After assessing the tabling of the (1) fiscal policy paper, (2) medium-term debt management strategy and (3) estimate of expenditure for FY 2022/2023, The Private Sector Organisation of Jamaica (PSOJ) believes the FY 2022/23 budget appears reasonable. However, within the initial year of the announced Public Sector Transformation process the compensation numbers for expenditure will see wages exceeding the GDP ratio fiscal rule of 9%.
The Government of Jamaica (GOJ) has announced plans to spend $912 billion in fiscal year (FY) 2022/23 which is an increase of $19 billion or 2.1% when compared to the previous financial year. This includes above the line expenditure, of $742.9 billion and below the line expenditure of $169.1 billion, which will be used to amortize debt in line with the Government’s overall debt reduction strategy.
Some prominent aspects for the proposed budget are the notable expansion in capital spending, which should help bolster the country’s underdeveloped infrastructure over time and help boost overall economic activity. The GOJ is expecting to generate a primary balance surplus of $145.2 billion (5.9% of GDP) and we believe that this is achievable. Loan intake relative to amortization is expected to fall by $45 billion which is in line with the debt reduction strategy.
Like previous budgets, general consumption tax and income tax are projected to be the key revenue sources accounting for 35.4% and 28.2%, respectively, of total projected tax inflows. We note the slowdown in revenue & grants relative to the period leading up to FY 2019/20, reflecting a falloff in one-off inflows from public sector bodies, including the Bank of Jamaica, which are captured under non-tax revenues. Nevertheless, the revenue target outlined by the GOJ is in line with the nominal GDP growth rate forecast of 9.7% for the FY 2022/23.
There remain concerns about the elevated level of employees’ compensation as a share of GDP, which is projected to continue to breach the fiscal target of 9% into the medium-term and remain above 12% of GDP up to FY 2025/26. We note the need to improve workers’ remuneration, but we believe that it must be done prudently and not at risk to the country’s hard-won fiscal gains. This 9% fiscal target is entrenched in law and we run the risk of remaining in breach if this is not addressed. There is also a risk of interest rates increasing more than budgeted due to inflationary pressures which could see debt service costs coming in higher than budget.
The budgeted numbers are predicated on continued improvement in the domestic economy over the near term, with no severe shocks to the growth trajectory. Downside risks include the current global economic headwinds — the lingering adverse effects of the COVID-19 pandemic and potential geopolitical uncertainties. A more virulent strain of the COVID-19 virus and disruption in international markets due to geopolitical tensions could derail GDP growth and negatively affect revenues.
All things considered, the revenue numbers and the overall budget appear reasonable. We look forward to productive discourse between the Government and the Opposition once the Budget Debates begin in March 2022.