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published: Sunday | April 8, 2007
Dr. Omar Davies, Minister of Finance and Planning.
Errol Gregory, Sunday Gleaner Writer
Finance and Planning Minister Dr. Omar Davies will be in a box of bricks when he opens the 2007/2008 Budget Debate in Gordon House on Thursday.
In deciding how to spend the estimated $383 billion to manage the nation's business during this financial year, the Finance Minister is contrained by the fact that more than half - $210 billion - will have to be spent on repaying debt. This leaves $173 billion to be shared up among competing sectors of the economy such as health, education and national security.
Add another brick: the insistence by the International Monetary Fund (IMF) that the Government raise the general consumption tax fromthe current rate of 16.5 per cent in order to close the perennial shortfall in revenue. The target last fiscal year was 2.5 per cent of gross domestic product (GDP), which is a measure of economic performance. But Government missed the target.
Another brick thrown at Dr. Davies is the recent downgrading of Jamaica's market performance to 'underperform' by international rating agency Bear Stearns. It argued that it did not expect any positive surprises coming out of the Budget debates and suggested that Dr. Davies would set a new fiscal deficit target of four per cent of GDP.
As the Government's debt reduction strategy places great store on its ability to borrow in overseas financial markets, it is not likely to gloss over this report and will be inclined to stick to is targets. Another factor demanding Dr. Davies' attention, as he allocates scarce resources, is election-related expenditure. Critics have accused him of allowing the Government to 'run wid it', suggesting that he relaxed expenditure controls last election. In this regard, a $30 billion increase in the non-debt portion of the budget has raised red flags for some financial analysts who contend this could be used to prop up Government pre-election spending.
When adjusted for inflation, this year's budget translates to what was spent last year, indicating that on the face of it, Government appears committed to reining in its expenditure as part of its objective of achieving a balance budget target soon.
But critics scoff at this, arguing that it has now become the norm for Government to present budget figures that suggest tight spending, only to adjust them upwards when the Supplementary Estimates are presented months later.
Against the background of the confluence of above-mentioned factors that influence the context of the upcoming Budget Debate, the Finance Ministry will face a number of attendant challenges.
First, there is the issue of the difficulty of maintaining the country's social infrastructure given the limited budget finance resulting from the dominance of debt-servicing costs. The recent spending of over $9 billion for World Cup has caused some improvement in the country's social infrastructure.
Formidable tasks
Nonetheless, the problems facing the health and education sectors and inadequate funding for crime prevention still remain formidable ones. There is also the issue of inadequate bridge maintenance. Allied to this is the problem of the need to move towards a balanced budget while simultaneously meeting the objective of growth stimulation.
Yet another challenge facing the Finance Ministry has to do with the difficulty of pulling interest rates down below their present 12 per cent level on Government instruments. This reduction in rates is critical as it not only impacts positively on Governments interest costs but it has implications for speeding up the growth momentum.
Speaking on a radio programme last week, the Finance Minister conceded that the Government now faces a dilemma regarding further reduction in rates. He hinted that the differentials between the rates in foreign currency instruments and Jamaican dollar ones had narrowed. He called for greater pressure on the financial institutions to pull down their loan rates and said that the two larger commercial banks were in a favourable position to lead the charge.
An additional challenge that the administration faces, and ultimately the economy, is the uncertainties in the international economy regarding oil prices. This is in addition to the vulnerability of the economy to acts of nature. Only recently, there were reports that the experts are predicting that this will be a busy hurricane season.
One factor that will ease the pressure off Dr.Davies is that his ministry has already raised US$350 million in the overseas financial market. This amount will match the nation's external debt payments for this fiscal year.
Meanwhile, as interest in Cricket World Cup recedes, given the West Indies Cricket team's erratic performance, attention will definitelyturn to the upcoming Budget Debate. This could easily prove to be the hottest show in town!
Budget bricks
Debt burden
IMF's call for GCT increase
Bear Stearns' downgrade
Pre-election spending pressure
Dr. Omar Davies, Minister of Finance and Planning.
