Omar Davies will need all his skills of persuasion to keep the economy on track. - NORMAN GRINDLEY/DEPUTY CHIEF PHOTOGRAPHER
THE LAST month has brought some significant events that could lead to a likely revision of the fiscal targets, set out for the next three years. This could also derail the finance minister's chase for the leadership of his party, as more onerous fiscal targets could spell doom for his prime ministerial aspirations.
This fiscal year (FY 05) was supposed to see the restoration of a fiscal balance after the long years out of whack (even worse than the seven years of famine found in Joseph's time in the Book of Genesis). It has now become likely that we can divide up the Jamaican chronological time into two distinct time periods, but not the usual B.C. and A.D. history of mankind. Jamaica will soon have to talk of a B.F.C. era and an A.M.O.U. era.
B.F.C. stands for Before FINSAC intervention (referring to the almost blanket coverage of troubled financial institutions in the mid 1990s) by the govern-ment, and the A.M.O.U. will be used to refer to the end of the Memorandum of Understanding pact, at the end of March 2006.
It may surprise many to know that fiscal surpluses are not as unusual as tax cuts under Omar, but were the norm during most of the first half of the 1990s and only came unstuck in the aftermath of the financial sector adjustments that were then undertaken. Since then, it has been a long lasting and hard struggle to restore fiscal balance in the public accounts, and only in this fiscal year is headway expected. This is so, even with a revised growth figure downwards and higher than expected costs, especially oil prices.
The post-FINSAC era also saw the escalation of debt (something that had always been significant, especially the external debt) and, a lack of discipline in managing public expenditure. The almost two-year old MoU. has gone a far way in keeping down expenditure and avoiding frequent tax hikes just to stay afloat.
With record oil prices, expected to trigger higher direct and indirect costs throughout the economy, and with other utility and transport prices likely to generate 'cost-push inflation' in the Jamaican economy, it is a given that any new MoU pact will be 'toast', unless Dr. Davies has a greater 'sweetmouth' than I have given him credit for. Many trade unions will find themselves in the classic catch-22 situation, unable to jump left or jump right. It is quite likely that all of the programmed increases planned for Fiscal Year 2006, will not be sufficient to cover the attempts by key bargaining groups to restore some of their purchasing power, and this will put great pressure on the public coffers.
The Finance Minister will have his hands full trying to keep spending down over the next two years, what with expected lengthy and protracted disputes between his Ministry and several public sector bargaining groups, much less to have the time to focus on obtaining the top job in his party.
The various options that he will face include seeking new revised fiscal targets to run fiscal balanced budgets over the next few years, which would have to include a round of new taxes (bringing further unpopularity to himself and his party); or running small fiscal deficits (displeasing external creditors); or 'eating humble crow' and throwing himself on the mercy of the country, by trying to get critical groups to buy into the need for expenditure containment, despite the obvious pain they will suffer. There is another option but this is so unlikely that it is even more of a gamble than winning a big prize in some powerball lottery, and that is having the economy generate so much growth, that the spin-offs create enough jobs and revenues to avoid any major new taxes, or further debt burden (sparked by a new round of heavy borrowing).
Jamaica has a colloquial saying, warning of imminent danger in the phrase 'anywhere you turn, macka jook you' and it may serve the Finance Minister well to walk with a sturdy pair of iron man boots (made in Jamaica) over the next few years, as his sole (figurative and literal) will need some strong protection, from internal and external challenges.
