Fiscal reform is never fun, even less so when it comes as an eleventh-hour necessity. For Caribbean states especially, “fiscal reform” is hissed in the public sector as the foulest Jamaican bad word. Nowhere does this ring truer than in – you guessed it – Jamaica.
Debt crisis is not something new in the Caribbean. Most of these states have gone the whole nine yards: deficit, debt, default, devaluation, and then the scourge of IMF structural adjustment programs and the shackles of a borrowing relationship. Jamaica has done it all, and yet under the leadership of former Prime Minister Bruce Golding things were looking up. Over J$700 billion in domestically held debt was rescheduled and improvements in the economic situation gave the IMF the confidence to resume a relationship with Jamaica to the tune of US$1.2 billion. Jamaica had an opportunity to address a handful of problems and find new ways of organising their finances.
While I give Mr Golding credit for a lot of the progress made in Jamaica’s economy during his Premiership, he deserves none for tackling public sector finances. The rekindled relationship with the IMF survived less than a year, broken by public sector wage hikes and a slew of unscheduled spending sprees. In short, rather than using the
trust of domestic creditors and the faith of the IMF to reduce the debt burden and improve the state of government’s bank accounts, Golding’s Jamaica Labour Party saw the Jamaica Debt Exchange as a chance to spend more.
No one is blind to Jamaica’s social woes, and we know that the IMF is partly to blame. Jamaica’s publically funded infrastructure has suffered from low levels of investment from the day they got in to bed with the IMF. The country hasn’t seen a new public hospital, or even critical upgrades to an existing one, since the 1970s. Funds for social housing and welfare are tight. Jamaica needs to generate new income and it needs to spend it. Increasing public debt to do so however, especially when there are more economically sound (though unpopular) ways of finding the dollars, is reckless.
In December the JLP was swept from power and exchanged for the People’s National Party. Though our new Finance Minister seems to take debt reduction more seriously than his predecessor, there remain some major issues. The Government of Jamaica officially states debt as 130% of GDP. The IMF insists that it’s closer to 140%. Despite announcing billions in new tax revenue Jamaica still suffers from an incredibly poor tax administration that allows nearly three out of four Jamaicans to simply ignore the tax man. The public sector wage bill remains too high for Jamaica and it’s difficult to imagine a government willing to reduce it.
Jamaica’s government needs to act decisively. A vastly improved tax administration (not more taxes) can collect the billions of dollars’ worth of revenue lost each year because of administrative gaps. An improved system isn’t impossible: just take a look at the success that South Africa has had ensuring compliance with tax law. An investment in tax administration is one which will certainly pay off in Jamaica, but one that isn’t likely with the People’s National Party setting policy.
Greece sends Jamaica (and a host of other Caribbean states) a forewarning. When debt becomes unmanageable, interest rates start to jump, investment starts to flee, and creditors decide to call in your debts, life for a small state becomes incredibly difficult. Luckily for the Greeks, they have a continent willing to pony up the cash needed to keep water running and sick citizens alive. In the Caribbean, we’re on our own. Unpopular choices that should have been
made long ago need to be made now, so that the future of government finances looks brighter.
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