Cabinet ministers spent most of yesterday hunkered down at Jamaica House beginning what analysts say will be the Herculean task of crafting the budget for the 2009-2010 fiscal year.

"The Government will be hard-pressed to finance the Budget and I can't see how they can avoid cutting expenditure," Anne Shirley, financial analyst, told The Gleaner yesterday.

"I don't see how they will be able to afford the salaries of civil servants, and servicing the debt will be even more difficult if the interest rates don't come down."

Shirley was supported by Opposition Spokesman on Finance Dr Omar Davies, who warned that cuts in the public service might not achieve the necessary results.

"I don't see how the Government can afford the increases which they agreed to, but I have found that, with cutting staff, it takes longer than you think and ... people get panicky and you don't get much production," Davies said.

The former finance minister hinted that a wage freeze would be closer to the policy option he would consider.

"I think there is another option and ironically, Minister Nelson, with whom I negotiated a different approach, is in a position to so do," Davies added.

A difficult budget

Finance Minister Audley Shaw and Nelson, the minister without portfolio in the finance ministry, have both admitted that this would be a difficult Budget, with some bitter medicine.

"One of the approaches which we have to take very seriously is how do we create a more efficient public sector, because, as a consequence of freezes or any other measures that seek to address rising public-sector costs, we have to address the issue of accountability," Nelson stated before the start of the retreat.

"The process is going to demand that once we have determined a policy approach, we are going to have to sit down with the entities and provide them with a rationale for a policy approach," Nelson added.

For Shirley, that policy approach would have to include cutting expenditure, increasing income and divesting as many entities as possible.

"We have to watch for a freeze on wages, a reduction in interest rates and the divestment of entities, such as the Pegasus (hotel), the Port Authority, and anything else that they can sell."

Worst yet to come

Shirley added: "Right now, revenue is about $19 billion below budget and the Government will have to see what it can do to increase it. Collections from the bauxite levy are about $2 billion below budget and we haven't started to feel the full impact of the downturn yet."

Yesterday's first day of a three-day pre-budget retreat was dedicated to issues related to the economy and the impact of the global environment on Jamaica.

Also up for discussion was the fiscal programme for the new financial year.

The three-day retreat continues next Saturday. Ministers will make presentations on the priorities in their areas. The retreat ends the following Sunday. On that day Cabinet will sign off on the projected income and expenditure for the new fiscal year.