By Andrew Green, Staff ReporterSOME tough decisions will have to be taken to get Jamaica out of its debt trap and put it on the path of sustainable growth, says chief technical director in the Cabinet office, Dennis Morrison.
The economy achieved minimal growth in the past decade and is now stifling under a debt load that is one and a half times the size of the country's annual economic output. The government economist said that moving on to a more progressive path requires the nation to change some of the concepts it has enshrined.
"In the short term we are challenged to redouble our efforts to collect revenue," he said. Some legislation is now in Parliament to assist this process.
He was speaking on Wednesday at the Mayberry Monthly Investor's Forum at the Knutsford Court Hotel in St. Andrew.
One new rule would require that importers of motor vehicles regularly and speedily pay over certain collections. Other similar legislation is pending to boost the authority of the revenue departments.
Spending also has to be restrained in the short term, he said. The ultimate tool used by the Finance Ministry is the control of spending warrants in the ministries. "That is not the best way to manage expenditures," he said, but it is necessary "if all other efforts do not bring results."
The medium term economic targets, to which the Government is committed, is to correct the deficit in the fiscal accounts of the Government and cut public debt substantially by March 2006.
GAINS FROM CUTTING
Meeting those targets has "very important implications for the services that are provided by the state," he said. Some gains can be made from cutting waste and inefficiency, but the resulting reduction would not be sufficient to achieve the required change.
"We often hear the statement made that the government needs to be cut," he said. "Apart from Cabinet ministers, Government expenditure goes to providing goods and services to the society. When we say cut, it means a reduction in the services to the country."
It should also be recognised that by the constitution of Jamaica, "you cannot fire and hire in a simple way," he said. And the state is responsible for the pension of any person it hires for a certain number of years. Those pensions are non-contributory and are a charge on the budget," he said. Successive governments have tried and failed to make the needed adjustments. "It requires some fundamental changes which we all agree on."
The financial sector bailout of the last decade was a major contributor to driving up domestic debt. But, he said, the losses of many public sector entities have also been a significant contributor.
"The University of the West Indies, is one we don't hear about," he said. The losses of Air Jamaica have also had to be taken on the books of the Ministry of Finance.
And another factor is the compensation to public sector employees, growing at multiples of the rate of inflation, he said. "Now that we are up against the wall, people are willing to take this seriously and perhaps take action."
Discussions are taking place between the Minister of Finance and Planning and the trade unions about this issue.
"Restraining the wage bill is a signal to the markets that we are going to be taking serious action to tackle the fiscal deficit," he said. "Making it happen will be very important."
REDUCING INTEREST RATES
"Government policy also needs to ensure that interest rates are reduced substantially and kept down," he said. This has implications for the foreign exchange market where high interest rates have been used as a tool to control the rate.
That pace at which the current account deficit of the country was increasing, especially in 2002 and in the early months of 2003, was not sustainable, he said. There had to be an adjustment in the exchange rate as one of the means to curb the demand for foreign exchange.
The country's energy bill is swallowing up its progress in export expansion, he said. "We have hardly made any progress in reducing our energy consumption per unit of gross domestic product."
Japan has reduced its energy consumption per dollar of GDP by over 40 per cent, while the United Kingdom and United States have cut theirs by over 30 per cent.
In the United States, they have done similarly. "In Jamaica we have hardly budged."
Such reductions which have taken place have been in the mining sector, in the bauxite/alumina sector.
That has to take place even as we had adjusted the exchange rate, which will discourage demand for imported goods.
The other way you change perceptions has to do with foreign exchange earning activities.
Some activities now carried out by the state, should be in private hands, he said. "What we must accept as a fundamental principle, is that the user has to pay."
Several assets that the state now owns and operates fall into that category. One is the Norman Manley International Airport, which is soon to be privatised.
COMMERCIAL ENTITY
The airport has been separated from the Airports Authority of Jamaica and now is a commercial entity operating on its own. It is going to be offered on a lease arrangement for 30 years.
Another entity which should be privatised is Caymanas Park.
There is sill a 'sizeable list' of hotels owned by the government, he said. These include the Jamaica Pegasus, and some north coast hotels, including the Renaissance Jamaica Grande. Jamaica has already carried out some significant economic restructuring and has many factors going in its favour, he said. "The current fiscal difficulty is something which the Jamaican nation is capable of solving, providing we keep a steady head and move more expeditiously."
