Editorial | Dr Nigel Clarke’s stimulus spending
Haunted by the policy failures that long imprisoned Jamaica’s economy in a trap of high debt and low growth, this newspaper has been among the most fervent proponents of the reforms of the past eight years to bring stability to the macroeconomy. This project included one of the world’s toughest programmes of fiscal consolidation. Jamaica consistently ran primary surpluses of upwards of six per cent of gross domestic product (GDP), having started at 7.5 per cent.
There have been gains for the pain. While the economy hasn’t enjoyed the robust growth we hoped for, before the onset of the COVID-19 pandemic, the national debt had fallen 97 per cent of GDP, from nearly 150 per cent at the start of the reform project. Unemployment fell from over 12 per cent, to around seven per cent. Most of the other matrices of macroeconomic stability were headed in the right direction.
Against this backdrop, and aware of the tendency of governments to be reckless when they believe that money is available for spending, we are not easily persuaded to open the fiscal spigot, which might place the country back on the treadmill of debt and towards the fiscal precipice, from which we have so painfully retreated since 2012. However, in the face of crisis wrought by the pandemic – a 10 per cent decline in real GDP in 2020 – we believe that there is legitimate cause to question Finance Minister Nigel Clarke’s assertion that he has absolutely no room to more aggressively lift the economy from the doldrums, on to a path of faster and sustainable growth. At least, the issue is worthy of serious debate, without an overburden of political partisanship.
Under his J$830.78 billion budget for 2021-2022 (down 2.3 per cent on 2020-21), Dr Clarke proposes to spend J$60 billion on a stimulus package, which, among other things, is for COVID-19 vaccines and provide cash transfers to poor, elderly people who take the jab. A little over half (52 per cent) of the stimulus money will go to infrastructure projects. Notable, 55 per cent of the spend (J$33 billion) will be out of a one-off, J$33-billion dividend payment to the Government by the island’s central bank, the Bank of Jamaica.
“I wish we could upsize the … [stimulus] programme to $100 billion or $200 billion, but that is not feasible without increasing our already high debt and introducing the certain risk of instability,” Dr Clarke told the Parliament. “This Government remains committed to putting in place programmes and providing the resources that will promote our health and safety, build up our infrastructure, facilitate economic growth, and create jobs.”
Others, however, question the Government’s capacity to do more, and whether Dr Clarke is being too conservative, with the risk – even if he achieves the projected 4.1 per cent growth this year – of merely placing the economy in a holding pattern, rather than on a path to sustained expansion.
Having last year won Parliament’s approval to push back, by two years, to 2028, the timetable for lowering Jamaica’s debt to 60 per cent of GDP, the finance minister has targeted a primary surplus – the difference between the Government’s revenue and its expenditure before debt servicing – at 6.1 per cent of GDP. The primary surplus is often seen as a proxy for how aggressively governments intend to pay down their debt. It is twice the out-turn (3.1 per cent) for last fiscal year, which was adjusted downward (from 5.3 per cent) at the start of the pandemic.
OVER OPTIMISTIC GROWTH EXPECTATION
The Opposition’s shadow finance minister, Julian Robinson, has proposed the snipping of one percentage point from this year’s primary balance target, lowering it to 5.1 per cent of GDP (over J$2.11 trillion). He calculated that this would release around J$21.5 billion for additional government spending.
Given the existing economic parameters, Densil Williams, professor of international business and pro-vice-chancellor at The University of the West Indies (UWI), believes that the growth expectation, although coming from a low base, is over-optimistic. He also argues that the Opposition’s primary surplus suggestion is too conservative.
“A primary surplus target of 6.1 per cent is genuinely too high for this first year of the recovery,” he wrote in this newspaper. “The need to balance the books and build reputation in the capital markets is important, but it must be taken within the broader global context where markets are seeing global adjustments across all economies in order to preserve life and stop hunger and starvation post the pandemic.”
Professor Williams, therefore, proposes a primary surplus of four per cent of GDP. That would free more than J$44 billion (twice what the Opposition called for), which would mean that Dr Clarke has a stimulus budget of J$104 billion. That would be sufficient to finance a range of social and other spending suggested by Professor Williams, with a price tag of J$82 billion. Some of Professor Williams’ proposals expand on Dr Clarke’s and the Opposition’s baskets.
If Dr Clarke remains unconvinced by these ideas, and similar ones by other analysts, we expect to hear a thoroughly argued rebuttal, beyond reflexive declarations about the state of the debt, when he closes the Budget Debate this week. The minister should also bring to his discussion the context of a recent analysis of debt-management issues in highly indebted Caribbean countries, in an Inter-American Development Bank report, on which he commented. A notable observation, and accompanying bit of statistic, that emerged from that publication is that running high fiscal balances doesn’t, of itself, avert debt problems.
For example, between 1990 and 2018, Jamaica, on average, ran a primary balance of 7.3 per cent of GDP, the world’s highest. Yet, it had among the world’s greatest debt burdens. Other policy and institutional weakness were at play. Among the questions Dr Clarke should answer is where these issues fall within his mix of concerns.