Jamaica – Tough Fiscal-policy Choices Remain

Despite controlling a bare one-seat majority in the 63-member National Assembly, the JLP government headed by Prime Minister Andrew Holness faces little immediate threat to its hold on power. There are no signs of disunity within the governing party’s parliamentary group, and Peter Phillips, the leader of the PNP, has repeatedly stated that his party is prepared to work with the government to facilitate the approval and implementation of policies that are in the national interest.
The adoption of a posture of cooperation is a calculated strategy that is aimed at both projecting an image of the PNP as a “responsible” party and ensuring that the JLP cannot blame any failures on obstruction by the opposition. But it also reflects the fact that the current government’s economic policy program is in many respects a continuation of the one implemented by Phillips as finance minister in the previous PNP administration.
For the time being, Jamaica remains in the good graces of the IMF, which following its most recent visit in early September declared the government to have met all of the benchmarks under a precautionary standby agreement. Shortly before the visit from the IMF delegation, Finance Minister Audley Shaw noted that the government had realized a primary budget surplus of $1.1 billion (slightly more than 8% of GDP) in the fiscal year that ended in March 2017, enabling the government to prepay some $525 million owed under a debt-restructuring deal reached in 2010. As a result, the maturity of an additional $870 million of debt originally scheduled to be repaid in 2019–2025 has been extended to 2028–2045.
The favorable fiscal performance is all the more remarkable in light of tax reforms implemented over the last two years that have reduced the number of Jamaicans on the PAYE tax rolls by 85%. Shaw has assured that the revenues lost as a result of income-tax relief will be made up by cracking down on tax evasion and reducing government waste and corruption, but the IMF is pressing the government to get moving on wage negotiations with the public-sector unions, which are demanding a 60% pay hike.
In late September, the prime minister stated that his government has already identified numerous agencies and departments that will be closed down or merged, as part of a plan to reduce the size of the public-sector work force and implement a performance-based pay system designed to promote efficiency and create a more objective basis for determining wage levels and raises. Some observers have warned that reform of the public-sector will make little progress unless accompanied by a system of zero-budgeting, but neither Holness nor Shaw has given any indication of plans to take that step.
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