THE YEAR 2003 can best be described as the year that the economy had to face the realities of its fiscal crunch - the shortfall of Government's revenue to finance its expenditure. By year end of 2002 the die of fiscal woes was already cast as the international rating agencies had indicated that the Government had exceeded its promised four per cent fiscal target in the run-up to national elections. As a result there was tremendous anticipation that the April Budget would contain corrective measures. Specifically a massive tax package and sharp cuts in government spending were forecast.But the massive $14 billion tax package that was introduced in the context of a nominal hefty $26 billion Budget did not deliver the goods. In fact the budget package turned out to be a classic example of how not to design a budget. Consequently, there was significant anxiety in the taxpaying community about the "on and off again" taxes imposed by Government in a context of an economy that had not witnessed significant growth over the last 10 years at least. Actually the tax measure that should have been levied on PET bottles to protect the environment has still not been worked out even now.
At the end of calendar year 2003 therefore, the fiscal situation remains unresolved. An indication of this is that at the start of the third quarter the internal debt stood at $402 billion an increase of $72 billion over the previous year. Additionally, at the end of November inflation increased past the 13 per cent level projected by the monetary authorities for the calendar year. Further, while the dollar ended the year relatively stable, the rate slipped from US$1 = J$50 to US$1 = around $60.
Still, there were some positives in the economy. For one thing tourism rebounded. Jamaica Tourist Board data indicate that for the period January to November of this year tourist arrivals reached 1,211,796 a 6.1 per cent increase over the comparative period last year. Cruise ship arrivals also moved by 35.5 per cent over the similar period.
Secondly, the private sector adopted a more aggressive posture in its negotiations with the Government. This led not only to talk of a social contract once more but there is also discussion of a debt restructuring deal involving $25 billion of internal debt.
Thirdly, Government recently secured a US$100 million loan from the Bank of Nova Scotia of Canada. This should provide the Government with a well-needed reprieve and allow it to meet its priority financing requirements. When combined with the new private sector initiative, this augurs well for the economy.
As the New Year approaches, the Prime Minister has already conceded that 2004 will be difficult but restated his optimism about Government's ability to cope with the problems. The challenge for his leadership and the wider economy, however, is how to get these positive perspectives to gather momentum of groundswell proportions. This requires more than just good wishes.
