FIRST SUPPLEMENTARY ESTIMATES FOR 2005/06 TABLED

UNCLAS KINGSTON 000537

SIPDIS

SIPDIS

STATE FOR WHA/CAR (WBENT),WHA/EPSC (JSLATTERY)

SANTO DOMINGO FOR FCS AND FAS

TREASURY FOR L LAMONICA

E.O. 12958: NA
TAGS: ECON EFIN JM
SUBJECT: FIRST SUPPLEMENTARY ESTIMATES FOR 2005/06 TABLED


1. The Government of Jamaica (GOJ) has announced its
supplementary estimates for the 2005/06 fiscal year, which
closes on 31 March. The estimates, tabled in Parliament
on March 7, will reduce the original expenditure budget
for the full fiscal year by USD 13.5 million (JMD 0.9
billion) to USD 5.3 billion (JMD 346.2 billion).
According to the new estimates put forward by Minister of
Finance and Planning Omar Davies, reductions in capital
expenditure (down USD 47.7 million to USD 2.4 billion)
will account for the downward adjustment in overall
spending, as recurrent expenditure for the fiscal year is
set to jump by USD 33.8 million to USD 2.9 billion.


2. The higher-than-programmed recurrent expenditure is
required to cover increased salaries and traveling for
public sector groups such as the police, nurses, teachers
and the military (which, despite the memorandum of
understanding, were granted a wage adjustment). The
Ministry of National Security, for example, was allocated
an additional USD 9.6 million for officer salaries. The
Ministry of Local Government, Community Development and
Sports had its recurrent budget increased by almost USD 22
million to meet statutory deductions outstanding to the
GOJ, provide garbage disposal services (JMD 157 million),
clear outstanding advances from the post-hurricane period,
and JMD 200 million for emergency road repairs. The
Ministry of Health will receive an additional USD 16.9
million (JMD 1.1 billion) for salaries and services.


3. Chief among the areas to be hit by lower capital
spending are education, information technology training,
the Northern Jamaica Development Project, solid waste
collection, and flood damage rehabilitation. However, the
cut in capital spending on education will be offset by a
grant of USD 21.5 million from the cash-rich National
Housing Trust (NHT) to finance an "education
transformation fund." The Ministry of Finance and
Planning is expected to reduce its capital spending by USD
46.2 million, reflecting the lower-than-projected
depreciation in the foreign exchange rate and the
resultant savings on external debt repayments. A higher-
than-expected reduction in domestic interest rates has
also resulted in a decline in interest payments on the
domestic debt.


4. Comment: Minister Davies had little choice but to
attempt to reduce the deficit for the full fiscal year by
cutting capital expenditure in this manner. It is
nevertheless another blow for a Ministry that began the
year with high hopes for a balanced budget. The cuts in
capital spending on education infrastructure and
information technology training, in particular, mean that
the GOJ is being forced to trim expenditure on precisely
the sectors that most commentators agree should be funded
to the fullest extent possible if Jamaica is to dig out of
its low growth doldrums. With a general election (before
the end of 2007) and the politically motivated spending
that tends to accompany the same, a balanced budget would
seem to remain but a distant dream. End comment.

JOHNSON