On October 22, 2024 Jamaica launched its fiscal research centre as a partnership with the Institute of Fiscal Studies and Democracy (IFSD), which I covered in the Jamaica Observer article ‘Jamaica’s fiscal research centre is a big deal’, published on October 3, 2024.

At the event, founding president of the IFSD Kevin Page explained the institute as helping “leaders who need support” with “really difficult” political challenges, such as climate change, as part of its public discourse.

The keynote speaker, former Finance Minister Dr Nigel Clarke, had also articulated the key role of the Courtney Williams-led independent fiscal commission, which was to look at how one is doing “today” and forecast the medium-term outlook, in contrast with The University of the West Indies (UWI) research of say Dr Nadine McCloud — a key driver of the fiscal research centre initiative.

Dr Clarke had argued that the agenda for the research centre needed to be based on the current global technological revolution, noting that Uber doesn’t own cars, Airbnb has no hotels, and policymakers need to look at trade-offs with, for example, hotel room tax, in this environment of technological transition.

Similarly, Dr Clarke had observed that local advertisers do not have a level playing field like that of the major global aggregators of digital content, as they have to pay General Consumption Tax (GCT) while the much stronger global players, such as Google, pay nothing. He said how to deal with these issues should be “interrogated” in a thoughtful way to avoid “overnight” policy shifts that were not properly ventilated — the implication being shifts in the past had often not been thought through properly. The same point applies to the current business model of Amazon.

In his economic and fiscal assessment report on the budget, Jamaica’s Fiscal Commissioner Courtney Williams assessed its credibility and consistency with Jamaica’s fiscal responsibility framework. Firstly, he observed that fiscal sustainability was intact, but the medium-term targets (meaning the extension of the debt-to-gross domestic product (GDP) ratio target of 60 per cent by two years) are at risk. While the fiscal rule had worked as intended, triggering the escape clause, he questioned the credibility of a budget constructed without a detailed loss and damage report (subsequently released); the high 9.2 per cent nominal GDP growth for fiscal year 2026/2027 (with our current low inflation); and the critical role of National Reconstruction and Resilience Authority (NaRRA), about which there was insufficient information; as well as highlighting the tripling of the budget’s reliance on non-tax revenue over the past decade.

Most importantly, Williams asked what portion of the full projected wage costs are covered by the $42.8 billion contingency. By not anchoring wages to economic performance, Jamaica risks “eating its seed corn”, prioritising wages at the expense of capital investments for growth and resilience. In his speech launching the Fiscal Research Centre, Dr Clarke had warned one of the easiest ways for Jamaica to lose fiscal stability would be for public sector wage increases to continue to be consistently above inflation. He added the even more currently relevant comment that Jamaica needs to move away from negotiations being presented as one (the minister of finance) versus 100,000 to a more inclusive balancing of the needs of the 100,000 versus those of roughly 3,000,000 Jamaicans.

There is no clearer example of the competing priorities of wages and capital expenditure than that of the cost of resilience against climate change. In her presentation to The UWI’s economic conference last Friday, hosted jointly by the Department of Economics and the Climate Studies Group, Dr Laura Alfaro, chief economist for the Inter-American Development Bank (IDB), gave a masterclass on ‘The cost of Climate Change to Small Island Developing States’ preceding a panel on the same topic including climate guru Professor Michael Taylor, who also highlighted the increasing frequency of Hurricane Melissa-type events.

Dr Alfaro observed that the fiscal costs of disasters, on average, worsen debt dynamics by 10 per cent of GDP and 18 per cent after three years, as well as worsening the current account. The impact occurs through two main channels: trade (a flow channel) as well as asset value and credit (a stock channel). The combination of declining exports or tourism and asset destruction — for example, reducing the value of new mortgages as collateral — damages the lending channel. This is before one even looks at the distribution effects; for example, the concentration of losses.

While she described our region as being quite resilient overall despite the frequent shocks, Dr Alfaro argued that our “constraints” mean we need to prioritise at least three, or arguably four, measures as soon as possible to prepare for climate change: analytics and planning (better fiscal diagnostics); financial protection (she cited Jamaica’s liquidity insurance as a good example); resilient investment in infrastructure (clearly lacking); and most importantly, economic diversification, overall echoing the title of the newly released IDB report ‘From Resilience to Growth’.

At the same conference, on the fiscal policy panel, economists Dr Dillon Alleyne and Dr Sandria Tennant from the Fiscal Research Centre presented papers on, respectively, ‘Public Policy to support Economic Growth in the Light of Vulnerabilities’ and ‘Pushing the Envelope: Exploring the Tension Between Fiscal Efficiency, Taxable Capacity, and Tax Effort’.

Two key, perhaps unsurprisingly similar, messages were outlined in the papers.

Alleyne’s paper observes that growth has long stalled, even without disasters, and addresses how public policy can support growth in a small, open economy that exhibits extreme vulnerability to climate change and natural disaster. His paper argues that climate-resilient infrastructure and building export capacity should be prioritised as part of a smart industrial policy, along the lines of the work of former IDB Chief Economist Ricardo Hausmann highlighting Jamaica’s failure to expand its exports and thus productivity.

The Tennant paper noted that Jamaica was already highly taxed in many areas and seemed to agree with the point raised by the fiscal commissioner in his emphasis on efficiency (he highlighted the increasing importance of GCT in revenue collection, for example).

The key conclusion is that even if after the recovery Jamaica returns to tax revenue growing approximately in line with nominal GDP, we need much faster growth and more efficient taxation to avoid very hard choices in the medium term. The whole of our society needs to rally around faster growth that drives tax revenue.

Dr Laura Alfarol

Keith Collister