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Financial News

Mar 2014 Financial News

No wriggle room - IMF dictates will force the Government to produce a tight Budget

Mar 24, 2014

Having been successful in its third review of the four-year loan agreement with the International Monetary Fund (IMF), the lending agency has advised the Jamaican Government that policies pursued going forward should focus on curtailing current spending, while protecting capital spending.

This indicates that the Government will, during fiscal year 2014/2015, continue to tighten the reins on expenditure, although the IMF has made allowance for a minimum annual expenditure on beneficiaries of specified social-protection initiatives and programmes, such as the Programme for Advancement Through Health and Education (PATH).

The IMF has also set some fiscal and monetary targets under the programme up to September 2014, as well as new structural benchmarks to be met in the 2014/2015 fiscal year. However, the programme will continue to be reviewed on a quarterly basis in line with the schedule of reviews.

Beyond setting some indicative quantitative-performance targets such as tax revenues, the primary balance of central Government and the Net International Reserves going forward, the last IMF country report, issued after the second review in December 2013, does not itemise cuts in specific areas which are expected to be addressed when Finance Minister Dr Peter Phillips tables the estimates of revenue and expenditure in the coming days.

The Government's expected performances in fiscal year 2014/2015 is highlighted by, for example, the floor on tax revenues which is expected to reach $82.7 billion at the end of June 2014, compared with $78.7 billion at end June 2013. At the end of September 2014, the proposed tax revenues are expected to be at $166 billion, compared with $150.4 billion at September 2013.

STRUCTURAL ISSUES

Some of its other expected performances are based on addressing structural issues, such as the Government's approval of a detailed budget calendar for 2014/15, its commitment to tabling a budget consistent with the programme, and a comprehensive public sector investment programme by end-April 2014.

The Organisation for Economic Cooperation and Development describes a budget calendar as one which indicates the key dates in preparing and approving a budget. They might include the date for discussing estimates with ministries and departments, the date the executive budget is submitted to Parliament; parliamentary review, including dates for budget hearings; and the date the budget-appropriations bill should be passed by the legislature.

The programme also includes early and accurate budget envelopes and priorities, and a policy to limit the use of virements - authorising the transfer of funds within the budget and ex-post regularisation of unbudgeted spending through supplementary budgets - to be completed and approved by June 2014.

The forthcoming fiscal rule, an end-of-March 2014 structural benchmark, aims to entrench fiscal discipline and consolidate the gains of fiscal consolidation in the medium term by constraining the annual budgets. The conceptual framework proposed a fiscal rule that is consistent with the IMF programme, and limits the annual budgeted overall fiscal deficits of the wider public sector, to achieve a reduction in public debt in the medium to long term.

The Government has also confirmed its commitment to apply purchase-order and commitment planning and control modules in their automated financial management system by end April 2014.

The public financial management reform agenda also include plans for enhancing the effectiveness of the central treasury management system through the addition of the budget- and expenditure-tracking modules, and for strengthening the Government procurement process.

MINOR REVISIONS

As part of the quantitative performance criteria, minor revisions are proposed to the March 2014 ceiling on direct Government debt, reflecting adjustments in the timing of donor disbursements, and to the June 2014 floor on the primary balance, reflecting the expected timing of capital spending within the fiscal year.

Under the programme, the Government has also revised relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be incorporated in the annual budgets, starting with the 2014/15 budget.

The main pillars of the programme are: structural reforms to boost growth and employment; actions to improve price and non-price competitiveness; upfront fiscal adjustment, supported by extensive fiscal reforms; debt reduction; and improved social protection programmes.

To alleviate the possible adverse impacts of fiscal adjustment on the most vulnerable, the programme includes measures to ensure adequate social spending and a strengthened social safety net.


Source:
McPherse Thompson, Assistant Business Editor
mcpherse.thompson@gleanerjm.com
Jamaica Gleaner
Monday March 24, 2014

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