Economist Dr Damien King says the current strategies that government is pursuing to shrink the J$65 billion deficit in the fiscal accounts is necessary but insufficient to balance the budget.

He also warned against becoming overly reliant on the logistics hub as the one catalyst for growth.

"If we look at it a deficit will always be there. Every dollar of this programme is necessary but it is still insufficient. This adjustment programme is very important because modelling any other scenarios is not sustainable or effective," said King, the head of the Department of Economics at the University of the West Indies.

As part of the medium term economic strategy to reduce the deficit and to satisfy preconditions to an Extended Fund Facility arrangement with the International Monetary Fund, Jamaica has introduced measures to plug two-thirds of the J$65 billion gap.

The measures include a tax package to raise $16 billion in new revenue, tapping the NHT for J$11 billion annually for the next four years, annual savings of J$17 billion from the debt exchange programme over seven years, removal of discretionary waivers to yield J$1.5 billion, and reducing the wage bill to nine per cent of GDP by 2016.

Given current economic conditions, King said that without those adjustments the debt would drop only slightly from the current 129 per cent of GDP to 128 per cent in 2016.

Without the adjustments, deficit would increase from the current 6.5 per cent of GDP estimated for 2013 to, he projects, 7.1 per cent annually on overage projected to 2019. The deficit was at five per cent last year.

"When we have a deficit, it means that we will be in continuous borrowing mode. They will keep borrowing to pay bills ... paying off one debt and creating another," said King, speaking as a presenter at the Stocks and Securities Limited financial forum last Thursday.

However, with the implementation of the adjustments, King is forecasting that the deficit will dip to a low of 1.4 per cent in 2015, peak at 2.9 per cent in 2017 and level off at approximately 2.2 per cent in 2019 at which time the debt would be about 101 per cent of GDP.

The Jamaican Government's estimate is that the debt will fall to 95 per cent of GDP by 2020.

CAUTION TO GOVERNMENT

King also cautioned the Government against relying on one programme to drive economic growth, referring to the US$8 billion Global Logistics Hub project. The hub initiative aims to sell various port, highway and industrial projects as a central programme to establish Jamaica as a transhipment and logistics centre.

"I don't know of any single example anywhere in the world looking back at the entire history of development when one country has grown — worse with a sustained fiscal deficit of over five per cent of GDP and generate growth. It just does not happen," he said in response to queries from a forum participant.

"So until we address some fundamental macroeconomic imbalance, putting our faith in one of those panaceas such as a logistics hub is not going to help ... and that is not to say that it will not be successful," he continued.

Instead, Government needs to have diversified and sustainable industries in order to achieve economic growth, he told the forum, reflecting on the contributions made by the telecommunications industry over the last decade.

In 2000, with the introduction of Digicel, which brought welcomed competition for the long standing Cable and Wireless, the telecommunications industry has been "spectacularly successful" in terms of profits earned, return on capital and contribution to employment.

But: "With all of that it has not transformed economy. You just cannot transform the economy based on one activity," he said. "So my point is that even if the logistics hub is financially and economically successful, it is not going to transform the economy," he said.

Transformation requires a balanced budget, stable environment, low inflation, security and proper returns on investments, the economist said.

marcella.scarlett@gleanerjm.com