Fiscal rules suspended
Gov’t gets leeway to increase borrowing as hurricane wipes out 5.3 per cent of GDP
THE House of Representatives on Tuesday approved an order to suspend the fiscal rules for the 2025/26 financial year to give the Government space and time to recover from the fallout in the country’s finances as a result of the devastation caused by Hurricane Melissa.
The motion was moved by Finance and the Public Service Minister Fayval Williams, who told the House that the expected fallout in gross domestic product (GDP) is estimated at 5.3 per cent over the period — fiscal year 2025/26 to 2029/30.
She said the decision to suspend the fiscal rules was given the nod by the Independent Fiscal Commission. This came after information was presented by the Planning Institute of Jamaica (PIOJ) regarding GDP growth and the Bank of Jamaica giving its outlook on inflation, the Net International Reserves, balance of payment, and the overall status of the financial sector.
“This information then becomes the basis for the Ministry of Finance and the Public Service to project the Hurricane Melissa impact on tax revenues, impact on expenditure, debt-to-GDP ratio, and fiscal balance, among the important variables,” said Williams.
She said the information was forwarded to the fiscal commission that verified that the impact of the hurricane on the economy is at least 1.5 per cent of GDP. “That is the law that guides the suspension of the fiscal rules,” Williams explained.
The report from the fiscal commission is entitled ‘Validation of Fiscal Impact of Hurricane Melissa for the Suspension of Fiscal Rule for Fiscal Year 2025/2026’.
Williams shared that based on the information provided by the PIOJ and the finance ministry, the fiscal impact estimated at 5.3 per cent of GDP is “well above the legislative threshold of 1.5 per cent to trigger suspension of the fiscal rules”.
The order, which was approved by the House, permits the temporary suspension of the fiscal rules for an initial period of one year based on the provisions of the law. Where an extension is warranted, the finance ministry will present the case to the Parliament.
Williams pointed out that the economy was “surging” before Melissa hit. She said real GDP is now projected to decline by 4.3 per cent for fiscal year 2025/26 compared to the growth forecast of 2.2 per cent presented in the Fiscal Policy Paper in February this year.
For the medium term, real GDP growth is projected to average in the range of 1-2 per cent as the economy recovers from the contraction projected for the current fiscal year.
“We also expect inflation to stabilise within the target range of 4-6 per cent,” added Williams.
In the external sector, the current account as a percentage of GDP is expected to remain in surplus, averaging about 0.7 per cent over the three years following fiscal year 2025/26.
Significantly, the debt-to-GDP ratio is projected to increase to 68.2 per cent by the end of the current fiscal year. This is up from 62.4 per cent at the end of fiscal year 2024/25 and Williams noted that before Melissa the country was on a path to have a debt-to-GDP ratio of 60 per cent of GDP by the end of the fiscal year, which would have been two years earlier than planned.
The finance minister said that in the medium term, starting in 2026/27, the projection is that the debt-to-GDP ratio will again begin to decline, “and we’re expecting to see that at 66.1 per cent and then to 63.8 per cent followed by 63.4 per cent in fiscal year 2028/29, settling out at 64.2 per cent by fiscal year 2029/30.
