CHAIRMAN of the newly-minted Fiscal Advisory Committee (FAC) Keith Duncan is reiterating his call for the Government to be careful in managing its expenditure as fiscal risks are now more elevated than previously thought with new data showing the economy contracted deeper than initially estimated.

Duncan first made the call in December as he hosted the final press briefing of the Economic Programme Oversight Committee (EPOC), noting to reporters that fiscal risks are elevated as Jamaica’s economy slows. That call was made after estimates from the Planning Institute of Jamaica (PIOJ) that the economy contracted by 2.8 per cent during the July-September period, when, in the aftermath of Hurricane Beryl in early July, it revised its forecast downwards, projecting that, at most, the economy would decline by 1 per cent.

But with the Statistical Institute of Jamaica (Statin) Tuesday releasing data showing the economy actually contracted by a much larger 3.5 per cent in the July to September quarter, Duncan is doubling down on his call for the Government to start reining in its spending, noting that if the economy continues to slow more than expected, the Government may struggle to collect sufficient revenues to fund its spending plans.

“Well, if your economy slows…your tax revenues would also slow, and that would create some fiscal compression, and that is where we would have a challenge because the forecast growth in expenditures would have to be managed very carefully so that we are able to achieve our fiscal targets going forward,” Duncan told the Jamaica Observer in an interview in late December, one week before the new gross domestic product (GDP) figures were released by Statin — the latest figures were released on December 31, 2024.

The Government has already revised its target for revenues and grants in light of the original outlook in supplementary estimates presented in October, but Duncan hinted that further revisions may be needed in light of the new data showing the economy is weaker than was first expected.

He pointed to records which show that from the April-October period, the Government financial performance as a mixed bag. On one hand, the Government collected $595.4 billion in total revenues and grants, which is $3.7 billion more than it had budgeted for. However, a significant portion of this revenue came from the sale of receivables through securitization, which generated $25 billion more than the $45 billion it was hoping to raise from the avenue. Specifically, the Government raised US$480 million (over $70 billion) through a 12-year bond backed by future revenues from the Norman Manley International Airport. Most of that money is to finance the Shared Prosperity through Accelerated Improvement to our Road Network (SPARK) programme which aims to rehabilitate roads, bridges and sidewalks across the island.

But, Jamaica’s financial situation is looking a bit more precarious since then, with new data released on December 31 revealing that, as of November, the country’s revenues and grants totalled $657 billion, which was $7.3 billion shy of the Government’s projections.

“This could have a negative impact on tax revenues and it underscores the point that in order to achieve the fiscal surplus of $9.8 billion at the end of fiscal 24/25 that expenditures need to be carefully managed,” Duncan told the BusinessWeek.

Impacting the country’s finances is also the hit it is taking from what should have been revenue neutral measures such as the increase in the income tax threshold, increase in pension exemption and the reverse income tax credit which actually result in a tax revenue loss of $25.1 billion up to the end of October. Those were offset somewhat by the higher than expected inflows from the securitisation of receivables in October. Without it, had expenditure remained at $595.4 billion, the country would have recorded a fiscal deficit of $22 billion instead of the $3.4 billion surplus recorded at the time.

At the beginning of the fiscal year, the Government had projected GDP growth of 1.8 per cent for the current fiscal year which ends on March 31. While the Government’s revision is for a contraction instead, its -0.2 per cent forecast for growth is much more optimistic than the maximum -1.5 per cent decline economists at the PIOJ are expecting. Their counterparts at the Bank of Jamaica anticipate the fallout could be as much as -1.0 per cent.

While noting the differences in expected economic contraction, Duncan said these were all skewed to the downside. In the last EPOC meeting in mid-December, he pointed out as well that the Government’s expenditure up to the end of October was growing at a pace of 11.7 per cent compared to the prior year while tax revenues were growing at half the pace at 5.7 per cent.

“This metric requires careful management to ensure fiscal sustainability,” he said then.

Updated information shows that has worsened up to the end of November with total expenditure up 13.1 per cent while tax revenues were growing at a much slower rate of 4.7 per cent.