ARGUING that the Government has slashed real non-debt, non-wage expenditure by a quarter over the past seven years, the finance minister, Omar Davies, has said that he will seek help from trade unions to help rein in salary demands for state employees, which have more than doubled over the same period.

Davies also told private sector bosses, being schmoozed by ministers at the fancy Ritz Carlton hotel in Montego Bay, that he intends to keep a lid on the country’s debt as part of the strategy to lower interest costs, and has warned that the Government will become mean with its debt guarantees and deferred payment projects. The cost of interest payments has increased just shy of 100 per cent between 1995/96 and the current fiscal year.

The Montego Bay retreat, between top Government officials and about 50 senior private sector officials, was designed to encourage investment by corporate Jamaica and to enlist their backing for tough measures that Davies is expected to impose in next month’s budget as a start to closing a public sector deficit that is running at about eight per cent of gross domestic product (GDP).

The deficit was projected at the start of the current fiscal year, which closes on March 31, to run at about two per cent of GDP. It was revised to 4.2 per cent of GDP in the face of increased expenditure to repair flood damage, but in December the finance minister revealed that the gap between Government’s spending and all its revenues would be more likely 8.4 per cent of GDP.

The minister subsequently announced that he would keep the deficit to eight per cent of GDP and reported at the Ritz Carlton retreat that he is on target — the first move to closing the gap by 2006. The minister has signalled a deficit of six per cent of GDP for 2003/04.

The gap for the current year was widened substantially by an additional $8.2 billion in the Government’s salary bill, nearly $4 billion more to service debt, and over $1 billion in grants to local government authorities.

While the Government was criticised for the expansion of the deficit when the figure was first unveiled in December, Davies’ personal reputation took a heavy blow last month when he suggested at a PNP constituency conference that the extent of the gap might not have been so wide had 2002 not been an election year. In the circumstance, he suggested, he did not stop spending on projects that were already under way and re-direct the funds to flood repair.

But in what appeared to be an indirect response to his critics, Jamaica House quoted the finance minister telling the business leaders that a recent review had shown that the Government’s spending on wages and for servicing debt had increased by 108 per cent and 95 per cent respectively between 1995/96 and the 2002/03 fiscal years.

Based on the additional $8 billion for wages this fiscal year that Davies disclosed in December, the Government’s pay bill is now at $25 billion, or over 11 per cent of the budget.

Additionally, interest payments this year, with the $3.83 billion the finance minister unveiled when he tabled his supplementary spending, will reach $63.46 billion or over 28 per cent of the budget. When principal payment is added, the debt servicing cost is $138.46 billion or 62 per cent of the budget.

Debt payment and wages combined, account for $163.46 billion or over 73 per cent the current budget.

Said the Jamaica House report of Davies’ presentation to the business leaders: “Dr Davies concluded further spending reductions being pursued by the Government will have to target public sector salary containment and national debt management.

“In that regard, the finance minister has signalled the intention of the Government to engage public sector unions in serious discussions to enlist their support for new and realistic measures to control wage demands on the budget.”

The administration has, in recent weeks, been having exploratory talks with trade unions which it hopes will lead to full negotiations for a social partnership agreement that will include the private sector.

A similar attempt at a social contract failed in the mid-1990s. Although officials say the recent talks with unions have been encouraging, there is as yet no breakthrough or agreement for formal negotiations.

In respect to the debt management, Davies reiterated his intention to eliminate the deficit by 2006, which, among other things, will require a decline in interest payments and increasing revenues.

But Davies also told the business leaders, according to the Jamaica House report, that the Administration would “prioritise capital projects, restrict the use of deferred financing, tighten management of Government entities and contain Government guarantees and letters of undertakings which tend to end up on the national accounts”.

Last year, Davies had projected to pull the debt, which stood at $497 billion or about 130 per cent of GDP at the start of the fiscal year, to approximately 100 per cent of GDP by 2006.

However, the debt is expected to reach $569.4 billion or 141 per cent of GDP at the end of this fiscal year, about 10 percentage points higher than at the start of the period, forcing Davies to moderate his projections.

But he made clear that the Government would cap the debt in real terms.

“The Administration subscribes to capping the debt, but as a percentage of GDP,” he said.