$100-b budget cut!

Gov’t puts knife through next budget

BY LYNFORD SIMPSON Observer writer editorial@jamaicaobserver.com

Thursday, March 18, 2010

THE 2010/2011 Budget, which will be tabled in Parliament next Wednesday, will be a whopping $100 billion less than the revised 2009/2010 Budget which stands at $593 billion.

Minister of Finance and the Public Service Audley Shaw made the disclosure yesterday during a sitting of Parliament's Standing Finance Committee which approved the Second Supplementary Estimates tabled in the House of Representatives on Tuesday.

He also said the country would pass the International Monetary Fund (IMF) test this month, contradicting claims that the first conditionality targets would be missed.

"I can now tell you Mr Chairman that the Budget that is about to be tabled in this Parliament next week is going to be over $100 billion less than this Budget that we are closing out. Over a $100 billion less," the minister emphasised.

"We are going to begin to see the difference in terms of the impact as a result of the (Jamaica) Debt Exchange," he boasted.

Opposition member, Dr Peter Phillips immediately asked whether the 2010/2011 Budget "will be more reliable than the one that was issued last April?", to which Shaw responded: "The Budget will be reliable."

Opposition spokesman on finance, Dr Omar Davies had warned that the original Budget presented last April was not credible.

Apart from having to present the Second Supplementary Estimates, the Government has had to embark on a rigorous taxation exercise since presenting the original Budget. Even so, the fiscal deficit continued to grow, running at around 11 per cent of Gross Domestic Product (GDP), Shaw admitted yesterday.

The Supplementary Estimates have increased the Budget by $31.5 billion, from the original $556.7 billion. This, according to Shaw, was mainly due to the recently concluded Jamaica Debt Exchange programme, which is expected to realise annual savings of around $40 billion for the Government.

"The main purpose and reason for the increase (in the Supplementary Estimates) of $31.53 billion is due to the unprecedented debt exchange exercise. In that exercise, we paid out over $22 billion in accrued interest," Shaw told the committee.

He noted that the Government had issued a series of short-term bonds of between 30 and 60 days. Payment for the 30-day instrument became due this month. This is reflected on the amortisation side of the Budget where $24 billion was paid out for the short-term bonds that matured.

Additionally, the finance minister said the Government had realised savings as a result of lower-than-expected interest payments, and savings of over $4 billion because of the "more favourable exchange rate situation that exists".

Shaw explained that while interest payments were running at $186 billion this year, they were expected to fall to around $130 billion in the next fiscal year.

"The amortisation which is in the same region -- $180 billion -- will be down to less than $100 billion in the next," he said.

Under sustained questioning from Opposition MP Ronald Thwaites about the state of the economy, the minister acknowledged that the reduction in the Budget was due to a combination of lower interest payments as well as extending the maturity profiles on some of the instruments in accordance with the debt exchange.

And he acknowledged that there would have to be adjustments in expenditure to deal with the worsening deficit.

"That is why we have made a public statement that there are $13 billion in accumulated arrears for various agreements in the public sector. The minister of state (Arthur Williams) has stated this publicly (at this week's Observer Monday Exchange) and I'm now reaffirming that we will not be able to pay that $13 billion this year," said Shaw.

"That's part of the contraction that's going to have to come about and that's just one example. There are also some areas of capital expenditure that are going to have to be truncated in order for us to stay on course in terms of fulfilling the IMF targets.

"There are sacrifices that we will have to continue to make for some time," the minister said.

Thwaites insisted that "the increased deficit doesn't seem to square with the Government's plan to reduce interest rates".

Shaw: "We knew that there would be a spike in the deficit because of the more aggressive fall-off in revenue and because of the very significant debt exchange programme, which we recognised would be a heavy one-off cost."

But regardless of the savings from the debt exchange, the minister said the Government must maintain tightness in its spending, including on public sector salaries.

While the fiscal deficit as a percentage of GDP for the fiscal year is in the region of 11 per cent, IMF stipulations are that the deficit cannot exceed 12.75 per cent.

"Are we going to make that or not?" Thwaites asked.

"The targets for the IMF for March will be met. We will pass the test in March," the minister responded.

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