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Main Expenditure Areas The 1999/2000 expenditure budget amounts to $160 billion allocated between Recurrent and Capital as follows:
This represents a 23% increase over the 98/99 approved budget and a 26% increase over the revised budget. In terms of the Recurrent Budget the programmes (namely operating expenses) account for $47.7 million; Interest payments for $36.5 and Contingency for $3.1 billion. The break out of Capital is $9.8 billion; Debt Servicing (Amortization) $62.4 billion and the IMF #1 Account $0.7 billion. Recurrent Expenditure accounts for 54.5% and Capital for 45.5% It should be noted that Debt servicing interest, amortization account for $99 billion a whopping 62% of total expenditure. This is a major weakness of the budget of this fiscal year and the extent to which debt servicing consumes such a whopping percentage of the budget implies that other sectors, particularly the Capital budget, must suffer. A major task, not only for this fiscal year, but for the medium term, will be to reduce the percentage of the budget consumed by debt servicing and I would like to spend some time on this. The single biggest challenge facing the Government for the medium term is the management of public debt. For the fiscal year 99/00 debt servicing will account for 62% of Government's expenditure. This is not sustainable. When I made the Budget Presentation a year ago, I indicated that we intended to raise $46 billion in loans, $26 billion from domestic sources and $19 billion externally. Loan raising programmes would be within the context of a strategy that would replace high cost domestic debt with lower cost debt as well as to lengthen the maturity profile of the debt. We have been relatively successful in the objective of lengthening the debt profile, as we relied heavily on LRS financing to the point that as at March 31 LRS amounted for over 75% of outstanding domestic debt. As at the end of fiscal year 98/99 domestic debt amounted to $139 billion (53% of the outstanding public debt) but there has been an increase of $38 billion in domestic debt compared to a year ago. Five (5) factors have contributed to this increase:
As regard external debt, at the end of March 1999, it was at US$3.2 billion, the same as a year ago. We have a situation where domestic debt is growing but external conditions have prevented us from fully implementing a strategy to replace some of the domestic debt with cheaper foreign debt. The question may be asked - what has been done with the $139 billion of domestic debt. The answer is that more than half of this debt, raised since 91/92 is for non-budgetary purposes. The amount borrowed for budgetary support also includes secondary impact of the amount borrowed for non-budgetary purposed, since these debts has to be serviced but revenues have not adequate to cover basic needs plus incremental debt servicing. For fiscal year 1999/2000 it is projected that $99 billion will be needed for debt servicing, $30 billion more than that which was utilized in 98/99. Of this additional $30 billion, $28 billion will be used to retire existing debt and $2 billion is the incremental domestic interest payment over the last fiscal year. From the above, it can be seen that the increase in debt servicing is due mainly to amortization. Approximately $8 billion will be used to amortize FINSAC debts. $18.3 billion will be use to retire local LRS and debentures. Just under $700 million will retire salary bonds and $1 billion to reduce the stock of Treasury Bills The remaining amount will be applied to the retirement of land bonds and other will term instruments. Of the new borrowing of $68 billion, $62 billion will be used for amortization and just under $6 billion will be use to support the expenditure programme. I repeat that the Government recognizes that additions to the debt stock is not sustainable. Therefore, we have to get to the point where the debt stock is reduced such that resources can be freed to address the requirements for the social sectors and infrastructure development. I now outline the programme aimed at reducing the burden of debt. During this fiscal year, steps will be taken to reduce the pace of growth in the stock debt but the targeted decrease in debt stock can only occur when fiscal budget has returned to surplus and the surplus is used to reduce the debt stock. We will return to this position in fiscal year 2001/02. The details of the debt strategy are fully outlined in the Ministry Paper which was tabled today. The interest rate projection for 99/00 assumes a reduction to 15% at the end of the year. If this occurs, thee will be a saving of J$3 billion. As regards the stock of treasury bills, the strategy is to continue the reduction by 1 billion in this fiscal year and through the medium term until the stock is at the level of $6-7 billion. This process will facilitate the Government using treasury bills for cash management purposes. Maturing of Treasury Bills will be replaced by longer term instruments, further helping to change the profile of the debt. During this fiscal year changes to the issuance of LRS will be introduced. We will be changing the present modus operandi where the price is determined by the Government. Under the new system the market will determine the price