EDITORIAL - Getting the economic ducks in a row

THE GOVERNMENT is beginning to get its critical economic pieces in their place. Last week, Finance Minister Dr Peter Phillips tabled an expenditure budget that, taking into the account the effects of inflation, projects spending at more than a fifth less than the previous fiscal year.

This sharp reduction (14 per cent in nominal terms) in expenditure benefits from the Government's recent restructuring of nearly J$900 billion in domestic debt. It, nonetheless, also suggests that, under the tutelage of the International Monetary Fund (IMF), our Government is finally appreciating what we have been preaching for a long time: that its debt of 140 per cent of GDP is unsustainable and that the Government can't borrow its way out of its problem. How deeply the Simpson Miller administration has absorbed this lesson will become clearer next week when Dr Phillips provides a detailed plan for financing the budget. A J$19-billion-tax package was previously announced, including his borrowing programme.

But as significant as these developments are, the budget would not be as credible in the absence of certainty about the economic support agreement with the IMF. Indeed, the failure to complete the pact, although the fund's staff had signed off on a four-year facility, reflected itself in the collapse of business confidence, leading to a nearly 12 per cent decline in the value of the Jamaican dollar in recent weeks.

The IMF agreement is important not only for the financing that will come with it, but for the fact that it will unlock resources from other multilateral financial institutions and signal to global markets that Jamaica is a credible place to do business.

That IMF deal is not yet formally in place, but it now appears to be as good as. In a move, clearly aimed at easing political pressure on the Government, and uncertainty in the money market, the IMF announced that a support programme, worth US$950 million (US$200 million more than the original estimate), will go to its executive board by month end. Contemporaneously, the World Bank and the Inter-American Development Bank disclosed that each would lend Jamaica US$500 million over the four-year life of the IMF programme.

Help to restore confidence

These announcements of a guaranteed inflow of low-cost capital should, in the short term, help to restore confidence in the market and ease pressure on the Jamaican dollar. Significantly, too, by lessening the need for the government to borrow commercially, it will lower debt-servicing costs and help in the effort to lower the debt-to-GDP ratio.

None of this should be taken to mean that Jamaica is out of the woods. There is no cause for chest-thumping celebrations by the administration. For there is still much painful adjustment to be done, beyond the freeze on public-sector wages.

Dr Phillips still has to complete an overhaul of the tax system, introduce legislative limits on government's ability, to provide waivers, and enhance efficiency.

Pension and public-sector reforms - the former to have civil servants contribute to their retirement plans, the latter to make the public bureaucracy efficient and effective - remain to be done. There is red tape to be disentangled and state companies to divest. And there is still the job of mobilising the society behind this project.

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