I. INTRODUCTION The title of this year’s presentation “Building the Foundation for Jamaican Prosperity” was carefully and deliberately chosen to give the clearest indication of the Government’s task at hand.
A careful and dispassionate review of my presentation reveals the elements that are essential at this time and which constitute the building blocks of a foundation for Jamaican prosperity:
Low inflation Competitive interest rates, A stable exchange rate and an Equitable tax system
When combined, these elements set the foundation for a competitive economy that will give incentives to entrepreneurs:
To invest, Create jobs and Earn foreign exchange
In the contributions to this debate there have been no serious challenges to these building blocks.
The comments and criticisms have been as to form and not substance.
In closing the Debate therefore I will address some of these criticisms for amplification and clarification.
1. UAF/E-Learning
The Spokesman on Energy and Telecommunications took us to task in respect of the use of the Universal Access Fund. How can he say this when of the $2 billion spent so far, $1.2 billion was expended last year and the remaining $800 million spent from 2005. The new budget projection of $1.5 billion for FY2010/11 represents the maturation of the programme that is clearly in full swing.
Mr. Speaker, it is clear that Micro, Small and Medium-Sized Enterprises (MSMEs) have an important role to play in the growth and development of this country. MSMEs are indeed essential to economic growth and job creation.
While the Minister of Industry, Investment and Commerce will speak more extensively on government policy toward MSMEs when he makes his contribution to the Sectoral Debate, let me take the opportunity to clear up any misunderstanding amongst the Opposition or elsewhere.
Mr. Speaker:
The Government has decided to increase the loan facilities available to MSMEs by $2.0 Billion – to be made available through the DBJ at competitive interest rates. Cabinet is to examine a proposal to introduce a flat tax, which should go a far way in addressing concerns with respect to the ease of paying taxes and tax compliance among small business operators.
Mr. Speaker, the Government believes that supporting MSMEs and investing in our entrepreneurs is the way to grow the economy. It is against this background that Government has concentrated heavily on creating an enabling environment for MSMEs to flourish and unlock their potential.
We remain committed, Mr. Speaker, to exploring new ways of supporting and enabling this most crucial sector.
The Jamaica Stock Exchange and Junior Stock Exchange
I wish to state that since the close of the JDX in February, the Exchange has been enjoying a rally, with both volumes and values increasing. A comparison of the Exchanges performance in March over February bears this out:
In February, a total of 64.2 million of ordinary units were traded, while in March a total of 249.14 million units crossed the floor, making for a total increase of 288%
In terms of the ordinary value of stocks traded $744.3 M was were traded in February, in comparison to $2,042M in March.
Mr. Speaker, allow me to also say a word about the Junior Stock Exchange. The Junior Exchange is already proving to be a critical link in the transformation of the investment and production landscape. For one thing, it will allow small-and medium-size companies to access equity financing, which will improve their competitiveness – locally, and on the international market. For another, it will have a direct and positive impact on local job creation.
The establishment of the Junior Exchange is already bearing fruit. One company – Access Financial – has already been listed, and another – the Blue Power Group – will formally list tomorrow. And Members of this
House will join me in sending a message of encouragement to the other 5 or 6 companies that are – as we speak – positioning themselves to list this year.
All of this also augurs well for investors, since -as we know -there is a positive relationship between falling interest rates and increased stock market activities.
1. JDX and Pensioners
The Jamaica Debt Exchange (JDX) was designed to help deal with the issue of the unsustainably high debt servicing costs facing the government. It was a critical component of an economic programme aimed at raising the real GDP growth rate, reduce debt costs, and permanently instil fiscal discipline and accountability. The savings realized through the JDX are critical as they complement other savings to be realized from the tough fiscal and tax measures implemented over the last year.
The Leader of the Opposition cannot say that the Opposition supports the JDX and then criticise its impact on Pension Funds. Pension Funds must take into account that for many years they enjoyed significant real returns from Government Paper. It was the best investment in town. But the truth is that while Government Paper will continue to be an important part of the mix of investment for Pension Funds, there must be more dynamism in the portfolio mix for these funds.
Let the message be clear. Do not expect to rely on high interest rates on
Government Paper to keep Pension Funds viable. That goes for the NIF and all other funds.
2. Public Sector Wages
The Opposition has called on the Government to meet the extra $30 billion to the public sector workers. This is not an honest effort at being constructive. It is not helpful to raise expectations of the workers knowing fully well that there is no possibility for these expectations to be met.
The Opposition cannot have it both ways. It cannot tell the country that the Budget is tight and that we run a risk in not meeting our targets while at the same time asking us to find $30 billion more. That extra $30 billion can only realistically come from more taxes or more borrowings as there is not surplus from which to pay it. At the same time the Opposition has told the country that tax payers are “maxed out” and cannot or should not be taxed anymore. They have even issued a veiled threat about the matter. They have also told the country of the heavy debt burden we face.
