Minister of Finance and the Public Service Dr Nigel Clarke says that the novel coronavirus pandemic’s hit to the Government’s revenues for 2020/21 has been estimated at an unprecedented decline of 11.3 per cent or $73.3 billion, compared to 2019/20 inflows.
Dr Clarke told the House of Representatives last Thursday that the pandemic has generated both a health crisis and an economic crisis during the current financial year 2020/21.
The decline was most obvious in the tourism sector where projected direct tax revenues of $43.2 billion ended up at $6.5 billion for the year, a loss of $36.7 billion in Direct Government Revenue, and full-time employment for the 170,000 direct employees fell by 90 per cent, initially, and fleshed out at approximately 30 per cent full-time employment up to December.
“The pandemic has impaired the health of thousands of Jamaicans, strained the health systems and led to the reduction of economic activity across Jamaica including the virtual shutdown of the tourism sector for much of the year,” he said as he tabled the 2021/22 budget.
“This translated into a significant loss of revenue for the Government and, simultaneously, to the need for new expenditure to address the health consequences while cushioning the social and economic impact,” he added.
However, he said that despite the hit to the revenues this financial year, the overall expenditure is programmed at 3.8 per cent, or $24.2 billion higher than the 2019/20 spend.
He recalled that to enable the Government to pursue the required expenditure in the face of the unprecedented revenue fallout, the Government requested and obtained suspension of the fiscal rules for 2020/21, following amendment of the Financial Administration and Audit (FAA) Act that included an adjustment of the target date for achievement of debt/GDP of 60 per cent (or less) from FY 2025/26 to FY 2027/28.
The FAA Act requires that in periods following suspension of the fiscal rules corrective action, in the form of a constraint on the fiscal balance, be taken to restore the trajectory for achievement of the debt/GDP target. This corrective action has been applied in developing the 2021/22 Central Government and Public Bodies budgets.
He said that, inclusive of the current January/March 2021 quarter, by the end of March the country will have experienced five consecutive quarters of economic decline.
“We lost $73 billion in revenues last year, we had to suspend the fiscal rules and we were fortunate to have the ability to draw down on substantial cash resources last year, which we were warehousing to accelerate debt repayment,” Clarke said.
“In previous downturns, economic contractions have lasted several years in a row. In the global financial crisis that began in 2008, for instance, the economy declined for three consecutive years and 11 out of 12 quarters. In the 1970s, we experienced five consecutive years of economic contraction from 1976 to 1980 inclusive,” he reminded.
“From the very outset of this economic crisis we positioned ourselves to absorb the shock and to recover faster and stronger than we have before. We have made public our intention to recover quickly and this informed the commissioning of the COVID-19 Economic Recovery Task Force, its deliberations and report,” he stated.
“Our task this year is to begin the economic recovery. We aim for economic recovery to begin the upcoming fiscal year and furthermore to begin this upcoming April – June quarter. Our budget, within the strictures with which we have to operate, and to the greatest extent possible, is aligned with this objective,” he said.
“Make no mistake about it. This is a dangerous economic crisis and the wrong choices could prolong and deepen its effects,” he added.
On the positive side, however, Dr Clarke pointed out that the path out of the crisis is clear although it remains a very narrow one.
“Meaning, we can’t do everything, we have to prioritise and even prioritise within priorities, and we have to be very strategic and deliberate in what we do,” he explained.
He said that the priorities for recovery include the following:
• We need to ensure that we make adequate provisions for vaccines. For economic recovery it is essential that the financing exists for Jamaica to procure sufficient vaccines to reach herd immunity, with respect to the coronavirus, in the quickest possible time.
• We need to ensure that we bolster social support to assist the vulnerable persons and those who are most affected by the pandemic.
• We need to continue to finance the provision of the public goods and services on which our society and economy depends.
• We need to maintain stability in the economy.