Errol Gregory, Sunday Gleaner Writer
Finance and Planning Minister Dr. Omar Davies will be in a box of bricks when he opens the 2007/2008 Budget Debate in Gordon House on Thursday.
In deciding how to spend the estimated $383 billion to manage the nation's business during this financial year, the Finance Minister is contrained by the fact that more than half - $210 billion - will have to be spent on repaying debt. This leaves $173 billion to be shared up among competing sectors of the economy such as health, education and national security.
Add another brick: the insistence by the International Monetary Fund (IMF) that the Government raise the general consumption tax fromthe current rate of 16.5 per cent in order to close the perennial shortfall in revenue. The target last fiscal year was 2.5 per cent of gross domestic product (GDP), which is a measure of economic performance. But Government missed the target.
Another brick thrown at Dr. Davies is the recent downgrading of Jamaica's market performance to 'underperform' by international rating agency Bear Stearns. It argued that it did not expect any positive surprises coming out of the Budget debates and suggested that Dr. Davies would set a new fiscal deficit target of four per cent of GDP.
As the Government's debt reduction strategy places great store on its ability to borrow in overseas financial markets, it is not likely to gloss over this report and will be inclined to stick to is targets. Another factor demanding Dr. Davies' attention, as he allocates scarce resources, is election-related expenditure. Critics have accused him of allowing the Government to 'run wid it', suggesting that he relaxed expenditure controls last election. In this regard, a $30 billion increase in the non-debt portion of the budget has raised red flags for some financial analysts who contend this could be used to prop up Government pre-election spending.
When adjusted for inflation, this year's budget translates to what was spent last year, indicating that on the face of it, Government appears committed to reining in its expenditure as part of its objective of achieving a balance budget target soon.
But critics scoff at this, arguing that it has now become the norm for Government to present budget figures that suggest tight spending, only to adjust them upwards when the Supplementary Estimates are presented months later.
Against the background of the confluence of above-mentioned factors that influence the context of the upcoming Budget Debate, the Finance Ministry will face a number of attendant challenges.
First, there is the issue of the difficulty of maintaining the country's social infrastructure given the limited budget finance resulting from the dominance of debt-servicing costs. The recent spending of over $9 billion for World Cup has caused some improvement in the country's social infrastructure.
Formidable tasks
Nonetheless, the problems facing the health and education sectors and inadequate funding for crime prevention still remain formidable ones. There is also the issue of inadequate bridge maintenance. Allied to this is the problem of the need to move towards a balanced budget while simultaneously meeting the objective of growth stimulation.
Yet another challenge facing the Finance Ministry has to do with the difficulty of pulling interest rates down below their present 12 per cent level on Government instruments. This reduction in rates is critical as it not only impacts positively on Governments interest costs but it has implications for speeding up the growth momentum.
Speaking on a radio programme last week, the Finance Minister conceded that the Government now faces a dilemma regarding further reduction in rates. He hinted that the differentials between the rates in foreign currency instruments and Jamaican dollar ones had narrowed. He called for greater pressure on the financial institutions to pull down their loan rates and said that the two larger commercial banks were in a favourable position to lead the charge.
An additional challenge that the administration faces, and ultimately the economy, is the uncertainties in the international economy regarding oil prices. This is in addition to the vulnerability of the economy to acts of nature. Only recently, there were reports that the experts are predicting that this will be a busy hurricane season.
One factor that will ease the pressure off Dr.Davies is that his ministry has already raised US$350 million in the overseas financial market. This amount will match the nation's external debt payments for this fiscal year.
Meanwhile, as interest in Cricket World Cup recedes, given the West Indies Cricket team's erratic performance, attention will definitelyturn to the upcoming Budget Debate. This could easily prove to be the hottest show in town!
Budget bricks
Debt burden
IMF's call for GCT increase
Bear Stearns' downgrade
Pre-election spending pressure
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