Jamaica’s fiscal watchdog has warned that rising public sector wage pressures are already straining the budget, complicating the Government’s ability to finance post-hurricane reconstruction.

The Independent Fiscal Commission (IFC) said compensation costs exceeded budgeted levels in the first half of the fiscal year and could climb further as unsettled wage negotiations conclude, adding pressure to public finances weakened by the impact of Hurricane Melissa, which slammed into the island on October 28 last year.

The warning comes as the Government prepares to outline its post-hurricane reconstruction financing plans, with spending needs expected to rise sharply in the months ahead.

“Unsettled public sector wage negotiations could lead to higher-than-budgeted wages and salaries expenditure, thus posing a significant fiscal risk,” the commission said in its January assessment tabled in Parliament on Tuesday.

From April to September, compensation of employees totalled $255.1 billion, overshooting the original budget by $3.2 billion, or 1.3 per cent, the IFC said. Wages and salaries alone were $2.3 billion above projections, even before ongoing negotiations are finalised, while employers’ contributions also exceeded estimates.

Compensation of employees accounted for nearly half of central government recurrent expenditure during the period, underscoring its significance as one of the least flexible components of the budget.

By contrast, capital expenditure — which is more easily deferred — was under-executed by $16.3 billion, or nearly 46 per cent, over the same six-month period, reinforcing concerns that higher wage costs may be accommodated through reduced investment.

The IFC noted that Jamaica currently has no active fiscal rule governing wages and salaries and said the Government has given no commitment to reintroducing such a rule, despite repeated recommendations.

Following the rebasing of national accounts in 2025, the wage bill stood at about 12.1 per cent of gross domestic product (GDP), lower than earlier estimates, but still elevated by regional and historical standards, according to the commission.

The watchdog said the absence of a formal public sector compensation negotiation cycle has contributed to fiscal uncertainty, as wage settlements are often concluded outside the annual budget process, forcing governments to revise spending plans after they have already been approved by Parliament.

Section 48H of the Financial Administration and Audit Act provides for the establishment of a structured compensation negotiation cycle aligned with budget preparation. The IFC reiterated that implementing such a framework would improve predictability and reduce fiscal risk.

The warning comes as Jamaica faces elevated spending needs after Hurricane Melissa caused an estimated US$8.8 billion in damage. The Government has temporarily suspended fiscal rules under disaster escape clauses and is seeking a two-year extension to its legislated debt-to-GDP target, with public debt projected to rise to 68.2 per cent of GDP by year-end, from 60.3 per cent in September.

While acknowledging the exceptional shock, the commission said suspending fiscal rules does not remove the need for credible medium-term adjustment plans as the country moves into a reconstruction phase.