In this November 18, 2007 Gleaner photo, Prime Minister Bruce Golding (left) listens to former Prime Minister Edward Seaga while attending a football match at the National Stadium in Kingston. - File

It must be tough for Edward Seaga to sit idly by and watch the hesitant and clumsy manner in which the Bruce Golding administration has pursued the management of the Jamaican economy during its first two years in office.

It has to be particularly difficult for him to realise that of all the current and past politicians in this country, he is the one who has relished most the opportunity to turn the Jamaican economy back on to a path of sustained economic development.

Even in 'retirement' he has kept abreast of the major economic developments, both locally and internationally, and has not been content to sit on a veranda and pontificate in an uninformed manner.

Rather, he has taken the opportunity over the past five years as distinguished research fellow at the University of the West Indies to analyse data on the Jamaican economy, review policy documents, major government and multilateral lending agency publications, etc., in a very structured manner.

And this is reflected in the significant volume of articles, speeches and other publications he has produced during this period.

Prognosis on the economy

In this context, I had an opportunity, over the past year, to work closely with Seaga and to discuss the state of the Jamaican economy and his prognosis for the future.

We shared opinions, analysed data and reviewed the opinions of other economists, scholars, etc.

When the Government of Jamaica Budget for the current fiscal year was originally presented in April 2009, as well as after the tabling of the first supplementary estimates, Seaga analysed the fiscal targets, reviewed the current account and balance of payment position, the net international reserves, prospects for earnings from key areas in the productive sector, foreign direct investment (FDI) and remittance movements.

He reviewed the debt dynamics and the debt-management strategy, interest rate spreads, dollarisation versus managed float exchange rate, etc.

For example, from October 2008, he paid particular attention to the potential fallout in the bauxite levy and other earnings from that sector, including a potential reduction in income tax - corporate and PAYE - the impact of heavy discounting on the tourism revenue projections and the contraction in remittances.

He was also interested in reviewing the high levels of FDI that the country received in recent years as a result of investments in the bauxite and tourism sectors, and what impact the global recession would have on the level of FDI in the short-to-medium term.

His conclusion, from as far back as December 2008, was that the Govern-ment had no choice but to negotiate with the International Monetary Fund (IMF) for a standby loan agreement regarding balance of payment support and that the administration was correct in seeking to source funding for budgetary purposes from the multilateral lending agencies.

He did not see the IMF as providing the solutions for Jamaica's problems. However, it was clear to him that they have been exhibiting a greater level of flexibility in their deliberations with the Jamaican authorities than under the structural adjustment programme which he faced in the 1980s.

Seaga took the position that it would make sense for the administration to bring all the outstanding off-budget items on to the books of the Central Government while at the same time resisting the temptation to overestimate the revenue figures.

In this regard, he carefully pointed out that the revenue projections for fiscal year 2008-09 included a massive intake under the tax amnesty, and that the payment of arrears was a one-off exercise that would not be replicated in the current year.

Further, with the layoffs and cutback on working hours taking place in the private sector, this would have a telling impact on PAYE returns. Plus, the fact that the bauxite levy and other tax revenue intake from the bauxite/alumina sector would be severely curtailed in 2009-10.

Bang on target

His estimate of the fallout on earnings from bauxite/alumina for this fiscal year would be in the region of US$1 billion gross and this does not take into consideration the loss of around US$400 million per annum that the sector had received in FDI during the previous four to five years.

As we come closer to the last quarter of the 2009-10 fiscal year, it looks like Seaga has been bang on target in his assessment of the true deficit position - including taking into consideration the build-up of arrears in the system, as well as the contingent liabilities that have not been brought on to the books of the Central Government.

The original Budget projections called for a fiscal deficit of $65 billion, or 6.7 per cent of GDP. This was subsequently revised to $78 billion, or 7.8 per cent, after the IMF indicated to the Government that it should not count on receiving the budgeted divestment proceeds from the sale of Air Jamaica and the Sugar Company of Jamaica Limited.

Then the fiscal deficit position was increased to $94.5 billion, or 8.7 per cent.

Seaga has indicated all along that given the state of the economy and the fallout in the major revenue-earning sectors, the financing requirement is more in the region of $120 billion to $150 billion, which would mean, realistically, a fiscal deficit of around 12-15 per cent of GDP.

And while this would be a bitter pill to swallow, it was better to start the negotiations with the IMF discussing the true state of affairs in the economy, and to thus develop the medium-term economic framework around a gradual reduction of this overall deficit position.

Also, while Golding spoke to the nation about a $10-billion shortfall as at the end of October 2009, between what was originally projected for the deficit at the end of the April-October period and the actual out-turn, realistically the gap to be filled by increased taxation is significantly higher than $10 billion.

It will be difficult to consider the imposition of increased GCT on the working class and poor in the society.

Perhaps PM Golding might want to talk, or listen to, Seaga more often.

renee.shirley@yahoo.com