KINGSTON — A major step towards a strategy critical to discussions with the International Monetary Fund (IMF) on the current Standby Agreement (SBA) was how Financial Secretary, Dr Wesley Hughes, described a two-day Public Sector Monitoring Committee Seminar which opened at the Jamaica Conference Centre, downtown Kingston, on Tuesday September 6.
Dr. Hughes reiterated that the last completed IMF review was undertaken for the quarter ending September 2010, and more recent quarterly performance have not yet been reviewed.
“The December 2010 and March 2011 quarterly performance criteria have not yet been reviewed by the IMF. While the quantitative targets have been met, the Central Government primary surplus fell short of target by $3.5 billion at March 2011,” he pointed out.
Dr. Hughes observed that central features of the SBA also included qualitative issues, such as the enhancement of the social safety net to protect the poor. This includes increased spending on the Programme for Advancement Through Health and Education (PATH) and school feeding; the public sector wage freeze for the 2009/10 – 2011/12 financial years; spreading of salary arrears over the medium term; divestment of Air Jamaica and state-run sugar factories; implementation of the fiscal responsibility framework legislation; and implementation of a system of Centralized Treasury Management.
With respect to the Government’s Fiscal Responsibility Framework (FRF), which has been fully endorsed by the IMF, Dr. Hughes explained that this requires that the wage bill to GDP ratio to be no more than 9 percent by March 31, 2016.
“The Government of Jamaica will thus need to reduce the wage bill by 1.7 percent of GDP, from 10.7 percent to 9 percent by 2016, in order to stay within the SBA and FRF requirements. The GOJ needs to credibly demonstrate its commitment to this legislated wage ceiling to maintain the continuity and credibility of the SBA,” he advised.
The Financial Secretary emphasized that the “Wages/GDP ratio” was of particular concern: A clear fiscal strategy must be formulated and adopted to reduce Wages/GDP from 10.7 percent in March 2011 to 9 percent by March 2016, he said.
He also observed that the Public Sector Monitoring Committee Summit represents a major step towards formulation and adoption of such a strategy.
“The outcome of this summit will be critical to continuation of SBA discussions,” he emphasized.
He also noted that other areas of focus designed to address medium term fiscal challenges and debt dynamics included: divestment of the Government’s shares in Clarendon Aluminium Production (CAP), for which active negotiations are underway with a prospective buyer; implementation of profound tax reform, for which a White Paper will be tabled in October 2011 for the process to start in January 2012; pension reform, for which a Green Paper will be ready by October 2011, with a White Paper to be tabled by January 2012, followed by phased implementation to commence April, 2012.
He stated that, to date, Jamaica’s performance has been positive and that, going forward, the programme requires clear fiscal measures, especially regarding wages, pension and tax reform, to achieve medium term fiscal targets and economic growth.
Reflecting on a likely outcome without the IMF programme, Dr. Hughes pointed to a number of negative consequences.
These would include: loss of funding from other multilaterals; return to macroeconomic instability: exchange rate depreciation; reversal of interest rate downward path; slowdown in economic growth; fallout in revenue flows and impairment of the government’s ability to pay, he cautioned.
By Allan Brooks, JIS Senior Reporter