Economist urges IMF deal revamp
Daraine Luton, Senior Staff Reporter
Economist Ralston Hyman is raising concern about the stability of Jamaica's extended fund facility with the International Monetary Fund (IMF), arguing that the Government should push to have the primary-surplus target lowered.
Hyman's comment comes after Devon Rowe, the financial secretary, told a parliamentary committee yesterday that cuts which could be as deep as $6.9 billion are likely, to ensure Jamaica meets the 7.5 per cent of GDP target.
The noted economist told The Gleaner that such cuts could significantly impact the country's capital and social infrastructure and make Jamaica less attractive to investments.
"In view of that, and in view of the impact of the chikungunya virus on productivity, and tax revenues, and the decelerating global economy, we should use the opportunity and see if we can get a recalibration of the primary-surplus target (moving it) down to about six or five per cent of GDP," Hyman argued.
The IMF approved a 48-month facility for Jamaica in May 2013, and its deputy managing director Min Zhu said last week that Jamaica's achievements so far under the programme have been a "miracle".
Hyman said yesterday that, with the deep cuts, Jamaica's economy is already extremely vulnerable, and the slowdown in the global economy can have a deleterious impact on Jamaica's recovery.
In Parliament yesterday, Rowe said revenue has fallen short of target up to August, "forcing expenditure containment in order to achieve the overall fiscal targets".
Rowe, who was addressing the Public Administration and Appropriations Committee which examined the interim Fiscal Policy Paper, blamed several factors including the lowering of world oil prices as contributing to a shortfall in revenues.
"We still believe we are likely to see some full-year effect of oil prices. If we remain on the downward trajectory that they are on, it's likely to impact our import duties.
"It is a good problem to have, as even though it is creating difficulties on the revenue side, it is reducing transactional cost for business activities, and we think it will have a reduced impact on household prices as well," Rowe said.
He said, however, the benefits would only come in the medium term.
Crude prices have dropped 25 per cent since mid-June, driven lower by surging supplies of shale oil from the US and a slowdown in global demand, particularly in China, the world's second-largest petroleum consumer.
One of the world's leading investment banks says the benchmark price of North American oil is going to fall even further, to US$70 a barrel by next April. Oil is currently trading just below US$80, down from more than US$100 a barrel four months ago.
Meanwhile, Rowe said tax revenue has fallen behind target by $5.9 billion as at end of August. He said corporate taxes are $2.2-billion weaker than projected, and that new fiscal-incentives measures introduced this year may have companies "seeking to take advantage of those, as a result, impacting the revenue collections".
In relation to oil prices, the financial secretary said the decrease in prices has impacted the collection from international trade taxes.
"The petroleum-related trade taxes account for about 30 to 35 per cent of customs revenues and so it would have had an impact on the performance of revenues," Rowe said.
"In terms of revenue for the fiscal year, we still expect to see a shortfall of about $6.5 billion in total. He said the main items that are expected to fall short of budget are local GCT, corporate taxes, GCT on imports and SCT locals," Rowe said.
Rowe said there were improvements in GCT on imports, SCT on imports and PAYE and tax on interest.
He said withholding tax on interest, PAYE and travel taxes are expected to exceed the targets for the year.