The House of Representatives, on Tuesday (June 2), approved the Fiscal Administration and Audit (Suspension of Fiscal Target Requirements) Order, 2020, to suspend Jamaica’s fiscal rules until March 2021 as a result of the economic impact of the coronavirus (COVID-19) pandemic.
Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, said the fiscal rules were given the force of law in 2010 and strengthened in 2014, to provide an escape clause, among other things.
He noted that under the fiscal responsibility framework, the events that can trigger an escape are outside of the control of government.
Currently, the law provides for the suspension of compliance under specified circumstances, such as a period of public disaster, severe economic contraction, public emergency, financial sector crisis, or health and other disasters.
“The suspension can only be activated by an independent verification that the fiscal impact of the event or eventuality exceeds the threshold of one and a half per cent of gross domestic product (GDP) and, after that, can only be activated by affirmative resolution of an Order in both Houses of Parliament,” Dr. Clarke explained.
He noted that the COVID-19 pandemic has led to the triggering and activation of the suspension of the provisions of the fiscal responsibility framework.
This, as the crisis has led to the need to deploy significant additional fiscal resources, primarily in the form of social and economic support through the COVID Allocation of Resources for Employees (CARE) Programme, and health expenditures for new personnel, equipment and supplies, as well as other critical expenditures.
“When you add those components together the total is $34 billion. Accommodation of these additional expenditures will not be possible unless the fiscal rules are suspended. We must suspend the fiscal rules to respond to the economic and fiscal impact of the COVID-19 pandemic,” Dr. Clarke said.
“Economic activity will contract significantly this fiscal year as a result of the pandemic. This is a result of spillover from the actions other countries have taken, as well as actions we have taken in Jamaica, to slow the spread of the coronavirus, putting economic and social activity on pause,” he added.
Dr. Clarke said the expectation is that contraction in GDP will be in the region of 5.1 per cent, which will mean that the Government will have less revenue this year than planned. He said estimates are that revenues will be lower by $81 billion.
“This loss of revenue means that it will neither be possible, practical nor desirable to achieve the level of fiscal savings that the fiscal rules would otherwise imply,” he pointed out.
Dr. Clarke said the suspension of the fiscal rules will allow the Government to target a lower primary surplus of three and one-half per cent of GDP this fiscal year, down from 5.4 per cent.
“This will allow us to accommodate the COVID-19 response expenditures in light of the reduced revenue that we are likely to experience.
After the suspension has expired, the Government will be required to implement recovery mechanisms,” Dr. Clarke said.