Keith Duncan | Balance fiscal discipline with growth success

The Gleaner editorial of September 30, 2019 suggested that the Private Sector Organisation of Jamaica (PSOJ) build its research capacity in order to robustly opine on policy using empirical evidence. Second, the article suggested that the Government of Jamaica (GOJ) should be more proactive around driving growth.

The PSOJ agrees with both recommendations.

With regard to building research capacity, the PSOJ intends to amplify the use of empirical data and analyses to provide more guidance to its membership and the wider public on developments in the Jamaican economy.

This will be done through collaboration with the Economic Programme Oversight Committee (EPOC) – the PSOJ sits on EPOC – and from internal and outsourced resources.

With respect to the GOJ driving growth, we also agree wholeheartedly. We believe that through fiscal policy, which includes taxation policy and targeted expenditure, the GOJ can positively impact growth at all levels of society.

As Jamaica reduces its debt-to-GDP levels, there is an expansion of fiscal space that allows for tax give-backs in the amount of J$14 billion for the fiscal year 2019-20. This was because of the removal of distortionary taxes and the reduction in transaction taxes that disincentivise businesses to become formal and increase economic activity.

Second, over the past four years, we have seen capital expenditure increase from J$32 billion in 2015-16 to the current projected capital expenditure of J$72 billion.

We have seen capital expenditure, specifically in the area of national security, increase to J$20 billion to equip the security forces. Our security forces have been severely hampered by a lack of tools and have suffered in uncomfortable work environments as they struggle to deal with the crime monster.

The ability to increase expenditure and remove or reduce taxes has been linked to the fiscal discipline that has been a key plank in the economic reform programme.

FY 2019-20 FIRST SUPPLEMENTARY ESTIMATES

As tax revenues continue to outperform Budget and show above-inflationary increases year-over-year, the GOJ is running greater fiscal surpluses. We acknowledge that there is a lag in recurrent and capital expenditure, as well as lower spending on recurrent expenses, in particular interest payments. However, the strong fiscal performance must be noted. As at July 2019, the GOJ has run a fiscal surplus of approximately J$7,310.6 million. This represents a 527.6 per cent positive improvement when compared to the budgeted deficit of J$1,709.9 million.

The First Supplementary Estimates propose additional allocations for recurrent expenditure of J$9.9 billion, and debt servicing of J$40.2 billion. As stated in the Interim Fiscal Policy Paper, the increase in debt servicing, or specifically debt amortisation, reflects higher costs arising from a liability transaction. This transaction actually swaps out expensive debt with cheaper debt and extends the duration of the debt and actually reduces interest costs by US$18.7m annually or, at current exchange rate levels, J$2.5 billion. The Ministry of Finance should be lauded for this transaction.

The increase in non-debt recurrent expenditure by J$9.9 billion has been attributed to:

• Critical payments to the tax authorities;

• Refunds of customs charges;

• Pensions-related expenditure;

• Addressing the shortfall in the 2019-20 allocation for the Caribbean Catastrophe Risk Insurance Facility premium payment.

These appear to be housekeeping matters that were prioritised.

MACROECONOMIC STABILITY

The major point to be made is that if Jamaica remains fiscally disciplined and monetary policy remains accommodative, fiscal space will continue to open up. This fiscal space should lead to increased targeted spending by the GOJ year over year in areas that should be growth enhancing. If the GOJ continues on this fiscally disciplined path, the space to increase spending to protect the vulnerable should also materialise.

In our view, macroeconomic stability is being embedded. This is highlighted by the performance of some key economic variables. These include low interest rates, low and stable inflation, and more than adequate international reserves that have helped to create a solid foundation for growth.

With this stable macroeconomic environment and corresponding business-enhancing policy implementation, we do expect the private sector to seize the opportunity to increase economic activity in the real sector in order to increase value-added growth.

The PSOJ will work along with individual members and associations to identify and facilitate opportunities for investments. We will continue to engage members and the State to increase access to finance for MSMEs and to also create an enabling environment in order to facilitate greater investments from medium and large corporates.

The PSOJ is committed to playing an active role in driving increased and sustainable growth for all Jamaicans.

- Keith Duncan is president of the PSOJ. Email feedback to columns@gleanerjm.com.