Jamaica's budget is really tight in 2019 when analysed properly


Jamaica's budget is really tight in 2019 when analysed properly


Friday, February 22, 2019

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On February 14th, Minister of Finance and the Public Service, Dr Nigel Clarke tabled the 2019/20 Fiscal Year budget. He revealed that the Government of Jamaica (GOJ) budget was $803 billion, with just over $731 billion allocated for what Jamaica Information Service (JIS) has called Recurrent (housekeeping) expenses and $72 billion for capital (development) projects.

However, both the headline figure and the “recurrent” figure, as is always the case, have been reported in a misleading fashion by most of the major media houses, suggesting that we need to review the format of how the Government of Jamaica reports the budget to the country as it is genuinely confusing.

This year, despite the release of a simplified budget, errors in printing of the big yellow budget book have made it even more confusing for busy media practitioners.

The first step to a better understanding is the subtraction of principal debt repayment (to meet our debt refinancing needs) of roughly $138 billion, giving a total expenditure figure of roughly $665 billion.

However, the need for adjustment doesn't stop there.

Total above-the-line expenditure is actually $629.4 billion (excluding repayment of debt or amortisation).

We break this down as follows. According to its fiscal policy paper (FPP), the government advises that this fiscal year (2019/2020) the GOJ plans to spend roughly $557.3 billion on recurrent expenditure, broken down as $210.7 billion on programmes, $210.4 billion on wages and salaries (which includes employers contributions of $16.5 billion and importantly represents it finally meeting the IMF target of 9 per cent (of GDP), or a combined $421.1 billion in what it calls the “above – the line Non-Debt Recurrent Expenditure”. Interest costs of $136.1 billion, now only 6.3 per cent of GDP, make up the difference (now roughly one third of where they were at the height of the global financial crisis in terms of per cent of GDP).

Central government capital expenditure in fiscal year 2019/2020 was increased to $72.1 billion from $68.8 billion in 2018/2019, a much smaller increase than the over $20 billion increase in the previous year — although still slightly above the inflation target for fiscal year 2019/2020 of 4.3 per cent. When this capital expenditure is added to programmes, wages and interest, we get the $629.4 billion.

Finally, we then add the “below the line” expenditure of $35.5 billion, which includes the recapitalisation of the Bank of Jamaica to get the roughly $665 billion cited previously as “expenditure”, which is now also a clearly slightly misleading figure in terms of evaluating the “tightness” of the budget.

The “true” budget is therefore projecting a budget surplus of $14.8 billion, the difference between projected revenues of $644.2 billion and “true” expenditure of $629.4 billion.

The targeted primary balance of 7 per cent of GDP therefore represents interest costs of $136.1 billion plus the budget surplus previously mentioned, or roughly $150.9 billion. This significant drag — essentially repaying debt — continues to weigh heavily on the economy which suggests it partially accounts for the reduced projection for economic growth to 1.5 per cent of GDP for this fiscal year.

This compares with last fiscal year (2018/2019) when the GOJ estimates it spent just over $549.1 billion on recurrent expenditure, broken down as $212.4 billion on programmes, $200.5 billion on wages and salaries (which includes employers' contributions of $17.1 billion), and $136.2 billion as interest.

In short, the overall above -the-line Non–Debt Expenditure (programmes, wages and capital expenditure) increased 2.3 per cent to $493.3 billion, or below projected inflation, with the non-capital increase entirely driven by wages, as interest costs were flat and programmes were actually cut slightly in nominal dollar terms.

However, the FPP advises the reason programmes are what it calls “relatively flat” in terms of expenditure is that the First and Second supplementary budget included payments to reduce domestic expenditure arrears and several one-off payments which will not recur in fiscal year 2019/20, implying an increase once these adjustments are taken into account.

If we review the revenue side, we see that revenues and grants of $644.2 billion for fiscal year 2019/2020 only increased 3.3 per cent from $623.9 billion in 2018/2019. What the FPP call “passively forecast” tax revenues are projected to rise by 7.1 per cent to $575.7 billion. This good performance is partially offset by a projected 19.1 decline in non-tax revenue, from $73.6 billion to $59.6 billion, and declines in capital revenue and grants.

The FPP advises that Non-Tax revenue includes receipts of $5.4 billion from Customs Administration Fees (CAF), transfers of $14.2 billion from de-earmarked entities and $11.4 billion from NHT. Grants, at $5.6 billion, falling from $8.9 billion in the previous year (apparently reflecting a decline in EU flows), are now only 0.3 per cent of GDP.

While a longer article is warranted, all this suggests that there are unlikely to be any new taxes imposed during the budget, and there may be hopes for some mild reforms, in areas such as dividends. More anon.

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