By Al Edwards, Business co-ordinatorFOLLOWING BEAR Stearns' less-than-positive assessment of the Government's fiscal performance, United States finance house Wachovia Securities remains somewhat upbeat on Jamaica but makes the point that the Government still faces considerable challenges.
With expenditure, wages and programme spending on the increase and the interest on debt sucking up the Government's resources, Senior Managing Director of Bear Stearns, Carl Ross commented: "In our view Jamaica is holding on barely to its fiscal situation and debt dynamics.
PROMOTION FREEZE
The Ministry of Finance has issued a directive instituting a wage and promotion freeze in the public sector. Capital expenditures are clearly being slashed (or forced off-budget). But the increased interest cost and the rising debt stock are cause for serious concern.
The downside scenario is that by year-end the budget targets, once again look unreachable and the Ministry of Finance is forced to come up with another series of supplemental fiscal measures, like they were forced to last year.
"Broadly speaking the numbers are on track, but they show a country under continued extreme fiscal pressure, and the current trends do not look sustainable."
Below is Wachovia's more benign assessment which was published for the month of October.
The five-month fiscal performance is impressive, but the fiscal challenge is still great. In first five months of Jamaica's fiscal year (through August 2003), the government increased its revenues by 23 per cent, an impressive achievement when compared with inflation of 10 per cent. The increase of only 3 per cent in the government's primary expenditures (excluding interest) was also impressive. Because of a 32 per cent increase in interest costs, however, total expenditures increased by 15 per cent. The cumulative deficit was only 2 per cent lower than that of the comparable period in the 2002-03 fiscal year. We estimate that the primary fiscal surplus so far in this fiscal year is equivalent to 7 per cent of GDP, well below the 12.2 per cent target, and that the nominal fiscal deficit is equivalent to 11 per cent of GDP, well above the 5.5 per cent target. We must emphasise that these estimates do not account for seasonal variations, which may imply that the government actually is on target to complete its goals by the fiscal year-end. In any case, the challenge remains considerable, given the country's very high public-sector debt.
CHARACTER
"C" stands for character. This may be the most important of the four "C's" of credit, and last week we were reminded of one way that it applies to Jamaica.
While introducing Prime Minister Patterson, Citigroup Vice-Chairman Bill Rhodes recalled that, in the aftermath of the 1980s bank debt-restructuring negotiations, Jamaica did not ask for any "haircut" of principal on its obligations, something that contrasts with the behaviour of other countries then and "another country" now.
Indeed, we have perceived in various recent contacts, indications of a strength-of character that infuses the Jamaican leadership, which implies that there is a stronger will-to-pay than in other emerging markets. Although we have made clear our ongoing concern about the fiscal squeeze that this government has gotten itself into, we are forced to recognise that the government's determination may pull it through this difficult situation, just as it has in the past.
Commenting on this latest international report on the country's fiscal performance, JMMB research analyst Jason Morris said, " I think it is a fair assessment. We do have some challenges and we have some way to go before we fully address them."
