THE first thing to note is that the “true” budget expenditure, excluding debt repayment (amortisation), has actually increased this year.
The reduction in the headline budget number by $20 billion from $850 billion for the last fiscal year ending this March to $830 billion for this current fiscal year beginning in April, is due to a reduction in amortisation from $158.6 billion to $146.3 billion, or roughly $12.3 billion.
Amortisation, therefore, first needs to be subtracted from total expenditure for both years for us to compare budgets. So, for the last fiscal year it is projected to end with expenditure of $691.4 billion, excluding amortisation, compared with $683.7 billion for this year.
While this is still below last year, it does not include the fact that, very encouragingly, interest costs fell from roughly $136.3 billion to roughly $126 billion, or around $10.3 billion. So, “true” budget expenditure – meaning recurrent programme expenditure, compensation expenditure and capital expenditure – is up at $247.8 billion, $239.2 billion and $54.2 billion respectively, the latter around $2 billion above last year’s actual as opposed to budgeted level.
Overall, in the circumstances, relative to the rest of the world, we would note that this is clearly an austere budget, emphasising fiscal prudence.
Minister of Finance and the Public Service Dr Nigel Clarke noted the sharp rise in the debt-to-GDP ratio to 110 per cent when it was previously projected to fall to the low 90s or below, which is entirely due to the decline in our GDP (the denominator) and not a rise in our debt (the numerator).
The most interesting thing is that revenues for this year (not yet presented) will include a one-off $33-billion dividend from the Bank of Jamaica to the Consolidated Fund in April.
Under the new Bank of Jamaica independence regime, according to Bank of Jamaica Governor Richard Byles at last Friday’s quarterly press briefing, the Bank of Jamaica can pay dividends of up to 25 per cent of its profits if it has a capital-to-liabilities ratio of 5 per cent. The new minimum is 3 per cent, and if the capital-to-liabilities ratio reaches 8 per cent it can pay out its entire profits as dividends.
For most of Jamaica’s existence, for example from the 1970s, Jamaica has made central bank losses. In 2010 and 2013 these losses were driven by the debt exchange at $11 billion and $22.4 billion each, respectively (the Bank of Jamaica would have Government debt securities for various reasons), but for the period 2018 to 2020 the Bank of Jamaica made profits, coinciding with its regime shift to inflation targeting from exchange rate targeting, according to Dr Clarke.
The minister had already recapitalised the central bank in previous years for past losses, so having properly capitalised our central bank, Dr Clarke can now distribute the profits accumulated as a dividend to support this fiscal year’s expenditure, compensating for the inevitable weaker revenues which he says will finance the $60-billion SERVE (Social and Economic Recovery and Vaccine) Programme for Jamaica that includes $7 billion for vaccines (and protective clothing, drugs and reagents) as part of $10.5 billion in special resources for the Ministry of Health.