Dawn RitchTHIS IS not the time for technical language or politics even. Jamaica cannot afford to wait until there is a change of government in order to put things right. Not just the people but, above all, the Jamaican establishment needs to get up and demand responsible government immediately.
Forget the crime. The economic situation is fearsome, and because of that promises worsening crime in perpetuity. The public debt is in excess of 150 per cent of Gross Domestic Product (GDP), caused by Government's insatiable appetite for borrowing money. Nowhere else in the world has such a debt dynamic.
Normally, countries borrow money for development. Because of the economic policies of the Government, the principal architect of which is Dr. Omar Davies, there has been no economic growth to increase the tax base and foreign exchange earnings.
Without curbing expenditures, the Government has embarked on a massive borrowing spree to support consumption, for paying salaries and interest on loans.
This frightening financial madness, without any structured controls on the authority of the Minister of Finance to borrow money, condemns us and future generations of Jamaicans to a debt trap from which there is no plan to extricate ourselves.
The Government has issued its April to September financial accounts. Revenues, while being ahead of last year's numbers, are still $2.7 billion behind the $66 billion projected to date. Expenditure is a little more than projected, and the Budget deficit is much worse than projected, indeed $3 billion worse.
The Government, therefore, is likely to overshoot its overall deficit target of five to six per cent of GDP.
If the gap is not covered, Jamaica runs the risk of facing a further downgrade on the international capital market.
Previous downgrades have caused an inability by the Government to borrow on that market. So the Finance Minister Dr. Davies has been borrowing locally, including solicitation from Trinidad and Tobago, whose financial and industrial giants now control a significant part of the Jamaican economy.
I six months alone, the Government has floated two Index Bonds, excluding this month's issue; five Investment Debentures, two Investment Bonds and 13 LRSs.
BORROWING WHIMSICALLY
The Finance Minister is borrowing whimsically, issuing unlimited amounts of debt instruments with no plan, and no idea of how this fits in with total debt management. Do Jamaicans realise that this Government has gone to the debt market 22 times in barely six months? Where is the public outcry that this irresponsible fiscal behaviour can lead to financial anarchy?
Readers will remember that in earlier columns I called on the Government to cut back on their size and payroll. The Government said it was not up for discussion. Dr. Davies, Finance Minister, presented to the House of Representatives what he described as a "credible Budget". But it had more holes than a sieve.
Based on the actual financial outturns it ought to be clear that yet another opportunity to fix the country's problems was missed last April.
A Supplementary Budget therefore cannot be far away. But the forecasts and any promised strategy to deal with the debt crisis will be meaningless given the dismal track record of Dr. Davies and this Government in meeting economic targets. They just don't have the discipline to prepare and administer a realistic economic programme.
While the Government has improved its tax compliance on the existing tax regime, Dr. Davies is finding it hard to make new taxes either stick, or close the gaping hole.
In at least one instance, the gaming industry, the new tax is having the effect of killing the goose that laid the golden egg. In another instance, this time of a new GCT tax on books, the Minister had to remove it. Yet he perversely kept it on newspapers, and there it remains, a pernicious tax on literacy.
It is difficult to see how Dr. Davies is going to be able to increase taxes in the Supplementary Budget to cover the spiralling budget deficit.
In his original April presentation the Minister said that he was introducing new taxes in order to reduce consumption. Well he has certainly reduced the consumption of gaming. The consumption of foreign newspapers, books and magazines also plummeted by 50 per cent. So desperate for money has the Patterson regime become, that they are taxing chances on anything educational.
The bottom of the country's bucket for absorbing new taxes has dropped out.
The Government will therefore either have to defer some capital expenditure, or allow the currency to devalue in order to reduce consumption and the widening current account deficit in our Balance of Payments.
Tax policy is not only about government revenue. At its most enlightened, the nature of the policy itself is supposed to guide the social and economic development for the country.
The current tax policy is designed not to promote development, but despair and ignorant gossip among the Jamaican people. The record in Jamaica shows however, that this doesn't make us any easier to manage.
Two major Government ministries National Security and Transport and Works have recently admitted publicly that they each owe $500 million to suppliers of goods and services and cannot pay.
It is absolutely irresponsible for this Government to have entered into so many contracts without knowing the source of funds. The recent news report that the Government was seeking to borrow some US$100 million to finance its share of the costs of the super highway, which has already started but for which work now has to be stopped, is a case in point.
GREATER RUIN
In a recent column I asked whether or not the Ministry of Finance would be able to roll over maturing investment debentures, but the Minister has not responded.
What is clear is that to pay for maturing debentures and Government paper we will simply see new paper being issued since the cash is not there. But worse than issuing paper to meet maturities is that the national debt is being further increased to insupportable levels and more and more Government paper is being increasingly issued.
The recent indefensible type of debt financing is to have no cap on new issues, but unlimited subscription. This is madness and recklessness of the highest order.
Readers should note that securities being offered by the Government of Jamaica (GOJ) are meeting with a tepid response from the local market.
The investing public and brokers have become suspicious. As soon as they buy into an Investment Debenture, and/or an LRS, interest rates trend up. They are therefore shying away from buying these blocks of GOJ securities, because they got burnt earlier this year.
I would, therefore, like BOJ Governor, Derick Latibeaudiere, to say how much of the recent $12 billion Investment Debenture floated by the Ministry of Finance was taken up by the central bank.If some of the debenture was indeed taken up by the BOJ, then they were printing money. And therein lies the even greater ruin of the Jamaican people.
The Supplementary Estimates present yet another opportunity for Dr. Davies to get his sums right. The primary purpose of paying taxes is not to provide employment in the public sector, nor homes, travel and bodyguards.
The Finance Minister must take a pair of scissors to recurrent expenditure. He must also curb his appetite for borrowing money. At this point he can't even afford the interest payments let alone the repayment of principal. In any other person, fiduciary irresponsibility like this would have landed him before the courts.
Dr. Davies is wielding absolute power stupidly. Going to the House of Representatives months or years after he, as Minister of Finance, has broken the debt ceiling targets is the height of recklessness. His targets mean nothing.
Financial developments since Budget demonstrate that he's a frightened man and doesn't know where to turn. This insatiable appetite for debt masks the total destruction caused by his financial policies.
