Government To Raise $43.8 Billion Externally For 2011/12 Budget

Finance and Public Service Minister, Hon. Audley Shaw, says the Government will seek to raise $43.8 billion externally to finance the 2011/12 budget, which totals some $544.8 (including amortisation payments of $132.3 billion).

“The revenue forecast outlined and the expenditure budget, approved by Parliament, leaves a financing gap of $140.8 billion. Of this total, $97 billion is programmed to be raised from the domestic market. The remainder of $43.8 billion is to be raised from external sources, in the form of investment project loans and policy-based/development policy loans,” he outlined.

Delivering the opening presentation in the 2011/12 Budget Debate at Gordon House on April  28, under the theme: ‘From Stabilisation to Growth’, Mr. Shaw said the reduction in this year’s borrowing requirement largely stems from a significantly lower fiscal deficit, some 4.6 per cent of gross domestic product (GDP), down from 6.1 per cent in 2010/11.

Additionally, this is due to Jamaica raising approximately US$400 million on the international capital markets during 2010/11, to pre-finance a maturing bond, of similar value, next month, and the availability of cash balances accumulated in 2010/11.

“Of note, the lower domestic borrowings by the government should assist in maintaining the downward interest rate trajectory,” he added.

Mr. Shaw pointed out that this year’s budgeted expenditure represents a 5.9 per cent increase in expenditure over the 2010/11 fiscal year. He explained that expenditure earmarked for capital programmes has increased by 8.7 per cent, with recurrent spending projected to be 5.4 per cent higher than last year.

He added, however, that interest cost, as a percentage of GDP, is estimated to fall to 9.8 per cent this year, compared to 10.5 per cent in 2010/11, largely reflecting the impact of lower interest rates and exchange appreciation.

“The Central Government’s fiscal year 2011/12 budget was formulated within the medium term frameworks that seeks to, first, reduce, then eliminate the fiscal deficit by March 2016, as prescribed by the Fiscal Responsibility Framework, and reflected in the Financial Administration and Audit Act (FAA). For the fiscal year 2011/12, the Central Government’s target is a primary balance of 5.2 per cent of GDP and a fiscal deficit of 4.6 per cent of GDP,” the Finance Minister stated.

Addressing actual financing of the budget, Mr. Shaw disclosed that revenue and grants are projected to yield approximately $350.8 billion this year, representing 26.3 per cent of GDP. This is 11.5 per cent more than last year’s figure of $314.6 billion, which represented 25.7 per cent of GDP. The principal areas which are expected to yield funds include : tax revenue, bauxite levy, capital revenue, and grants.

The Finance Minister said tax revenue is expected to yield $308.5 billion, 10.2 per cent more than last year; bauxite levy – $1.79 billion, compared to $421.1 million last year; capital revenue – $9.18 billion, a 150 per cent increase over the previous year; and grants – $13.3 billion, some 31.2 per cent more than 2010/11

Mr. Shaw told the House that the 10.2 per cent increase in tax revenue collections includes $5.6 billion associated with tax arrears owed to the Government by Air Jamaica and the Sugar Corporation of Jamaica (SCJ). He pointed out that when these amounts are excluded, tax revenue is projected to grow by 8.1 per cent relative to the 5.3 per cent growth in 2010/11.

Regarding the bauxite levy, the Finance Minister said the downturn in the bauxite/alumina industry over the last two years, occasioned largely by fallout in global demand, as well as higher input costs, is expected to be reversed during 2011/12.

“It is anticipated that the industry will continue to experience some recovery in production and exports, as a result of plans to re-open the West Indies Alumina Company’s (WINDALCO) plant at Kirkvine in mid-2011, which will translate into significantly increased levy inflows over fiscal year 2010/11,” he informed.         

Mr. Shaw said capital revenue estimates of $9.2 billion, totalling some $5.2 billion more than collections last year, are due primarily to the repayment of on-lent loans amounting to $8 billion by the Development Bank of Jamaica (DBJ), relating to the repayment of the Inter-American Development Bank’s (IDB) liquidity facility.

The forecast for grants, the Finance Minister explained, includes significant amounts to be received from the European Union (EU) for budgetary support.

Noting that inflows from non-tax revenue for 2010/11 were bolstered by profits from the Bank of Jamaica (BoJ), amounting to $4 billion, Mr. Shaw pointed out that given the loss which the Central Bank suffered during that period, “no revenue is expected from this source in fiscal year 2011/12.”