The more serious fallout that Davies is trying to avoid is a downgrading of the debt by the ratings agencies, which would curtail Jamaica's borrowing successes on the open market.
But even amidst the uncertainty, the Minister confidently declared that he would meet a 2005/06 target to either balance the budget or move it into a surplus position - yet another indication that some belt-tightening is imminent.
The deficit targets agreed with the International Monetary Fund (IMF) under the Staff Monitored Programme is 4.4 per cent of GDP, but it has slipped way below that to 8.4 per cent.
"Significant efforts will have to be made to bring it back in line," he said. Alongside other factors, a depressed world economy has already thrown off anticipated earnings from tourism and bauxite - and with it expectations of any significant revenue inflows to help off-set the hole in the budget.
The situation has pushed Davies into dealing more aggressively with tax evaders, and he is now looking to fast track legislation through the House in January to widen the tax net.
Opposition Leader Edward Seaga has indicated that any corrective actions taken in this regard would have to be "drastic" whether it is done on the expenditure or revenue side. Davies reported a $10.6 billion shortfall in revenues and grants, and project that it will be 8.5 per cent below budget, consequent he said on the failure to conclude the sale of a third cellular licence within the original time frame.
Finance spokesman, Audley Shaw, says the current shortfall is closer to $23 billion, consequent on Davies' failure to say how $12.2 billion of the new Supplementary budget would be financed.
Shaw concludes that Government is likely to borrow its way out of its present fix, resulting in a continued regime of high interest rates - and as a consequence, he anticipates that the debt will continue to mount. Davies has already admitted that it will, at least for the next six months.
Dr. Davies did not spell out clearly the measures he plans to use to rein in the deficit, but with revenues targets already off-course, there will be new controls placed on public spending immediately.
Over the next quarter, the Ministry "will be utilising the warrant system to ensure that expenditures are kept in line with the budget," he told the House, having earlier reported that revenues from top earners, tourism and bauxite, were below projections.
The deficit has been fuelled largely by an increase of $8.2 billion in the wage bill - the highest increase ever recorded for a supplementary estimate, said Shaw - but a significant portion also relates to mounting interest payments on Jamaica's borrowings.
The debt which grew a significant 8.3 per cent in six months - or just about $7 billion per month - continues to move beyond Government's ability to control it.
"Public debt has been and remains the most critical macro-economic challenge we face," Davies said on Tuesday.
As at September, the debt stock was recorded at $538.5 billion, and will rise further within the final six months of the fiscal year to a projected $569.4 billion, the Minister said. He blamed higher than programmed interest rates, which were raised as high as 19.75 per cent in the third calendar quarter as a magnet for the liquid funds that were chasing the dollar.
But even as he announced his concerns to the House, the Minister's brief on the Supplementary Budget spoke to new debt of US$200 million from the international capital markets, a financial sector reform loan of US$115.9 million, a US$40 million loan for the social safety net programme, and US$17.4 million of government guarantees - amounting to J$18.3 billion.
Additionally, domestic debt which now accounts for 62 per cent of the total debt stock, will rise further with the planned issuance of $11.5 billion in Government paper to cover shortfalls in the Bank of Jamaica accounts.
The new borrowings will push the total debt as a percentage of GDP to a projected 141 per cent - which is 7 per cent higher than the outturn in March.
"-Three per cent is due to Local Registered Stock (LRS) issued to clean up the central bank's balance sheet," the Minister's brief said.
Jamaica has already begun the fiscal year with negative growth in GDP of 0.1 per cent as at April.
Last year, GDP was recorded at $19.94 billion in real terms, and $335 billion at current prices, according to Planning Institute of Jamaica figures.
