Morrison

As Jamaica proceeds to finalise a new borrowing relationship with the International Monetary Fund that will also pave the way for increased loan inflows from other multilateral institutions, it will have to commit to a credible programme for correcting long-standing deficits in the national budget.

Such a programme would be less onerous in a growing economy, since revenues would be expanding and retrenched public sector workers could more easily find alternative employment. But there is now no room for delay as the scale of the deficits mean that they must be dealt with urgently, despite the contraction in the economy.

contain public expenditure

Given the nature of the problem, the programme must include measures to contain public expenditure and boost revenues according to a framework which sets clear priorities for government spending and the allocation of resources within the overall economy. On the expenditure side, while the focus has always been on the public sector wage bill as the main problem, the fact is that the long delay in disposing of loss-making public sector commercial, entities such as Air Jamaica and the Sugar Company of Jamaica, has contributed significantly to the budget deficits. So, too, have Bank of Jamaica losses over the years. We have now run out of time so action has to be taken.

The same holds true for government agencies whose functions are redundant, as well as in those cases where there is overlapping. But some critical public sector agencies, such as the police force, are understaffed and must be expanded to meet the needs, and others like the health services are running down and require more funding. In essence, the structure of the public sector will have to be rationalised, according to the set priorities and availability of resources.

In further reforming the public sector, not only must the structure be rationalised, but the mounting costs of pension payments for central government workers must be tackled. At present, the pensions for these workers are non-contributory, being solely funded by the national budget. This situation is unsustainable and has to be changed by adopting a phased programme that provides for contributions by the workers.

The thorny issue of user fees for some services provided by the Government has to be revisited. It is unfortunate that this issue is highly politicised because there are some services from which the individual consumer derives the full benefit and, therefore, should pay user fees as we now do for the provision of a passport, birth certificate, or airport services. There are also social services where those who have the ability to pay should contribute directly to the cost of providing these services, with the state fully bearing the cost for those citizens who cannot afford to pay.

broader challenge

Even as the taming of the widening fiscal deficit sits at the top of Jamaica's economic agenda, as I indicated in last week's column, the broader challenge that the country faces is how to get the local economy on to a sustained growth path. While a strengthened fiscal position is a necessary ingredient, it is not sufficient. In that column, I had set out the elements of a programme of investment and economic expansion which would be an essential complement to the fiscal restructuring exercise.

The programme would involve resuscitation of some traditional sectors, like bauxite and agriculture. It would also include modernisation of the energy sector to reduce costs and enhance the competitiveness of the economy. Deepening and widening the linkages of tourism with other sectors would drive investment and exports; and by creating space for micro, small and medium-sized enterprises this would boost growth in output and job creation.

New industries around health care and education, music, entertainment and sports, are possible because of expanding global demand and they are key components for broadening our tourism product. Our modern ICT infrastructure is a vital underpinning for these new industries, as well as for a range of information services.

In the current recessionary environment, where foreign direct investment is depressed, the mobilisation of local capital resources to support increased investment will be pivotal as will persuading risk-taking capitalists to expand existing, and create new, productive enterprises. A number of obvious questions arise: Who are the local actors in the private sector that could be viable partners with the state and/or foreign investors in new ventures? Are they willing to risk their capital? What is it that would attract them to do long-term investment in Jamaica?

The Jamaican private sector has justifiably pointed to crime, red tape, budget deficits and taxation in explaining their reluctance to invest here, and insisted that these are real barriers to economic growth. Nonetheless, foreign direct investment has risen sharply since the late 1990s in response to the economic reforms that were undertaken. Is it that issues other than economic policy have shaped their attitude to long-term investment exposure in Jamaica? Could it be that Jamaica's capitalist elites are uncomfortable with the local political dynamics, or are insecure about their relationship with the majority classes?

structured relationship

Significant effort has gone into developing a structured relationship with the Jamaican diaspora in the USA, Canada and the United Kingdom. How do we go about mobilising entrepreneurs from this community to take on major business ventures in Jamaica? Do we know who some of the potential players are and how to engage them? Judging by the size and rate of growth of remittances over the past 15 years, there is no doubt that the diaspora can be a major source of capital for local investment.

Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.