How then are we to finance the extra $30 billion? If we cannot borrow and we cannot tax anymore and we have no surplus, then country must ask the question of the Opposition: Is this simply politics or is it a serious debate to find answers to the country’s problems.
The Opposition Leader’s reference to a five-year wage freeze is misleading.
A simple reading of the IMF document would inform the Opposition Leader
that her claim of a wage freeze for 2009, 2010, 2011, 2012 and 2013 was wrong. The IMF agreement clearly states:
“The government is committed to maintaining the current public service wage freeze on salary increases into FY 2011/2012, while it develops a comprehensive reform of the public sector”.
Mr. Speaker, this represents a 3-year wage freeze inclusive of the fiscal year just ended – 2009/10.
I again call upon the public sector workers not to be influenced by political rhetoric, but to understand the situation that faces the country and to play their part in putting Jamaica first on a stable financial path for the future.
3. The Stand-by Agreement vs. The Extended Fund Facility
The discussion about the Government opting for the IMF’s Extended Fund Facility (EFF) as against the Stand-by Agreement (SBA) is largely a non-issue but must be addressed before it becomes a distraction. Sparked by the comments of the Opposition Leader, the public debate has started.
Let me just make a clear statement on the matter.
The IMF Stand-by Agreement, is usually for 24 months but it can, and is often extended for a longer period (up to 36 months). It is usually designed for short term balance of payments problems. Repayment of the borrowed funds under the SBA is usually due within 3-5 years of disbursement. The SBA is quite flexible in terms of the amount borrowed and timing of disbursements. The amount can be above normal access (200 per cent of quota) and can be front loaded.
The IMF Extended Fund Facility was established to enable borrowing countries to overcome balance of payments problems that stem largely from structural problems and require a longer period of adjustment than is possible under the Stand-by Agreement. The EFF is typically for 3 years.
Jamaica opted for an SBA because the balance of payments outlook identified a clear need for external support over two fiscal years. Beyond that period, the likelihood was for stabilization in the external accounts once the initial high-risk period had passed. The initial consideration in approaching the IMF was to establish a line of credit in the event that the recovery in the world economy was protracted and capital inflows declined sharply.
Given the focus on the two year implementation period, there was no compelling reason to stretch the precautionary IMF support to span three years with no increase in the amount available. The reform programme, which is represented in the consolidated matrix and is integral to multilateral support, was also concentrated over the next 2 fiscal years. These were policy based loans, secured on concessional terms with long maturities.
It was important to the success of the reforms and the support of the other multilaterals that they be front-loaded so that the benefits from the reforms of tax administration, fiscal management and public sector restructuring could begin to contribute to the new paradigm of fiscal responsibility as early as possible. These benefits could be secured under an SBA and
involved a shorter IMF programme, heavily front loaded funding and a shorter repayment period.
It is baffling that the Opposition Leader has now raised this issue after the IMF negotiations have been extensively discussed and debated in this very House over the past several months and the Opposition Spokesman on Finance did not find it necessary to question the choice of a Stand-by Agreement. How Come?
4. Social Safety Net
Mr. Speaker, never before in our history have we seen these overwhelming levels of support for the Social Safety Net. It is no wonder therefore, why the Opposition Leader was unable to criticize this government’s impressive Social Safety Net Programme.
And while I need not elaborate on the unprecedented support we have extended to the Social Safety Net, there are a few things I wish to reiterate.
. The PATH Programme
Mr. Speaker, we have managed to expand the PATH Programme by an additional 114,000 persons. It is anticipated that a further 18,000 beneficiaries are to be registered in 2010/11 for a total of over 360,000 people. This represents a 58% increase in the number of PATH beneficiaries since this administration came to office.
The Member of Parliament has written that the amount allocated in the various categories is a “measly” sum. Let me point out that since taking office this Government has not only increased the number of beneficiaries, but we have also increased the amount to each beneficiaries. The Minister has now proposed substantial additional increases which are to be considered by Cabinet next week. The increased budgetary allocation already anticipates this.
Mr. Speaker, these increases will be significant and go a far way in enhancing the Social Safety Net at a time when this support is most needed. The increases will be announced in due course and will take effect on June 1 of this year.
Mr. Speaker, I need not repeat the high level of commitment shown by this Government despite the budgetary constraints for education (Cost-Sharing and School Feeding), health, the CDF and the lifting of the income tax threshold.
1. Presentation of the Budget
Let me start with the shrill bawling of the Opposition Spokesman on Finance that the Budget was presented using information in the first Supplementary Estimates (as opposed to the second) for comparative purposes.
