AS usual, in analysing Jamaica’s budget it is first necessary to correct some difficulties that the format seems to present to some journalists and columnists.

Properly accounted, the budget has not really increased by nearly 20 per cent (to $641.6 billion) over the final approved estimates for 2014/2015, as most of this increase reflects a 76 per cent increase in amortisation (debt repayment) to $178.6 billion.

This is mainly driven by a nearly threefold increase in domestic amortisation from $28.33 billion to $83.44 billion due to maturing benchmark notes from the 2013 debt exchange of roughly 75 per cent or $62 billion coming due.

A maturing US$300-million bond has also driven up external amortisation by 30 per cent to $95.1 billion, from $73.1 billion.

Non-debt capital expenditure, net of appropriations in aid, is projected at $30.4 billion.

A more meaningful measure of the expenditure of this year’s budget suggests that it is again tough, particularly when measured in the context of the society’s needs.

Net expenditure (which excludes appropriations in aid, defined as financing from user fees, fees and grants from public bodies) has increased to roughly $463 billion from $425.3 billion in 2014/2015, split between programmes of $135.7 billion (previously $111.9 billion), wages of $165.2 billion (formerly $158.8 billion), and interest costs, which have increased to $131.6 billion (previously $128.8 billion).

Non-debt recurrent expenditure (which excludes interest costs and capital expenditure), at roughly $301 billion, increased 11 per cent above the original approved estimates for 2014/2015 of $271.9 billion. Much of this reflects $13 billion in additional recurrent expenditure for the Ministry of Health, some of which reflects back pay, health sector reclassification and outstanding settlements, with drugs alone accounting for $4 billion of the increase.

The overall central government deficit for the new financial year 2015/2016, like the current year, is again projected to be in near balance, at $4,886.9 billion, or a central government fiscal deficit of just 0.3 per cent of GDP.

If achieved, this would be a roughly balanced budget three years in a row, possibly the first such series since the 1960’s.

As expected, the budget is again focused mainly on meeting IMF targets, particularly the 7.5 per cent of GDP primary surplus target (revenues minus expenditure excluding debt interest), thereby reversing Jamaica’s dangerous debt dynamics.

In dollar terms, the increased primary surplus (which excludes interest costs), of $126.7 billion is roughly $5.4 billion above the estimate for 2014/2015 of $121.3 billion.

Interest costs, at 7.8 per cent of GDP, when subtracted from the 7.5 per cent of GDP primary surplus target, account for the overall fiscal deficit.

Revenue and grants are projected to increase by 9.6 per cent over the estimate for 2014/2015 (which already reflects most of the likely underperformance) to $458.1 billion.

Critically, the budget includes a more realistic, while still ambitious, forecast of likely tax revenues for the coming fiscal year,of nine per cent over the 2014/2015 estimate to $411.9 billion. However, this forecast includes compliance measures (estimated at just over $8 billion or 0.5 per cent of GDP) and a tax package of 0.7 per cent of GDP to be announced on March 12th.

The organic increase in tax revenues is projected at 6.3 per cent, or one per cent below the expected rise in nominal GDP (including inflation), making it reasonably conservative as it is below, rather than above, the conservative projected increase in nominal GDP of 7.3 per cent of GDP. That incorporates the lower range projection for GDP of 1.6 per cent and an implied inflation projection of just under 6 per cent.

The main risk to the budget forecast appears to be the wage bill (the Jamaica Confederation of Trade Unions is reported to have asked for a budget busting 30 per cent increase over two years in the just begun wage negotiations) and natural disasters.

The budget does include a significant contingency for wage increases, but to calculate the true fiscal space for the next two years properly, one would need to know the wage bill exclusive of the payment of back-pay and other catch-up effects from previous years included in the new fiscal year figure.

It should be noted, then, that the ultimate wage bill for the next fiscal year is likely to be significantly higher than $165 billion, and does not include projected pension costs of $26 billion.

Unsurprisingly, therefore, the target for reducing the wage bill to nine per cent of GDP seems to have been already pushed back one year from March 2016, presumably to allow greater fiscal space to pay wages to the longsuffering public sector.

Inflation is also forecast to remain relatively low, and the Minister has advised that overall capital expenditure is more or less flat, although this appears to include the public bodies. Despite this, in the Minister’s press conference there was an emphasis on complying with the fiscal rules (Fiscal Accountability Act) passed in Parliament, with compliance to be measured independently by the auditor general, designed to give creditors additional comfort.

Overall, it is definitely not an “election” budget as the Minister of Finance stated at his press conference, but appears designed to maintain fiscal discipline in challenging circumstances. We will explore further what this all means in future articles.