By Al Edwards, Business Co-ordinator 
Shaw
THE MINISTRY of Finance and Planning last week released fiscal figures for the month of August that reveal that expenditure, wages and programme spending are all on the increase.
This has lead the United States-based investment banking and securities brokerage firm, Bear Stearns, to opine that Jamaica is barely holding on to its fiscal situation and debt management.
Government figures for the month of August show tax revenues are up by 21 per cent and expenditure increased by 15 per cent. The Government has been unable to contain wage increases as it increased by eight per cent. Programme spending too rose by seven per cent.
FISCAL RESTRAINT
Commenting on these numbers, senior managing director of Bear Stearns, Carl Ross said: "This is reflective of considerable fiscal restraint by the Ministry of Finance. However, interest expense is up 32 per cent, reflecting higher debt stock and higher interest rates this year on floating rate debt. Interest took up an incredible 47 per cent of total expenditures and 67 per cent of revenues. We know of no other country with these ratios."
Bear Stearns pointed to the fact that capital expenditures are down 43 per cent from last year, and the capital budget is being under-executed to make room for higher interest payments. By its calculations, the primary surplus is running ahead of the budget plan (plan = 12-13 of GDP), but due to interest payments the overall fiscal deficit is running behind (plan = 5-6 per cent of GDP).
"In our view Jamaica is holding on barely to its fiscal situation and debt dynamics. The Ministry of Finance has issued a directive instituting a wage and promotion freeze in the public sector. Capital expenditures are clearly being slashed (or forced off-budget). But the increased interest cost and the rising debt stock are cause for serious concern. The downside scenario is that by year-end the budget targets, once again look unreachable and the Ministry of Finance is forced to come up with another series of supplemental fiscal measures, like they were forced to do last year."
RENOWNED BROKERAGE
The renowned brokerage firm surmises that if the Jamaican economy continues growing, rates continue their downward trend, and the Jamaican dollar remains stable, the muddle-through scenario can likely be sustained for a while.
"However, it will take a lot more than just muddling through at current debt ratios in order to improve the credit ratings".
However, there was a glimmer of light amid the gloom. Jamaica's external debt is actually lower in US$ terms than it was a year ago, which is positive, considering that the economy and foreign exchange earnings are growing. Nevertheless domestic debt is exploding, rising J$80.3 billion (20 per cent of GDP) in the year to July 2003.
FISCAL PRESSURE
"Broadly speaking, the numbers are on track, but they show a country under continued extreme fiscal pressure, and the current trends do not look sustainable."
Attempts at getting a response from the Minister of Finance as to these latest figures were unsuccessful.
Speaking with Sunday Business, the Opposition Spokesman on Finance Audley Shaw said: "It seems to me that Bear Stearns is just waking up. For several years they have witnessed the Jamaican Government's high interest rate policy and have failed to condemn it.
"This policy threatens the viability of existing businesses and also there is a clear and present danger of a new round of business failures both in the financial and productive sectors. It is a disincentive to attracting new investment in the productive sector and crowds out the private sector from investing. What we are seeing is that it hinders the Government's ability to service its obligations.
"Only last week we heard that the passport office and several police stations islandwide had their telephone service disconnected because the Government cannot foot the bill. At the National Works Agency well over $1 billion is owed to contractors and this is leading to the suspension of work programmes.
"All this is happening because you have a Minister of Finance who has failed to inspire confidence among the local and foreign investment community. Right now agencies are unwilling to accept significantly lower rates of interest on funds that they lend to the Government. Whether by lateral sources such as Japan or the multilaterals, if we acquire funds that come with conditions such as exhibiting fiscal prudence, fiscal responsibility and cutting the size of the Government, then so be it.
"This is a fiscal crisis that requires urgent action now. The country cannot continue like this because we will plunge our people into poverty, social and economic chaos."