Mr. Speaker, while I regret that due to time constraints, we were unable to present the second Supplementary Estimates to facilitate the convenience of ease of comparison, the Opposition Spokesman on Finance, has repeated with righteous indignation that he is unable to make the comparison unless he pulls out the publication showing the second Supplementary Estimates.
I have already stated that having tabled the second Supplementary Estimates
on March 16, (due to JDX data) time between that and the tabling of the new Estimates did not allow for the updated information to be included in the new publication.
Well, Mr. Speaker, despite his protests, the Opposition Spokesman is well aware that circumstances affected the budgetary processes in the same way for quite a few years under his watch. On those occasions I did not make an issue of it, I simply pulled out my supplementary publication and dutifully did my comparisons.
In 2000/01 despite having first Supplementary Estimates, it was the approved budget from the previous year that was shown for comparisons with the new Estimates. And in 2002/2003 and 2004/05 there were first and second Supplementary Estimates, but it was the first Supplementary Estimates that was shown for comparison with the new Budget.
I repeat once again that with the exception of the debt exchange and some tidying up, there were no major deviations from the first Supplementary Estimates.
I can only conclude that the Opposition Spokesman on Finance was short on items to criticize so he had to expose himself in this way.
2. Macroeconomic Framework
Mr. Speaker, this year’s Budget has been presented after extensive negotiations with the IMF and our other multilaterals, negotiations which include our technical persons at the Ministry of Finance and the Public Service, the Planning Institute of Jamaica and the Bank of Jamaica. So how come Dr. Davies can say that there is no macroeconomic framework?
I totally refute the irresponsible claim by Dr. Davies. The IMF programme is available for all to see and I challenge Dr. Davies to say which Budget presentation has outlined a detailed macroeconomic programme as this one.
3. Deficit Out-turn against Projection
Mr Speaker, the central line of attack by the Opposition is that “the Budget is not credible”. The arguments used to support their positions are, inter alia:
the data are confused and not clear the 2009/10 Budget had to be revised several times with several tax packages several targets were missed lack of economic framework
I wish to state that the data is not confusing.
Maybe some who are using the data are themselves confused – as they try to use the data to confuse others!
Indeed, many of the critics have a vested interest in sowing seeds of confusion.
It is important to note that most of the critics and commentators have avoided discussion about the broad stable macro-economic environment. This was achieved in a very difficult, and unprecedented, global environment. The very unstable domestic and global environment made it extremely difficult to project accurately.
Mr. Speaker, no one should be allowed to ignore the fact that the fundamentals of our macroeconomic variables are pointed in the right direction. The dollar is stable and appreciating ($89.08 to US$1 yesterday). Interest rates are set to fall, the NIR and gross reserves covers 17 weeks of imports and inflation is moderate.
Many who now talk loudest about the accuracy and credibility of projections dealing with debt and deficits had their difficulty during their time; times that were relatively stable globally.
In 1996/97 a fiscal surplus of 0.8% was projected, the outturn was a fiscal deficit of 6.1%. This represented a deviation of 7% of GDP or 860% of the missed target! In 1997/98, a fiscal deficit of 2% was targeted, -out-turn was a deficit of 7.5%. This deviation represented 6% of GDP or 273% of the missed target! Similarly the fiscal balance targets of 2002/03 and 2005/06 were exceeded by over 150%.
Mr. Speaker, all these missed occurred when there was no crisis in the world economy.
Mr Speaker, the fact is very few countries, corporate or International institutions were able to escape having to change their projections during 2008-2009 and to make major adjustments as the depth and extent of the global crisis unfolded. Many countries, including developed ones, not only missed their projections, but many had to put forward revised Budgets during the year.
Some countries found themselves in deep crisis (examples: Greece, Ireland, Iceland and Latvia). In Jamaica, while our revenue and deficit targets were off, our growth was in line with projections, our inflation rate was in line with forecast, interest rate moved down as we planned. The exchange rate was stable. Foreign exchange was available. We held our own.
4. Falling Interest Rates
We undertook the JDX to treat with the unsustainably high debt servicing costs, through the lowering of interest rates and the extension of maturities on government domestic debt instruments. BOJ benchmark interest rates are now at the lowest levels they have been in 24 years.
I quote Dr. Davies: “At present inflation is running at over 13%. At the same time the interest on government instruments is between 10% and 12%. Simply put, after tax, the real interest rate is in the range of 7-9%. Is it reasonable to expect that investors will continue being irrational by accepting negative interest rates?”
May I state clearly, Dr. Davies must do better than that! When inflation was
13% last year, the average rate paid on Government Paper was 17%. Post-JDX, this has fallen to 10-12% but inflation projections for this year is 7

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