THE most significant economic shock that will hit the country over the next few years, will be just as devastating as several hurricanes, hitting Jamaica. It will be the attempt to reign in the 'yawning' fiscal deficit.
With commitments to meet a fiscal surplus sooner, rather than later, any failure to engage in serious structural fiscal reform, will lead to lower international credit ratings and greater external pressures, to meet repayment costs. The high domestic (internal) debt has been the consequence of this borrowing, which was dramatically increased a year ago, when FINSAC costs came on board.
The Government of Jamaica (GOJ) will find itself 'stuck between a rock and a hard place', where, whichever way it turns, it will face severe criticism. It will either have to meet its IMF/IDB SMP obligations in getting the deficit down and turning it into a fiscal surplus (i.e. revenue inflows exceeding expenditure), and this will necessitate taking harsh steps to contain wages, raise taxes and user-fees, introduce new fiscal obligations and cut some government programmes (no matter how needy). If it disregards this, then it will face a declining market for Jamaican bonds overseas as likely problems in Latin America impact on the value of Jamaican bonds. We will then find it difficult to meet budgetary needs with external funds. In all of this, there will be a political fall-out, from embarking on fiscal cuts and mending, especially if there is an opposition waiting to cash in on this fall-out.
I perhaps should not be amazed but I find it surprising that many persons do not realise the full extent of the deficit, even those who should know. Many persons instead believe, that the chronic problems behind not offering significant public sector wage increases, or being unable to pay allowances on time, or to fix/repair deteriorating main roads, is because the GOJ is mean or spiteful, or some believe corrupt. The simple mathematics of an equation where when we subtract over J$134 billion from the J$210 billion, this leaves very little to run the country on. Given the pressing crime problems and the crisis management approach, we then get left with pitching and patching to meet various needs as they occur. If we were even to curb all the government over-spending, it will still leave a huge fiscal hole to fill.
The GOJ would do well to sell its future economic adjustments to the general public, rather than wait for any volatile reactions. If the problems are publicised ahead of time, this may not endear the new Government to the majority of the population, but it will involve a new style of governance, that has largely been absent. Information is always preferred to ignorance.
