LAST WEEK'S downgrading of the Government's debt instruments and the country's outlook was a bitter pill for the authorities to swallow.
This latest downgrading by the international rating agency, Standard and Poor's, came in the aftermath of understandable gloating by government spokesmen that they had secured a $200 million euro loan, at a time when the budget financing gap appeared insurmountable.
The raising of the funds on the euro market immediately stifled the debate spearheaded mainly by the Opposition, that the Finance Ministry should disclose the actual fiscal deficit numbers. In fact there was heightened expectation that Government could still meet its targeted 4-5 per cent deficit figure by the end of March 2004.
The Prime Minister's disclosure last week that the fiscal deficit target at year-end 2003 was some 7 per cent slashed the optimistic expectations. Perhaps not surprisingly, in their response to the rating agency's action, the authorities chided Standard and Poor's for acting more on historical data the December deficit figure rather than focusing on the country's current relatively positive economic outlook.
In our view, Standard and Poor's move to downgrade the debt instruments is a reminder that the authorities cannot continue to play around with the numbers on the economy nor use spurious arguments (such as the fact that there were heavy debt ratios in the past so there was no need to worry about the present predicament) to gloss over the debt crisis. Standard and Poor's, like the International Monetary Fund, had issued previous warnings about the high debt service ratios affecting the economy and raised concerns about their sustainability. Additionally, in the release accompanying the downgrade, the rating agency expressed concerns about the Government's liquidity position, arguing that the high interest costs could put pressure on the local currency and could impact negatively on the country's reserve position. Further, it should be noted that it is the second consecutive year that the Government has blown its own stated fiscal deficit target.
If Jamaica intends to continue to be a player in the international financial markets it has to accept the rules of the game. The authorities committed themselves to a specified fiscal deficit target and should ensure that the targets are met, especially if they intend to continue to be a player in the international marketplace. Special treatment cannot be expected based on perceived peculiarities in the Jamaican economy.
The Government should use the reality of this latest downgrade to seriously tackle the fiscal crisis and take the bitter medicine now, rather than trying to find the sugar-coated option. There is a place to celebrate any positives in the economy but the fiscal deficit cannot be wished way. Take the medicine now that will lead to sustainable growth. If this is not done pain will continue without sufficient gains.
THE OPINIONS ON THIS PAGE, EXCEPT FOR THE ABOVE, DO NOT NECESSARILY REFLECT THE VIEWS OF THE GLEANER.
