The Senate, on Friday (May 29), approved amendments to the Financial Administration and Audit Act, 2020, 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 will facilitate the extension of the timeline from March 31, 2026 to March 31, 2028.
It further amends section 48C/2A of the Act to expand the circumstances which can trigger suspension of the fiscal rules.
In her address, Leader of Government Business in the Upper House, and Minister of Foreign Affairs and Foreign Trade, Senator the Hon.
Kamina Johnson Smith, said the amendments have been proposed in light of the severe disruption to global and domestic economic activities caused by the Coronavirus Disease 2019 (COVID-19) pandemic.
Mrs. Johnson Smith said the pandemic has wreaked unprecedented economic and fiscal burdens and, as such, Jamaica’s revenue 2020/21 revenue inflows are expected to decline by $81 billion, even as the Government will be required to spend an additional $34 billion for COVID-19-related matters.
Against this background, she said, the Government will need more time to reduce the public debt to 60 per cent of GDP.
“The matter was considered deeply and discussed with the International Monetary Fund and other key stakeholders before it was fully crystalized in the form of the Bill being taken here today,” she said.
Senator Johnson Smith said as a result of the disruptions, Jamaica’s 2020/21 fiscal year growth outturn is forecast to contract by 5.1 per cent.
“While the Budget, approved in March, was cast against an economic growth expectation of 1.1 per cent, even at the time of the tabling of the Budget, the inevitability of tabling supplemental budgets was brought to the fore by Minister [of Finance and the Public Service, Dr. the Hon. Nigel] Clarke,” she noted, adding that “it was clear that there would be significant impact”.
The Minister pointed out that “like the [rest of the] world, we would need to observe how events would unfold locally and across the globe to get a sense of the extent [to which] we would be impacted”.
Mrs. Johnson Smith said the country is already experiencing the fallout, as evidenced by the estimated 1.7 per cent economic contraction announced by the Planning Institute of Jamaica’s (PIOJ) for the January to March 2020 quarter, and their projection for a 12-14 per cent decline for the April to June period.
“This sharp economic contraction projected for the next quarter will undoubtedly depress the public sector’s revenue intake thereby necessitating sharp cuts in expenditure to maintain debt on a sustainable path,” she emphasized.
The Minister stressed, however, that the State has a responsibility to respond “decisively and with alacrity to moderate the impact of the pandemic on our people and the economy”.
Mrs. Johnson Smith said, to this end, expenditure is required in unprogrammed areas such as health services and the COVID Allocation of Resources for Employees (CARE) Programme.
Meanwhile, the legislation also amends the conditions under which the suspension of the fiscal rules can be achieved.
Currently, the law provides for the suspension of compliance under specified circumstances, such as a period of public disaster, severe economic contraction, public emergency, or financial sector crisis.
Mrs. Johnson explained that consequent on the current situation being triggered by a health-related issue, a decision has been taken to include among the conditions that trigger suspension of the fiscal rules – a declaration of a disaster area or threatened area under section 26 of the Disaster Risk Management Act, and the making of an Order under section 16 of the Public Health Act.