Camilo Thame, Business Reporter

A $3.5 billion or 16 per cent shortfall on the government's December target for revenue collection would have contributed to the fiscal fallout.

In the end, though, it was the need to fork out $10.5 billion for wages - 76 per cent more than budgeted for the month and nearly double the salary bill a year earlier - that pushed the fiscal numbers badly out of synch and the targets for the year out of reach.

Indeed, the fiscal deficit for December at $8.8 billion, the deficit for the first nine months of the fiscal year reached $38 billion, $7.2 billion higher than budgeted. Should the deficit targets for the remaining three months of the fiscal year hold, Davies will miss the target of returning a fiscal deficit between 2.5-3.0 per cent of GDP. The deficit will likely be closer to four per cent of GDP.

In that regard, Finance Minister Dr. Omar Davies will rue the fact that he was not able to persuad government workers to greater sacrifice during negotiations last year.

New wage pact

When after months of resistance from some public sector unions, Finance Minister Omar Davies was able to conclude a new wage pact for state employees, it was hailed as a critical development for shore-up the fiscal situation. After a two-year freeze on wages, instituted in 2004, government workers would now receive a 20 per cent hike over two years, 15 per cent of which would be given upfront. Davies had initially hoped to hold the first year increase to 12 per cent.

But important to the fiscal numbers during the third quarter of the fiscal year, the bulk of the retroactive payment became due in December.

The central government forked out $10.5 billion in wages and salaries last December, 95 per cent more than in the same month in 2005, and 76 per cent higher than budgeted for the month.

The upshot: the wage bill for the first nine months was $3.4 billion above what was budgeted for the period. The Finance Minister's expectation, however, is he will need an extra $4.2 billion to cover salaries for the full fiscal year to March 31.

But it was not only the higher wage bill that drove up expenditure during December. Davies was able to hold capital spending to less than half of the budgeted $2.4 billion. All other expenditure items, however, were higher than programmed.

Higher interest cost

In fact, programmes during the month cost the Finance Ministry $4.7 billion, 15 per cent more than budgeted and 25 per cent higher than the comparative period last year. At the same time, interest cost were $1.5 billion or 14 per cent higher than the 10.6 billion that was expected.

The increase in expenditure was placed against the $3.6 billion, or 16 per cent shortfall in revenues and grants. Up to November such inflows were growing at close to 20 per cent over the previous year, but in December came in at 10 per cent higher than for the same month in 2005.

All revenue streams were lower than expected including during the month, but the Government's inability to collect nearly $900 million of the grants projected for the month, and a near $2 billion shortfall on tax revenues was the primary reason for the missed revenue target.

General Consumption Tax brought in $4.6 billion during the month, or $1.1 billion short of expectations, while stamp duty collections were $415 million less than targeted. Only personal income tax (PAYE) actually beat target, but only slightly - $74 million.

camilo.thame@glenaerjm.com