The Gross Domestic Product – the value of goods and services – is a critical barometer in the process of economic growth. In Jamaica the importance of GDP does not stay on the radar constantly. In the past, there has been focus on GDP by businessmen and politicians, but not for long. Unfortunately, they come off the radar after a short time. At last the GDP is on the radar again and it seems that on this occasion it will remain there for a long time.

It is necessary that the importance of the GDP to the economic health of the country be explained in simple language, and in this connection I rather like the approach of Bruce Bowen, president and CEO of Scotia Bank Group and president of the Jamaica Bankers’ Association. Says he: ” Not enough people in the private and public sectors appreciate how critical the priority of economic growth really is. Without GDP growth, the government will not have funding necessary to meet current levels of expenditure, let alone increased investment in education, health and security which is desperately needed. Without adequate revenues (that come from growth) the government will need to increase borrowing in order to meet its two largest expenses: public sector wages and interest on its debt. If the government borrowing increases, interest rates will stop coming down and may even increase, which will put pressure on the exchange rate and inflation. This complex problem can only be solved by accelerated economic growth.” It was an admirable presentation.

GDP growth comes with local and foreign investment which provides, among other things, revenues from taxation, and in many cases, foreign exchange spin-off that is critical to the net international reserves which the country needs to pay for imports and employment. The country is not doing well when a lot of its economic and financial activities are measured against the GDP. Take, for instance, the debt mentioned by Bowen. Total debt for the 2010/11 fiscal year was 128.3 per cent of GDP compared with 129.3 per cent of GDP in 2009/10. The projection for 2011/12 is 122.8 per cent of debt to GDP and the projection for 2015/16 is 95.1 per cent of debt to GDP. Total debt stock for 2009/20l0 was $1,434,755.8 million compared with $1,570,368.30 in 2010/2011, and a projected $1,639,502.5 in 2011/12. All of these figures broke the debt ceiling of l00 per cent. In 2009/10 the domestic debt ratio to GDP was 68.4 per cent, in 2010/11 66.1 per cent, and for 2011/12 the projection is 65 per cent. As far as external debt is concerned, the debt to GDP ratio was 60.9 per cent in 2009/10, 62.2 per cent in 2010/2011 and the projection for 2011/12 is 57.7 per cent. The government projects that by the year 2015/16 the debt to GDP ratio will be 95.1 per cent, but this is not sufficient. In every respect the extent of the debt is a heavy burden with which the country is struggling.

A debt of 60 per cent of GDP which finance minister, Audley Shaw, hopes the country will achieve in the future is more like it. At the present projection, we will still have problems unless there is substantial growth in the economy. The Jamaica Debt Exchange (JDX), a voluntary debt exchange programme, arranged by government which saved $40 billion in interest on the domestic debt, was a master stroke. On the other hand the financial crisis in the 1990s delivered a devastating blow to the economy, adding 40 per cent to the debt to GDP ratio. The truth is that the country’s income is not enough to sustain its appetite for borrowing. It seems to me that higher taxation is inevitable and is bound to come after the elections, whichever party wins.

It seems as if government will have to put a cap on debt at 95 per cent of GDP while it continues to reduce the debt. The truth is that the country will have to produce more goods and services as its present level of borrowing is not compatible with its growth rate. The situation is like a man who has a son at university. His present income is not enough to keep his son at the university so he has to seek additional income or a loan or cut expenses in other areas in order to keep his son there. I speak from personal experience.

Another important barometer to measure economic growth is fiscal deficit, the difference between what government earns and what if spends. The fiscal deficit ratio of 10.9 of GDP generated by the government last year was much too high and falls within the danger zone. An ideal fiscal deficit is three per cent of GDP. The government plans to eliminate fiscal deficit by March 2016. Let us hope that this happens. Another area on which the government has to focus is containing the public service wage bill. The wage bill was $127.9 billion or 10.4 per cent of GDP in 2010/11. The target this fiscal year is $133.7 billion or 10 per cent of GDP. Government says the requirement of the wage to GDP should not exceed 9.0 per cent by fiscal year 2015/16.

The government will have to make tough decisions including reducing expenditure, increasing taxes, holding the wage bill and pension cost by making public servants contribute to their pension, suppressing waste in government and battling corruption, to better control the fiscal deficit. We cannot run the economy as before. Everyone has to make a sacrifice.