THE Government may be overzealous in thinking it can balance the budget within a couple years.

It may also be off the mark in its projections that it can lower public debt to 100 per cent of GDP within three years.

New research by think tank, Caribbean Policy Research Institute (CaPRI), shows that the ratio won't likely reach the benchmark, which represents a sustainable debt dynamic, until 2020.

"The fiscal deficit will not go to zero in a short time," according to Dr Damien King, co-executive director of CaPRI. "After eight years of this exercise we only get to 100 per cent debt of GDP, which is a lot of debt."

The research team, led by King, extrapolated future debt levels and servicing requirements based on expected fiscal deficits over the next eight years and their impact on the growth in the public debt stock.

But the Government, which agreed that it was critical to meet International Monetary Fund (IMF) conditions for a new agreement, expects that it will be able to deliver on its fiscal responsibility framework public debt ceiling of 100 per cent of GDP by March 2016.

To achieve this, the Government is targeting a near-balanced budget next fiscal year, when it expects to run a fiscal deficit of $9.2 billion, representing 0.6 per cent of GDP, according to its Fiscal Policy Paper tabled in Parliament on February 12.

That deficit would be followed by a smaller fiscal deficit -- 0.5 per cent of GDP -- in the year that runs to March 2015, and small surpluses in ensuing years.

CaPRI estimates the fiscal deficit will more likely be 2.3 per cent of GDP for 2013/2014.

The size of the fiscal deficits going forward determine how quickly the debt grows as a result of Government meeting shortfalls with additional borrowing.

The National Debt Exchange (NDX) pushes back principal repayment dates by three or more years, so the Government expects borrowing needs will fall from $243 billion this fiscal year that ends March 31, to $76 billion, or 5.1 per cent of GDP next fiscal year.

But that is based on a $9-billion fiscal deficit next year.

CaPRI co-executive director Christopher Tufton questioned the extent to which the Government's modelling accounted for external factors.

"A substantial portion of our debt is as a result of external shocks," he told the Observer Monday Exchange at its headquarters yesterday. "If you have two or three bad hurricanes it throws you out. The only counter to that is to what extent you can influence positively that model through positive expansion within your economy -- that is a growth strategy."

Regardless of which projections are closer to what the actual out-turn will be over the medium term, doing nothing deteriorates the fiscal deficit to seven per cent of GDP, compared to the average of six per cent since 2001, when the Finsac debt was brought on the books and the debt ratio was pushed well above the 100 per cent mark.

"To continue to roll over government debt and to continue to finance these debts with traditional borrowing is not an option," said King. "Some action has to be taken, whether it's this programme or some other programme."

He believes that the proposed measures make the fiscal deficit-public debt dynamic, going forward, sustainable, but, by themselves, don't address "deeper institutional problems".

"If that is the best you can hope for after eight years (to 2020), it means that Jamaica is going to continue to be highly vulnerable to economic and natural shocks," said the think tank director, who is also the head of the Economics Department at the University of the West Indies (UWI), Mona. "The programme is actually insufficient to ensure that Jamaica hits a path of macroeconomic stability.

"It speaks to the necessity of ensuring that what has been announced so far is adhered to strictly; that the estimates of revenue expected to be realised be correct; and the other measures that are to come down the road, like tax reform and the public sector wage agreement, are critical to the programme as well."

The monitoring committee to be created, which is among announced Government plans, is expected to "ensure that there is fidelity to the adjustment programme gong forward", according to King, while it is hoped that fiscal rules to be legislated will make it difficult for the country to continue along an unsustainable economic path.

The measures proposed thus far primarily address the numerator of the problematic ratio, although eliminating fiscal deficits makes room for growth to the denominator.

"What will impact in a positive way is if the country can achieve economic expansion... of two to three per cent growth," said Tufton. "Just like how the Government is deliberate in advancing a debt management strategy, they must be equally if not more deliberate in pursuing a growth agenda."

CaPRI plans to look at institutional issues related to growth and sectoral areas where growth could be achieved, and traditionally have been achieved, over the next year, during which time it hopes to engaged stakeholders, including policy makers.

BO