Finance Minister warns of spending cuts

KINGSTON, Jamaica: Finance Minister Audley Shaw has warned of further cuts in government spending and a push towards increasing revenue as Jamaica tries to meet targets outlined under its Stand-By Arrangement (SBA) with the International Monetary Fund (IMF).

In an address to the nation last Sunday evening, Shaw said the critical issue for the IMF is the ratio of central government wages-to-GDP which is too high for the Fund’s liking. At the end of the last fiscal year (2010/11), the cost of central government wages was 10.7 per cent of GDP, but that must be reduced to 9 per cent of GDP by March 2016.

Shaw said that in addition to the medium-term wage costs-to-GDP issue, several other challenges have impacted negatively on Jamaica’s ability to meet its current year and medium-term fiscal targets.

These include the recent public sector wage settlement adding J$10.4 billion (US$122 million) to expenditure this fiscal year and J$31 billion (US$365 million) which is just over 2 per cent of GDP over the medium term; the delay in the planned divestment of the government shares in Clarendon Alumina Production (CAP) which has led to higher than targeted expenditure and grants being 4.2 per cent below budget for the first quarter of the 2011/12 fiscal year.

“Adjustments to the 2011/12 budget have to be made to achieve the targeted primary balance for this fiscal year. Accordingly, the first supplementary estimates are being prepared for Cabinet approval on August 15, 2011 and eventual tabling in Parliament at the end of August,” Shaw said.

“These adjustments involve cuts to capital and recurrent expenditure across ministries, departments and agencies. This is because a sacrosanct part of our agreement is the commitment of expenditure on an “ability to pay” basis only. This is the only honest approach we can take towards achieving a sustainable future.”

But expenditure is not the only side of the equation, Shaw said.

The adjustments will also involve revenue enhancement measures. To this end, Tax Administration of Jamaica has launched the Revenue Enhancement and Arrears Project (REAP) aimed at collecting a significant portion of tax arrears.

The IMF’s last review of Jamaica’s Economic Program was in September 2010 when all the quantitative targets were met.

The review of the December 2010 and March 2011 quarterly assessments have not yet taken place, according to Shaw, “because the critical issue now facing the government concerns our medium-term program”.

However, the finance minister did note that the overall assessment of Jamaica’s performance under the SBA has been “broadly positive”, though there was slippage in the March 2011 quarter, particularly with respect to the central government’s primary surplus, which was J$3.5 billion (US$41 million) lower than programmed.

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