Jamaica Gleaner News - No time for sugar-coating - Sunday

R. Anne Shirley, Contributor

Each day, as the Jamaican dollar continues to slide and there are more news reports about further job cuts in the various sectors of the economy, it becomes more imperative for the Government to level with the Jamaican people as to the exact state of the economy and the prospects for fiscal year 2009-2010 and the medium term. In the absence of concrete information, the rumour mills have begun to work overtime on the way forward, and analysts try to anticipate the next moves by the Golding administration.

The bottom line is that the upcoming budget will be one of the most difficult ones to craft since Independence. On the revenue side, there will be a significant fall-off from the revenue intake in real terms from fiscal years 2007-08 and 2008-09, respectively. In terms of our foreign-exchange receipts, all of the major categories are expected to show reduced receipts - remittances, tourism receipts, bauxite/alumina exports, banana and sugar exports. Foreign-direct investment receipts are all expected to decline.

Gap greater in 2009-10

Even if the cost of petroleum on the world market remains at current low rates, and international food prices remain relatively stable, the gap between Jamaica's foreign-exchange earnings/receipts and our import requirements should be greater in real terms in financial year 2009-2010 than in the current year.

In addition, tax and non-tax revenues (including customs revenue, GCT, PAYE taxes, etc) will show a decline as the economy continues to contract.

When one takes into con-sideration the impact of the continued high interest rates and the sliding dollar on the public-debt position, and despite the fact that as a result of the current debt-repayment schedule, the Gover-nment of Jamaica will not have to be called upon to make any major repayments of debt in the next two years, it is nevertheless very difficult to see how it will be able to avoid the following scenario:

The Government will not be able to avoid lay-offs in the public sector. In other words, with the limited revenue sources and the Government's stated commitment to the multilateral lending agencies that there will be no net increase in the public-debt position of the country, and given the anticipated reduction in net foreign-exchange receipts, there will have to be significant cuts in the public-sector establishment and wage bill.

Accelerated divestment of public-sector entities will be pushed during financial year 2009-2010.

The prime minister will need to reshuffle the Cabinet and reduce the overall number of ministries and government agencies.

There will have to be a large tax package, including (a) an increase in the gas tax, (b) an increase in a number of the 'sin' taxes (on liquor, cigarettes, etc), and (c) an increase in the GCT level.

Some of these tax measures will be offset by the implementation of some of the tax reform measures that have been advocated by Senator Don Wehby in his six-measure tax-reform programme.

The social-partnership talks will need to focus on the trade-offs between allowing the Jamaican dollar to keep on falling and the continuation of the high-interest-rate regime into the next fiscal year.

Attention will have to be paid also to the areas in which tax incentives will be given - emphasis should be placed on ways in which to increase long-term savings (pension funds, insurance policies, etc), and to reduce the Govern-ment's dominance in the local financial markets.

Finally, priority will have to be given to the provision of social safety nets for the most vulnerable in the society.

Keeping the economy afloat

This is a tall order and whatever the outcome of the Government's deliberations, one hopes that in the presentation of the fiscal budget in the next few weeks, the minister of finance (and the prime minister) will finally be able to come to the nation with an honest, forthright statement on the state of the Jamaican economy, the hurdles which we face, and the steps that are being taken to keep the economy afloat. Any attempt to sugar-coat the situation in the face of the strong action that has been taken by the Bank of Jamaica in recent months will not inspire market confidence.

It is time for the Government to level with the citizens of this country.

R. Anne Shirley is a financial analyst and writer on business issues.