at which the instrument will be sold to investors, thus introducing more transparency in the system. Also as part of the strategy certain innovative securities will be introduce into this fiscal year. Among the instruments contemplated are the US dollar linked bond and an inflation linked bond. The US dollar linked bond will be denominated in US dollars for payment of principal and interest will be in Jamaican dollars. Again this year we will approach the international capital market with the objective of raising US$400 million. However, as we have learnt, our ability to achieve this target is dependent on factors outside of our control. If we are able to access the capital market along the terms we have assumed, we could reduce interest costs by $700 million. I have only sketched the approach to domestic management but I intend to enter into serious dialogue with members of the financial sector who have a joint interest with the Government in broadening the market to the benefit of both private investors and the Government. WAGES, SALARIES AND OTHER RECURRENT EXPENDITURE Several factors have led to a focus on the need for cost containment and greater efficiency levels in the public sector. To begin it makes good sense to get value for money but the cost of the intervention in the financial sector, the additional cost of dealing with obligations of Air Jamaica have combined to demand that this attention be now, rather than later. Within this context, there has been a great deal of attention focussed on the work of KPMG, as well as the report of Independent Senator, Douglas Orane which have both been seeking to identify ways of reducing costs and increasing efficiency in the public sector. The Administration has made these reports public, not with the objective of seeking to embarrass public sector workers, but simply to say to the country that we recognize that the public sector must also play its role in improving Jamaica's ability to compete in the new millennium. Hence, nothing can be taken for granted and no activity can continue simply because it was funded in the past. There has to be clear justification of the benefit to be reaped by society from each allocation. Whilst the KPMG reports, in the first instance, have focussed on three major ministries, it must become abundantly clear to all sections of the public sector, Central Government, Local Government and Statutory Bodies that improved efficiency is the name of the game. There are implications for everyone from Permanent Secretaries, Managers to ancillary workers. One clear area where there is need for greater focus is the terms and conditions governing public sector employment. These include our overly generous leave facilities and a non-contributory pension. We believe that the public sector has demonstrated that it is a progressive and caring employer, but there is scope for improvement and it is our view that the public sector can demonstrate to the rest of the economy the possibility of achieving greater efficiency with the full cooperation of workers. Within this context and speaking on behalf of my Minister of State with specific responsibility for the public sector, and my colleague Minister, Minister of Labour, there are specific steps which can be taken by workers and management in the public sector to attain the efficiency levels which we all desire. Special Expenditure A significant part of the increase in this year's budget compared to last year's, is accounted for by allocations which have been made for servicing FINSAC debt and for assistance to Air Jamaica. Between them these account for $14 billion or 42% of the increase in this year's budget compared to the revised budget of 98/99. As I have indicated the need to commit such a high percentage of resources to debt servicing has implied that the capital budget is much less than we would have wished it to be. Nonetheless, we have sought to keep our commitments not only with regard to externally funded projects, particularly in the social sectors, but also with regard to critical infrastructure projects. Consider for example, the allocations for water. Provisions had been made for several water supply schemes including Dornoch, Newell/Newcombe Valley, Moneague, Kingsland/Huntley Water Supply, Christiana/Spalding. These are all being funded solely from GOJ resources. In terms of agriculture, I draw attention to a special allocation of $80 million which is to provide incentives for small farmers. Few people recognize the extent to which domestic agriculture is the dominant aspect of the agricultural sector. Last year the decline of nearly 15% in overall agriculture was caused mainly by a 20% decline in domestic agriculture resulted in large part from the drought. In 1998 with the drought being finally broken, although there was still a decline, it was much less - only 1%. The rains have come and we predict that with a little help to small farmers, agriculture will record significant growth in 1999. Roads received a significant allocation for this year and later on I will give a more extensive discussion as to what is being done, not only through Central Government budget, but throughout the overall public sector for roads and transportation. || Previous | Table of Contents | Next ||
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