If there is any good in last week's downgrade by Moody's, the rating agency, of Jamaica's sovereign bonds, it is the effect it might have in strengthening the resolve to fashion a budget with elements that, otherwise, might have been politically unpalatable.

Moody's decision was, of course, not entirely unexpected, for, Jamaican analysts, like the foreign assessors, were privy to the country's economic data. And as this newspaper has been pointing out, they have been uniformly bad.

For example, real gross domestic product (GDP) declined by about half a per cent last year and will slip further in 2009, perhaps by as much as three per cent. Most sectors of the economy are in retreat, shedding, in the process, thousands of jobs.

The Government's fiscal accounts, too, are under severe stress. While the administration was able to stick to its spending nearly three per cent below projections during the first 10 months of the fiscal year, its inability to meet revenue targets hurts the accounts. At the end of January, the fiscal balance, the difference between revenues and grants received by the Government and what it spent, at - $12.3 billion, was around 24 per cent higher than it was programmed to be. Indeed, on the face of the evidence, unless something dramatic is achieved by then, the Government is likely to end the fiscal year with a public-sector deficit closer to six per cent of GDP than the 4.9 per cent that was promised by finance minister Audley Shaw.

Global credit crisis

The global credit crisis has choked off foreign-debt markets to Jamaica and even if it is able to borrow commercially abroad, it would be at rates that would be inadvisable. In any event, the country's debt is well over 100 per cent of GDP and currency devaluation and high interest rates make it unsustainable. Indeed, debt-servicing consumes nearly 60 per cent of the Government's budget.

In this environment, it cannot be business as usual, and the government, clearly, has little room to manoeuvre. It is confronted with hard choices if it intends to ensure Jamaica's viability and set the country on a path towards growth after the worst of the global recession has passed.

The good thing is, even before the Moody's downgrade, Prime Minister Golding had talked of the need for, and his willingness to, take tough decisions to pull the country through the difficult times. We take Mr Golding at his word.

Effective action for growth must include reducing the size of the Government and its appetite for debt, which crowds the private sector out of the capital market by keeping interest rates high. This undermines investment and job creation.

Contingent liability

An obvious and immediate place for Mr Golding to start in right-sizing the Government must be the divestment, or closure of loss-making entities which burden the State and whose debts are part of the Government's contingent liability. Critically, it must rein in the ballooning public-sector wage bill, which, at over $92 billion for the first 10 months of the fiscal year, was nearly $5 billion more than projected and 32 per cent of all spending.

Maybe 20,000 of the more 100,000 public-sector employees will have to go. But as Mr Golding said, these are tough times, demanding tough, hard decisions.

,i>The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.