Dawn Ritch, Contributor
THE FINANCE Minister's figures are bogus as usual. He claims to have bettered his fiscal deficit target of six per cent of GDP with an actual outcome of 5.8 per cent. But it's an illusion.
Bear Stearns writes, "We believe that this result was met with the help of some delays in payments to contractors and suppliers, as well as a late March pre-sale of forward payments due to the Government in the coming years for the sale of the NCB bank." Would that were all. But the gerrymandering of the nation's figures is much, much worse than that. Yet in his presentation to the House of Representatives, Dr. Omar Davies poured scorn upon the Opposition's forecast of an outturn that would have been closer to 10 per cent.
What are the real numbers? Information coming to me indicates that as of March 31, 2004, some estimated $2.5 billion worth of tax refunds for the September and December 2003 quarters was due to financial institutions. This sum represents the tax withheld at source and paid over to the Government from interest. The Ministry of Finance and the Bank of Jamaica withhold tax from their interest payments to financial institutions. This is netted off from the tax withheld by financial institutions from their customers.
The tax withheld by the Government and the BoJ is greater than the tax withheld by the bankers and investment houses. As a result a refund is due to those institutions. Currently the Government owes them about $2.5 billion which remains unpaid. That sum does not include tax that is withheld from interest payable to pensions schemes. These refunds also remain unpaid and affect the benefits of workers.
This sum of money is excluded from Dr. Davies' announced $28.2 billion deficit. The money owed to financial institutions, together with the several other billions of dollars that are owed to contractors and providers of various services to the Government, changes the picture quite a bit. Were these included, the budget deficit would have been in the order of $35.0 billion, or some 7.2 per cent of GDP. In speaking to some of these financial institutions, I was further advised that repeated telephone calls for these refunds was met with "We are not in a position to refund the tax at this time, and we are unable to say when we will be able to do so".
NEW DEVELOPMENT
It should be noted that this is an entirely new development in the Jamaican financial sector. There have been in the past, delays of one or two weeks in the settlement of the refunds. But both the size of the arrears, and the extended period that it is now taking to regularise the accounts, are being viewed with great concern. The size of the country's budget deficit affects her ability to borrow overseas and the rates at which money can be borrowed. The lower the budget deficit is the more favourably creditors look at her. Hence the temptation that a Finance Minister faces to gerrymander the figures.
I also understand that $1.7 billion is owed to the University of the West Indies. The Ministry of Finance has apparently given NCB a Comfort Letter on the matter. More troubling though are the balance sheets of the central bank itself. For the year ended December 31, 2003 the BoJ reported profits of $6 billion. This represents to a large extent unrealised foreign exchange gains as a result of the devaluation of the Jamaican dollar. Under the BoJ Act they are required to pay over their profits annually to central government. These 'paper profits' are not cash. They are only realisable when the BoJ sells off its foreign currency reserves. These 'paper profits' were nevertheless included in the numbers that Dr. Davies laid before the House. What this means is that not only his debt is understated, but even his income is overstated as well. This is a hell of a way to keep the nation's books.
Readers should note that the BoJ's most recent Balance Sheet at March 24, 2004 indicates that the central bank has had losses of $1.78 billion to date. It is quite conceivable that these losses have increased because of the recent gradual revaluation of the Jamaican dollar. In order to correct the loss at the end of the BoJ financial year, Government will either have to draw them a cheque, or allow the Jamaican dollar to devalue to wipe out the losses.
FISCAL DEFICIT
A question therefore arises. Did the Finance Minister programme for the BoJ's losses in his budget? Or does he expect to extinguish those losses by allowing a slippage in the currency? His claim to have a fiscal deficit of 5.8 per cent, or 0.2 per cent within the six per cent outer limit he projected, is demonstrably false. But on that basis Bear Stearns at the request of the Government of Jamaica re-opened the year 2017 Euro bond, and promptly raised between US$100-US$150 million. The Ministry of Finance promptly floated an 'unlimited' Jamaican dollar bond locally that had to close early. It had raised a record $13.33 billion. All this because the Minister of Finance told the House that he beat the fiscal deficit target, to an enormous amount of beating of the tops of desks on his side of the House.
Well, it looks to me like the Opposition's forecast is the more likely one, not the outcome that Dr. Davies unblinkingly gave the people of this country in his official capacity. Standing in Parliament he waved his spectacles airily and said, "In fact, in December 2003, my presentation to members of the trade union leadership showed that unless there were tight management of the budget we could be headed for a deficit equivalent of 10 per cent of GDP in 2003/04 and a worsening situation thereafter. This was the document which got into the hands of the Leader of the Opposition and which he gave great publicity, locally and internationally."
But Dr. Davies never said how he got from a 10 per cent to a 5.8 per cent fiscal deficit in his presentation.
Even when he closed the Budget Debate, he never said. Although he ridiculed the Opposition Leader for his use of the word 'magically' in the latter's presentation, Dr. Davies is the magician. Because he is the one who pulled 5.8 per cent out of a hat. His inexplicable and remarkable need to borrow is indeed producing some surprising results. Fiscal deficit numbers can be caused to appear and disappear at will.
