The government will be seeking legal advice about the possibility of dismissing public officials or not renewing their contracts for non-compliance with rules aimed at limiting the primary fiscal deficit of the public sector.
It will also strengthen the oversight role of Parliament in reviewing ministerial actions on the recommendation of the attorney general and the auditor general, according to the supplementary memorandum of economic and financial policies presented to the International Monetary Fund (IMF).
The Government said it has presented a conceptual framework for a fiscal rule to IMF staff, aimed at limiting the primary fiscal deficits to achieve a reduction in public debt to no more than 60 per cent of gross domestic product (GDP) by about 2025-26.
The fiscal rule will establish an automatic correction mechanism that would be triggered by substantial cumulative deviations from the annual overall balance target. It will include an escape clause, limited to major adverse shocks, including hurricanes, and triggered only with parliamentary approval.
Among other things, the fiscal rule will also strengthen the sanctions regime to encourage compliance.
The Government said the next steps leading to implementation of the fiscal rule will be put in place without delay.
The rule will be embedded in an effective legal framework and to that endthe Financial Administration and Audit Act, the Public Bodies Management and Accountability Act, and the Public Debt Management Act will be amended to implement the fiscal rule.
Following that, the Government will initiate a process of broad public consultation on ways for further strengthening the legal foundations of the fiscal rule.
In this context, the Government will develop mechanisms to closely monitor possible fiscal costs and contingencies associated with public-sector projects and possible public-private partnerships.
The capacity of the office of the auditor general will be augmented to allow it to provide an independent assessment of the macroeconomic and forecasts underpinning the Budget. Additional resources will also be provided to the auditor general's office so that it can recruit additional experts in public finance and macroeconomics.
In addition, the Government will prioritise reforms required to underpin the fiscal rule. Near-term actions would involve a new structural bench-mark, that is, Cabinet approval of a detailed budget calendar for fiscal year 2014-15 before the end of November 2013.
According to the memorandum, the Government will prepare, by mid-November 2013, a work plan to strengthen budget preparation to be incorporated into the IMF programme at the next quarterly review.
Key elements include establishing a permanent binding budget calendar, envisaging budget approval before the fiscal year, starting with financial year 2015-16; early and accurate budget envelopes and priorities, and a policy to limit the use of virements (authorising the transfer of funds within the Budget) and of ex-post regularisation of unbudgeted spending through supplementary budgets.
The Jamaican Government has not explicitly said which fiscal rule it will be implementing, but research shows that there are at least four types.
Debt rules set an explicit limit or target for public debt in per cent of GDP. Budget balance rules constrain the variable that primarily influences the debt ratio and are largely under the control of policymakers. Such rules provide clear operational guidance and can help ensure debt sustainability.
Expenditure rules set limits on total, primary, or current spending. Such limits are typically set in absolute terms or growth rates, and occasionally in per cent of GDP with a time horizon ranging between three and five years.
Revenue rules set ceilings or floors on revenues and are aimed at boosting revenue collection and/or preventing an excessive tax burden.