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No time to be reckless - Phillips defends Government's public sector wage offer

Published:Tuesday | June 16, 2015 | 12:00 AMDaraine Luton

Finance Minister Dr Peter Phillips says it would be fiscally reckless to borrow more money in order to offer higher pay to public-sector workers, stating that what the Government has offered in the wage negotiations is what we can afford at this time.

The minister said that in order to spend more on wages, "We will have to earn more, and we can only earn more by attracting greater levels of investment, local and foreign, which will provide employment for more Jamaicans."

The public-sector wage bill, according to the minister, last year accounted for 31 cents out of every dollar, up from 21 cents out of the dollar in 2010. He said that this is as a consequence of meeting payments for all wage agreements that were outstanding.

The Government and unions representing public-sector workers are now at daggers drawn, as both sides have been unable to agree on a wage increase. The Government had initially offered a five per cent rise over two years to public-sector workers and has since increased the offer to seven per cent.

But amid fears of unrest among the workers, who last got an increase in their gross salaries in 2010, Phillips, in an address to the nation last night, said, "While we appreciate the demand for a higher rate of wage increases, at this time we simply cannot afford it."

Last night, Phillips received support from Marjory Kennedy, president the Jamaica Exporters' Association, who praised his team for staying the course of prudent fiscal management.

"I join the rest of the private sector in calling for the public sector to agree to the five per cent increase as both the public and private sector need to work together to continue to keep our belts tight until we get out of our tight economic situation," she said.

Phillips' address came hours after the International Monetary Fund (IMF) announced that its executive board completed the eighth review of Jamaica's economic performance under a programme supported by a four-year extended fund facility of SDR 615.38 million (about US$932.3 million).

The IMF, while stating that Jamaica's programme implementation has been strong, said there is the need for improvements in revenue administration and a sustainable reduction in the public-sector wage bill through fundamental civil-service reform. Jamaica has set a target for the reduction in the wage bill to nine per cent of GDP in 2016-17 and firmly maintaining the ratio of public debt to GDP on a downward path over the medium term.

The Government told the IMF that it will continue to reduce the size of the public-sector over 2014-16 through the elimination of posts and an attrition programme.

"To ensure that the GOJ's overall wage ceiling of nine per cent of GDP by 2016-17 is met, the filling of vacant positions will be constrained as needed, guided subject to the need to preserve capacity in a limited number of priority areas," the Government said in its latest letter of intent to the IMF.

According to Phillips, Jamaica is making progress under the economic reform programme, and the recent upgrades by the credit-rating agencies are further evidence that the economy is on the right track. He also noted that, locally, consumer and business confidence is on the rise, and the improvements to the business environment make Jamaica the best country in the English-speaking Caribbean to do business.

Last night, Phillips' message was consistent with the tone of the letter of intent. He told the nation that the reform of the economy and the "improvement in the quality of life of every Jamaican is inextricably linked to the reduction of our debt and the public-sector wage bill".

"It might appear to some to be far easier to listen to the voices of political expediency and make commitments to wage increases which the present level of available resources could not support. To proceed on that path, however, would only end up reversing the progress we have made and betray the trust we have built locally and internationally. We would lose all the gains that the country has made thus far," Phillips added.

Arguing that the country was "near bankruptcy" in March 2013 before the agreement with the IMF was inked, the minister noted that there was a high level of public debt that stood at approximately 145 per cent of gross domestic product and the country was without multilateral support.

This high debt, Phillips recalled, saw 60 cents out of every dollar of the Budget going to service debt in 2010. In addition, to pay public-sector wages, it took another 21 cents of every dollar.

"This meant that 81 cents of every dollar spent by the Government went to servicing the debt and paying the wages of public-sector workers. This left the Government with only 19 cents out of every dollar to fix roads, improve the health service, build schools, provide water and housing, meet national security costs, and clean drains, etc," the minister said.

The minister said the objective of the economic reform programme was to reduce the amount spent on debt servicing and the public-sector wage bill in order to allow the Government to spend on services that will improve the quality of life of its citizens.

"The progress we have made is evident in the fact that while we were servicing the debt at 60 cents of the dollar in 2010, we are now using 42 cents of every dollar as at the end of the last fiscal year to service the debt. We are making progress. However, to meet our ultimate objective, we must also reduce the share of the public-sector wage bill," the minister added.