IN A rather surprising development, Government has finally accepted that it will not meet its target of a balanced budget at the end of March 2006. This was a surprising development as the Finance Minister had frequently stated Government's unswerving commitment to meet its targets. The ministry had adopted this position even in the face of the massive infrastructural damage caused by the recent flood rains.
Of course, sticking to its fiscal targets was a major prerequisite for Government to raise funds overseas at attractive rates. Now it appears as if reality has finally hit home, causing the Finance Minister to accept that the balanced budget target was not on. Actually the ministry is predicting that the outcome for the fiscal deficit this year will be 1.5 per cent of GDP (down from seven per cent of GDP in 2004) and plans to reach a balanced budget by 2007.
But while realism is always commendable, for sometime now it was obvious to even the most casual observer that the original balanced target was not 'on' for this coming fiscal year - government's valiant attempts at raising funds overseas, notwithstanding. First, pressures had started building up with the impending expiry of the current Memorandum of Understanding (MoU). The unions had signalled that they had no intention of participating in any wage freeze as part of a new MoU. Additionally, the latest Business and Consumer Survey for the last quarter of 2005 confirmed that workers had already started banking on expected increases in salaries when the MoU expires at the end of March. All this suggested that budgetary provision would have to be made for an expanded public sector wage bill.
Then there was the recent underperformance of government revenues. During the period April to November last year, there was a substantial revenue shortfall of some $13.5 billion. Additionally, there was a massive repair bill for roads and bridges damaged by the flood rains. There is also impending leadership changes in the present administration and expected local government elections (and possible national elections) that have implications for the national budget and an environment where Government will be unable to keep the required tight reins on expenditure. In the same vein it is noteworthy that as part of the new realism permeating the Government authorities, Prime Minister Patterson is now on record as conceding that a wage freeze would not be included in the expected new MoU. Not surprising, Government has already dropped a warning that wage increases will have to be consistent with budget realities.
While this is an understandable position, it is difficult to see this playing out without some social dislocation as workers try to play catch up with inflation levels. Even so, with a renewed MoU in place Government has a mechanism that should enable it to minimise a potentially divisive conflict-ridden situation.
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