KINGSTON — Minister of Finance and the Public Service, the Hon. Audley Shaw, has assured Jamaicans of Government's efforts to address issues raised by the International Monetary Fund (IMF) about achieving medium term targets.
In a national broadcast Sunday August 7, Mr. Shaw said that that the Government is using its best efforts to lock in the positive gains of the Medium Term Economic Programme (MTEP) achieved so far, including sustainable fiscal operations and creating conditions for investment and growth.
He reiterated that, while the last completed review with the IMF on Jamaica’s Economic Programme was in September 2010, when all the quantitative targets were met, contrary to current speculation, the December 2010 and March 2011 quarterly assessments have not yet been reviewed by the Fund.
“That is, we have neither passed nor failed the reviews. It is a fact, however, that the overall assessment of our performance under the IMF Stand-By Arrangement (SBA) has been broadly positive, though there was slippage in the March 2011 quarter, particularly with respect to the Central Government primary surplus, which was $3.5 billion lower than programmed,” Mr. Shaw said.
He explained that the review has been delayed because the critical issue now facing the Government concerns its medium-term programme, or targets which stretch as far as 2015.
“Both ourselves and the IMF are focused on safeguarding the targeted measures necessary for us to achieve a sustainable fiscal path,” he said.
He noted that, while the medium-term primary concern is the public sector wages-to-GDP ratio, it is not to be confused with the recently concluded seven percent wage settlement with the sector, as it is a medium-term target for 2015.
He disclosed that, at the end of the last fiscal year (2010/11), the cost of central government wages was 10.7 percent of GDP. However, this has to be reduced to nine percent of GDP by March 2016, under the Fiscal Responsibility legislation. This will require fresh negotiations with public sector unions, which have already commenced and are progressing well.
In addition to the medium-term wage costs-to-GDP issue, other challenges have arisen since the presentation of the budget, Mr. Shaw said. These are: The recent public sector wage settlement has added $10.4 billion to expenditure this fiscal year and $31 billion (just over 2% of GDP) over the medium term; The planned divestment of the Government shares in Clarendon Alumina Production (CAP) has not yet materialized, which has led to higher than targeted expenditure; and, for the first quarter of the 2011/12 fiscal year revenue and grants were $3.3 billion (4.2%) below budget
He said that these factors have impacted negatively on the ability to meet this year’s targets as well as medium term fiscal targets, and adjustments have to be made to the budget. Accordingly, the first supplementary estimates will be tabled in Parliament at the end of August.
The adjustments will include cuts to capital and recurrent expenditure, across Ministries, Departments and Agencies. But, the adjustments will also involve revenue enhancement measures, to which end, Tax Administration of Jamaica has launched the Revenue Enhancement and Arrears Project (REAP) aimed at collecting a significant portion of tax arrears.
“As we make the necessary expenditure cuts and revenue enhancement efforts to achieve our primary balance target of 5% of GDP for this fiscal year, we are also now in discussions on how to return the medium-term programme to its original trajectory,” he noted.
Mr. Shaw said that this is of paramount importance as the IMF has indicated that their current concerns are: the impact of the seven percent wage settlement on the medium-term; tax reform, including the regime governing tax waivers and incentives; and, the delay in the divestment of Government’s shareholding in Clarendon Alumina Production (CAP).
Additionally, any deterioration in fiscal operations will compromise the achievement of the benchmarks in the debt indicators over the medium-term, which is also a concern as the Government remains committed to a fiscal consolidation path.
He said that the Government was now in the process of initiating formal discussions on the Green Paper on Tax Reform over the next six weeks towards the tabling of a White Paper in Parliament in October.
Considerations of offers on the sale of our shareholdings in CAP should conclude by the end August when a decision will be made in the long-term interest of our Country.
Pension reform is on the way with the Green Paper finalized in September, after which discussions will lead to the tabling of a White Paper in January 2012. Dialogue has started with the public sector unions to define a predictable way forward for the determination of an appropriate formula for future wage settlements
“We are now confident that the necessary re-alignments will be done to further preserve and enhance investor confidence in this task of re-building the economy,” Mr. Shaw concluded, while commending Jamaicans for their “sacrifice and cooperation”, and urging the nation to “press ahead in the direction of our ultimate goal – the building of a more prosperous Jamaica”.
By BALFORD HENRY, JIS Editor & Reporter