Finance and the Public Service Minister, Dr. the Hon. Nigel Clarke, on Tuesday (December 1) tabled the Financial Administration and Audit (Amendment) Act, 2020 in the House of Representatives.
The legislation seeks to amend the Government’s fiscal savings target to make it more manageable in the short to medium term.
Dr. Clarke said the Government is required to put aside, each fiscal year, fiscal savings called the primary balance that can at least pay “your interest cost, so that we can reduce our debt over time”.
“The primary balance is nothing more than the fiscal balance being targeted to which interest costs are added. In any year that we miss our fiscal savings target, the Government is required to correct that by saving more in the subsequent two years,” Dr. Clarke said.
“So, the fiscal rules have an inbuilt correction mechanism. Given the size of the COVID-19-induced fiscal deviation this year, the rules as they exist will require increased fiscal savings in the next fiscal year, 2021/22, and the one after, 2022/23,” he added.
“However, we will be proposing, with [the] Bill tabled, to amend the Financial Administration Audit Act in a manner that results in a moderation of this correction mechanism in the fiscal rules to allow for a gentler correction of this year’s fiscal deviation”.
Dr. Clarke said that too steep a correction in the fiscal savings of the primary balance could hamper the speed of economic recovery.
He noted that due to the economic impact of the COVID-19 pandemic earlier this year, both Houses of Parliament approved legislation to extend, by two years, the target date to reduce Jamaica’s debt to gross domestic product (GDP) ratio to 60 per cent.
The legislation also facilitates the extension of the timeline from March 31, 2026 to March 31, 2028 and amended section 48C/2A of the Act to expand the circumstances that can trigger suspension of the fiscal rules.
“This allowed the Government to target a fiscal balance lower than originally programmed. With the passage of the Second Supplementary Estimates, the fiscal balance being targeted is negative three and a half per cent of GDP as compared with the prescribed balance of 0.6 per cent of GDP,” Dr. Clarke said.
“This means that the deviation approved by Parliament from what the fiscal rules prescribed is 4.1 per cent of GDP,” he added.