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Local News>Capital projects sacrificed on the altar of debtLavern Clarke - Business Editor |
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Jamaica has shaved close to $4.5 billion off its spending plans so far this year, more than enough to offset the $362 billion shortfall in tax collection and grants as at July, but at heavy cost to routine, state-assisted capital projects and programmes.
The Ministry of Finance on Tuesday reported a fiscal deficit of $16.4 billion that was 20 per cent ahead of budgeted targets, and also a slight improvement over the comparative period in 2007 when government spending outpaced inflows to the treasury by $16.7 billion.
Now the Bruce Golding administration is facing an $8 billion - and counting - bill for storm damage.
But, the finance ministry has marshalled its top technocrats and advisers to go through the budget "line by line" to see, "what we can shift around," Senator Don Wehby told the Financial Gleaner.
Wehby said he has two considerations: assessing the cost of the damage and finding the money to fix it; but also ensuring that the deficit and growth targets are not derailed in the process.
No Contingency Funds
The senator, Jamaica's fiscal defender, has no contingency funds to call on - those monies are already earmarked to pay higher wage bills once salary negotiations are concluded.
Neither can he count on the Caribbean Catastrophe Risk Insurance Facility, whose managers said this week that Gustav was too tame a storm to hit the trigger for claims.
"Gustav only reached minimal hurricane force wind speeds over a very small and sparsely populated area of Haiti and over Cayman Brac and Little Cayman," said Dr Simon Young, chief executive officer of Caribbean Risk Managers Limited, the company that oversees the regional insurance scheme.
"CCRIF triggers on wind speeds significantly higher and usually also needing to impact areas of high population," Young told the Financial Gleaner via email.
Jamaica has already led a lobby, successfully, for the revision of the insurance policy's terms, but there have been suggestions that policymakers are still unhappy with the parametric model, which requires that a hurricane has to be measured as at least a 10-year event to trigger claims, revised from the 20-year trigger.
Studies are also underway to assess the feasibility of specific coverage for the agriculture sector.
On Thursday, Wehby suggested that those assessments needed to take on new urgency.
"We want to have another discussion again," he said. "We're looking to push them hard on agriculture."
Not Overly Worried
Early indications are that external creditors are not overly worried that the added fiscal burden will derail their returns, even with three other storms on the way.
"It is very tough at this point to assess this risk," said Dr Carl Ross, formerly of Bear Stearns but now managing director of investments at Oppenheimer, in an emerging markets update this week.
"The only country in recent times to default due to a hurricane was Grenada in 2004. We do not expect this outcome to repeat itself."
Ross also said his sources within the finance ministry have said Jamaica's damage estimate from Gustav was "too high". Wehby told the Financial Gleaner however that the assessments were not yet complete, saying: "The figure could be higher, it could be lower."
Here, in Jamaica, some analysts were more concerned. Pan Caribbean for example said in its daily investor update Wednesday that Gustav could exacerbate the current revenue shortfall and jeopardise the 4.5 per cent fiscal deficit target, were economic activity to decline.
Agriculture and roads and bridges were the hardest hit.
Tax revenues for fiscal 2008 reached $80.6 billion at the end of July - reflecting average collection of $22.5 billion per month - while total revenue was at $90 billion. But 84 per cent of that income flowed back out to cover expenses related to wages and debt servicing, spectres that haunt the treasury as big ticket spending items that government has not, in succeeding administrations, found a way to tame.
The monthly wage bill is now running at $6.5 billion on average, but will likely grow in the months ahead once the ministry wraps up wage negotiations now underway.
Interest payments on government's $1.03 trillion national debt is even higher at $8.6 billion per month.
Programmes Cut
To compensate, finance cut government programmes by $1.75 billion and capital works by $2.9 billion.
Indeed, while government's big bills are increasing, the economy has slackened, resulting in 'negative' growth (-0.2 per cent) in gross domestic product in the June quarter, as measured by the Planning Institute of Jamaica (PIOJ).
Notably, bauxite levy inflows to the treasury were off by $740 million in a period of downturn for the sector.
The PIOJ, in its June quarter report on the economy, said crude bauxite production was up 5.9 per cent but alumina production off by 2.2 per cent in the three-month period.
The situation deteriorated in the month of July, with a 13.2 per cent decline in performance - reflecting a 3.1 per cent drop in crude production and a 16.8 per cent fall in alumina.
Exports also fell 23.7 per cent, led by a one-third decline in volume sales of alumina.
Jamaica's fiscal position was also substantially buoyed by the tax amnesty programme that targeted businesses and the self employed.
In the month of June, more than $5 billion was collected in corporate income tax - monthly collections otherwise were below $725 million - exceeding even the ministry of finance's expectations on compliance by more than a billion dollars.
$2 Billion Short
But those gains were eroded by underperforming production and consumption taxes as well as duties on imports which, combined, also fell short by almost $2 billion. The government, however, expects Customs to make a turnaround, having sent in new man Danville Walker a few months ago to clean up the agency and cauterise what is perceived as endemic corruption there.
Jamaica continues to rely heavily on debt to run the country, raising $58.6 billion so far this year, half in commercial markets overseas.
Its primary balance, which ignores the cost of debt servicing on the budget, was a healthier $26.5 billion at the end of July.
lavern.clarke@gleanerjm.com