EDITORIAL - Jamaica's fiscal cliff
Judging from last Sunday evening's hunky-dory speech by Prime Minister Portia Simpson Miller, our Government may not have noticed that Jamaica is hanging precariously over, according to the American coinage, a fiscal cliff.
Or, the PM has deliberately chosen to ignore the reality and sell Jamaicans a false sense of security. In the absence of ignorance of the facts, that can be the only explanation of the prime minister's failure to engage Jamaicans frankly on the difficult choices facing the country.
It is widely known that Jamaica has a debt of more than J$1.6 trillion - and rising. Each year, the Government allocates around 60 per cent of its Budget to pay the principal and interest of this debt. Indeed, all the money the Government collects in taxes and grants is barely sufficient to service the debt, with a little left over to contribute less than a fifth of the salaries of public-sector workers.
The Government usually borrows to meet the rest of its expenses. It also borrows to pay debts that fall due. In the jargon of the financial markets, it is usually referred to as a rollover, which, in Jamaica's worsening economic situation, is increasingly difficult to do.
It is this situation that confronts the Government.
On February 22, a government bond of US$287 million (J$26.7 billion) falls due. It will have to be repaid, or rolled over. In the former scenario, it will likely require the administration to dip into its net international reserves, pushing the NIR - which has declined sharply in the past year - precariously below the US$1-billion mark for the first time in well over a decade. Or, in an absence of an agreement with the International Monetary Fund, giving the Fund's seal of good housekeeping, Jamaica will have to scramble about for lenders willing to risk their cash on a borrower struggling to stay afloat.
But that US-dollar payment is not the only one the Government has to contend with in February. On the same day that this debt matures, another J$62.7-billion variable-rate bond also falls due.
The latter one, being a largely domestic instrument, would seem the easier to roll over, except for the likelihood of lenders demanding a greater risk premium on their money; that is higher rates.
The Government, however, is not without options. It can retire these debts, or portions thereof, and reduce its spending, which is precisely the oft-declared policy statement of the finance minister, Dr Peter Phillips: reducing the debt to manageable levels.
The specific proposals for doing this include:
- Lowering the Government's wage bill as a proportion of national output;
- Increasing the retirement age of government workers and causing them to contribute more to pensions;
- Removing the discretion of the finance minister to provide waivers on taxes, and improving the system to bring more people into the tax net; and
- Enhancing the efficiency of the public service.
Little has happened on these fronts, and no clear timetable has been articulated by the Government for their achievement. It is the responsibility of each member of the Cabinet to know the economic programme and its timetable for implementation. When the Cabinet retreats this week, its members should not emerge until this is clear.
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