IT is now becoming clear just how difficult Finance Minister Peter Phillips’ new job is going to be. Indeed, it might not be too far a stretch, at least at this time, to describe it as one of, if not, the toughest jobs in Jamaica (at least if we exclude those fighting crime). On this basis, it would seem reasonable to double the, in any case, artificial assessment period of 100 days for the new government’s performance, to 200 days, or approximately six months, which happens to coincide with Jamaica’s next major external debt repayment in late July of ¤200 million. As further justification for this extension, we could also note, perhaps wryly, that everything in Jamaica always takes at least twice as long as it should.

The International Monetary Fund (IMF) negotiations have now started, with the initial short-term focus being how to double the primary surplus (revenues minus expenditures, excluding interest costs), from a projected just under three per cent of GDP for the fiscal year now ended, to somewhere north of six per cent of GDP for the new fiscal year. The central government’s fiscal deficit for the year just ended is projected at 6.3 per cent, with the difference from the primary surplus being interest costs, at just above 9.3 per cent.

Locally quoted Scotia Investments argues in its latest “Economic Update” on Jamaica in late March, the fall in interest expense as a percentage of GDP, from 17 per cent to 9.4 per cent over the last two years, was driven by a combination of the Jamaica Debt Exchange (JDX) and a subsequent confidence driven, substantial further reduction in market interest rates. However, as Scotia also notes, wages as a percentage of GDP have remained at 11 per cent over the period. When this is combined with a rise in spending on recurrent programmes, and continued slow growth in tax revenues, estimated by Scotia Investments at 4.9 per cent for the current year, we can account for the deterioration in the primary surplus. The rise in tax revenues, Scotia adds, fails to “meaningfully better the 4.8 per cent realised” for the previous year of 2009/2010 when the economy contracted 0.6 per cent, despite faster growth of 1.5 per cent for calendar year 2011. However, this may not take full account of the impact of the Christmas tax package of 2009, which would have impacted the following year, compared with 2011/2012, which did not see a tax package.

All of this suggests, as Scotia notes, that we are likely to see “policy measures that increase the primary surplus by at least two per cent of GDP (J$24 billion) in the next fiscal year”. As Scotia also points out, the government still owes public sector workers J$20 billion in “back pay”, suggesting that the brunt of the policy measures are likely to represent sharply increased taxation from a new tax package, likely to be several times the $7 billion recommended by the Private Sector Working Group (PSWG).

After the IMF meetings scheduled for the beginning of the week, the economic team of Minister Phillips, Financial Secretary Dr Wesley Hughes, Bank of Jamaica Governor Brian Wynter, Senior Director of Debt Management Pamella McLaren, and technical adviser Helen McIntosh, will meet with international fixed income investors in the US (Boston on the 25th, New York on the 26th and 27th), and London on April 30th. Although technically this would be a non-deal road show, French bank BNP Paribas and Citigroup have a joint mandate to arrange up to US$500 million in new Eurobond financing, which would be enough to both pay out the July Euro issue and replenish the reserves, effectively acting as bridge financing for the resumption of multilateral lending following an IMF agreement. The timing of the trip also suggests the government would like to do a deal sooner rather than later, although this would depend at least partly on an improvement in market conditions, which have been weak in April so far, with investors currently seeming to be in a “risk off” mode.

The strategy likely to be employed by the Government to finance the current budget gap is, therefore, becoming clearer. It appears to include a substantive return to the international capital market (this also recognises that even with an IMF agreement multilateral resources will be less generous than before), and a further large increase in taxation beyond the current anaemic “passive” growth of below five per cent. Barring other positive measures, this is likely to mean continued weak economic growth of around one per cent for the current year and beyond, with the ever present danger of shocks pushing us into negative growth territory.