Hit by low revenues which have fallen below seemingly too-ambitious targets, and a spending bill that has resisted all efforts to be tamed, finance minister Audley Shaw has amended the fiscal deficit target, adding more than three points.

Shaw on Wednesday said the deficit has been recast to 8.7 per cent of GDP to fit more realistically with underperforming tax intake and problematic wage and debt servicing.

"The original budget presented in April 2009 saw central government targeting a fiscal deficit of 5.5 per cent of GDP, equivalent to $65.4 billion."

If divestment proceeds are not factored, it would have been $78.3 billion, or 6.6 per cent of GDP.

The good news is that the currency is stable at around $89 to the USD and headline inflation - currently running at an annual 6.1 per cent - is a fraction of the 26 per cent annual inflation rate registered in August 2008. Fiscal inflation this period is projected to close at 10 to 12 per cent, tracking with the 12.4 per cent at fiscal year end March 2009.

Growth projections

Economic growth projections, however, remain at negative three to four per cent, but Shaw says he expects a turn in the country's fortunes starting gradually in the latter part of FY2010/11.

"Economic growth is expected to be moderate over the next four years," he told lawmakers in the debate on his revised Budget that adds $6 billion to spending this year.

Much of Jamaica's hope for a recovery over the medium term rests, the minister admitted, on help from the International Monetary Fund (IMF), which is to pronounce on a US$1.2-billion borrowing facility in November.

An IMF review team is due in mid-October ahead of the expected decision of the fund's executive board on Jamaica's request for help.

Jamaica's technical team was in Washington for negotiations last week.

Shaw called those talks "fruitful".

Jamaica's inability to tame its wage bill, budgeted at $125 billion this fiscal season, plus $10 billion more for travel and subsistence, and its monumental debt-servicing charges that were $16 billion more than originally estimated, make an IMF deal imperative.

The added interest charges have been linked to the hike in interest rates by the BOJ ahead of the current fiscal year. The central bank has since cut rates four times to 17 per cent on its benchmark open-market security.

Chronic burden

Prime Minister Bruce Golding labelled Jamaica's mounting debt a chronic burden in his presentation Wednesday, saying in the past decade the funds needed to finance it have consistently outdistanced central government income in the past decade.

"So burdensome is the total debt that for the last 10 years our interest costs and principal repayments have exceeded our total revenues," said the PM.

"For this year, our interest costs and principal repayments total $325 billion, while our total revenue is estimated at $310 billion."

The total debt stands at J$1.26 trillion.

For the fiscal year to date August, tax revenues fell $8.4 billion short of target at $100 billion. Spending, too, was down, by $7.6 billion of programmed levels to $169.5 billion, but it came at a cost to capital projects that were spliced by 24 per cent in the April-August period.

The fiscal deficit climbed to $61.6 billion, or $2.86 billion more than programmed in the original budget.

Revise targets

"Within the context of these deviations, it has become necessary to revise targets and the Supple-mentary Budget as presented reflects this revision," said Shaw.

The new $561.4-billion budget is split $411.2 billion in recurrent spending and $150.2 in amortisations, he said.

The new 8.7 per cent deficit target reflects an expected shortfall of $94.5 billion between operating revenue and spending.

The causes of the deviations in the fiscal deficit target are, Shaw said:

i) Tax revenue which is projected to decline by $13.4 billion, or 1.1 per cent of GDP;

ii) Delay in divestment of $12.9 billion, or 1.2 per cent of GDP;

iii) Interest costs are projected to increase by $16.2 billion, or1.5 per cent of GDP; and

iv) The downward revision in nominal GDP (lower growth and inflation) resulted in a 0.6 per cent deviation in the fiscal deficit.

"These changes resulted in an adverse deviation of 4.2 per cent of GDP," he told lawmakers.

"In light of these deviations, non-debt expenditure had to be cut by $10.5 billion, or 1.0 per cent of GDP."

Recurrent programmes were cut by $4.7 billion, or 0.43 per cent of GDP, and capital expenditure by $5.8 billion, or 0.53 per cent of GDP.

lavern.clarke@gleanerjm.com