Fiscal Rule Legislation by End of March

Minister of Finance and Planning, Dr. the Hon. Peter Phillips, says the fiscal rule legislation will be enacted by the end of March 2014.

He made the disclosure on January 28 in a statement in the House of Representatives.

“The enhanced fiscal rules will seek to bolster fiscal transparency, ensure a sustainable budgetary balance and consolidate the gains of fiscal consolidation. The transparency and automaticity of fiscal adjustment will be enhanced by an explicit, time-bound adjustment path to sustainability,” Dr. Phillips said.

The Finance Minister explained that the enactment of the fiscal rule means the Parliament will have a greater responsibility in the management of the country’s fiscal affairs, which will mean even more serious engagement by parliamentarians on fiscal issues.

The Government of Jamaica developed and submitted to the International Monetary Fund (IMF) in August 2013, a conceptual framework for the design of legally binding fiscal rules.

The framework aims to limit the annual fiscal deficit of the public sector (covering all fiscal activities), to achieve a reduction in public debt to no more than 60 per cent of Gross Domestic Product (GDP) by 2025/26.

“The rule will establish an automatic correction mechanism that would be triggered by substantial cumulative deviations from the annual overall balance target. The application of the automatic correction mechanism can exempt specified social spending from potential adjustment,” Dr. Phillips explained.

He further informed that the rule will include an escape clause, limited to major adverse shocks and triggered only with parliamentary approval, noting that independent validation of the event or shock will be required before the escape clause can be initiated by the Ministry of Finance and Planning.

“The effectiveness of the current enforcement and compliance regime will be further enhanced to encourage greater ex ante compliance with the new rules-based framework. Measures will include transparency and accountability through parliamentary hearings and public statements by officials,” Dr. Phillips said.

The Minister of Finance and Planning will also be required to explain deviations from the fiscal rule in a mid-term budget review in parliament, and outline corrective steps to get back on track with the annual fiscal rule target.