FINANCE Minister Fayval Williams on Tuesday responded to concerns raised by the Independent Fiscal Commission about the state of the economy.

During her opening contribution to the budget debate in the House of Representatives on Tuesday, Williams noted that the commissioner has expressed certain concerns, in particular that the country’s nominal gross domestic product (GDP) growth projection of 9.2 per cent and real GDP growth of negative 0.5 per cent, imply a GDP-deflator of approximately 9.7 per cent and appears inconsistent with current inflation trends and with historical post-disaster price behaviour.

Williams said she wanted to “directly address” the observation made by the fiscal commissioner in his Economic and Fiscal Assessment Report, “because it deserves a direct answer and not silence”.

Stating that, “I respect that concern,” Williams cited that “the Independent Fiscal Commission exists precisely to ask these questions, and this House and this country are better served when I answer them plainly”.

For context, the finance minister pointed out that the Consumer Price Index (CPI) measures the change in the cost of living for consumers. She noted that this figure includes the cost of imports and locally produced goods, while the GDP deflator measures how the prices of everything produced within Jamaica have changed.

“We are seeing significant increase in the cost of construction. Try buying some housing material, try hiring a workman, a plumber or a mason. If you can find one, as country people would say, you have to pay through the nose.

“There is more inflation than we would like in construction cost,” Williams said.

She also noted that the commissioner pointed to the fact that Government’s reconstruction activities are yet to kick into high gear and so the inflation, as measured by the GDP deflator, could not be as high as estimated.

“I want to call the commissioner’s attention to the fact that there is a lot of reconstruction activities happening all over Jamaica on the part of businesses and private people. The bottom line is, CPI and GDP deflator are related but not the same. In normal times they track closely and there is little difference. However, in the aftermath of an event like a Category 5 hurricane where domestic production in certain areas has been decimated, with scarcity influencing prices of locally produced goods and there is surge in demand for reconstruction from citizens and businesses, we can have a wider-than-usual variance between CPI and the GDP deflator. It is not abnormal or suspicious,” Williams said.

The Category 5 hurricane she referenced is Melissa, which hit the south-western and western ends of the island on October 28 last year.

“I also want to acknowledge the commissioner’s more pointed concern — and I will be candid about it. He is right that the Government’s reconstruction activity in Jamaica has historically been delayed. He is right that capital underspending at the level of Government is an issue, but if our GDP deflator projection rests entirely on Government-executed reconstruction I would be standing here on weaker ground — but it does not,” she said.

Williams outlined that the primary driver of near-term reconstruction price pressure will be the private sector by way of insurance-financed hotel refurbishment, household rebuilding, and foreign direct investment in damaged commercial infrastructure.

“That activity does not pass through our procurement system, and it will not wait. That activity is in full bloom all over Jamaica. These two measures — CPI and GDP deflator — are related but fundamentally distinct measures, and conflating them would itself be an error,” she said.