Examination of Interim Fiscal Policy Paper for Financial Year 2019-2020

An independent auditor's report on the interim fiscal policy paper laid before the Houses of Parliament, confirming compliance with the requirements of the FAA Act. The report assesses the components, conventions, and assumptions underlying the paper for fiscal responsibility, macroeconomic framework, and fiscal risk. Performance fiscal indicators for FY 2018/19, fiscal risks identified for FY 2019/20, and their impact are also discussed.

• Auditor General
• Fiscal Policy
• Interim Report
• Economic Growth
• Fiscal Responsibility

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1. EXAMINATION OF THE COMPONENTS OF THE INTERIM FISCAL POLICY PAPER WHICH WAS LAID BEFORE THE HOUSES OF PARLIAMENT on September 24, 2019 INDEPENDENT AUDITOR S REPORT AUDITOR GENERAL DEPARTMENT OF JAMAICA FINANCIAL YEAR 2019-2020 Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

2. Auditor Generals Comments My examination confirmed that the contents of the report were in keeping with the requirements of the Third Schedule of the FAA Act whereby it includes the minimum content under the Fiscal Responsibility Statement, Macroeconomic Framework and Fiscal Management Strategy, inclusive of the Fiscal Risk Statement. I have examined the components of the Fiscal Policy Paper FY2019/20 Interim Report, laid before the Houses of Parliament on September 24, 2019 in accordance with the Financial Administration and Audit (FAA) Act. Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

3. Section 48B (6) of the FAA Act requires the Auditor General to examine the components of the Fiscal Policy Paper and provide a report to the Houses of Parliament indicating whether: - (a) The conventions and assumptions underlying the preparation of the Fiscal Policy Paper comply with the principles of prudent fiscal management specified in Section 48D. For FY2018/19, the outturn relative to forecast, for real GDP and inflation were in line with expectations I found that the conventions and assumptions underlying the preparation of the Fiscal Policy Paper FY2019/20 Interim Report broadly complies with the principles of prudent fiscal management. Nominal GDP exceeded forecast for FY2018/19, which was largely explained due to stronger than expected growth for Mining and Quarrying. Lower forecast for real economic growth for FY2019/20 and two years thereafter, underpinned by the temporary closure of the JISCO Alpart Plant. Auditor General s Department, Jamaica FPP FY2018-2019 Interim

4. Performance Fiscal Indicators FY 2018/19 (% GDP) 8 7 6 5 4 3 2 1 0 14/15 15/16 16/17 17/18 18/19 -1 -2 Fiscal Balance Budget Fiscal Balance Outturn Primary Balance Budget Primary Balance Outturn Auditor General s Department, Jamaica FPP FY2018-2019 Interim

5. Fiscal Risks Fiscal Risks FY2019/20 Positive impact in FY2018/19 Identified: Lower real economic growth from temporary closure of the JISCO Alpart Plant Interest costs benefitted from lower than anticipated interest rates Not Identified: JUTC need for Govt support; CAP lower earnings for depressed alumina prices slight depreciation of the Jamaica Dollar had a positive impact on revenues from imported goods. Auditor General s Department, Jamaica FPP FY2018-2019 Interim

6. (b) Subsection 5(d) (ii) of the FAA Act requires the FPP to compare the outcome of the fiscal indicators with the targets of the previous year and give reasons for any deviations. In most cases the reasons provided for deviations from target were reasonable, however: The provision of additional information would have enabled greater clarity and transparency regarding performance. No information was provided on budgeted arrears, to clarify the extent of the tax compliance effort. Greater clarity was required regarding the performance of PAYE, as it was not clear whether actual data available prior to end-FY2017/18 were incorporated in the forecast. Auditor General s Department, Jamaica FPP FY2018-2019 Interim

7. (c) Pursuant to my application of criteria prescribed pursuant to regulations made under Section 50 (1), there are public bodies that do not form part of the specified public sector, and identifying those bodies (if any) which in the preceding financial year formed part of the specified public sector; It was anticipated that a list would be provided by August 31, 2019; however, up to the time of this report, none had been received from the Ministry of Finance and the Public Service. The FAA Act requires that the Minister, no later than August 31, in every third year, provide the Auditor General with a list of public bodies that the Minister wishes the Auditor General to consider for certification. Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

8. (d) A public private partnership involves only minimal contingent liabilities accruing to the Government. The February FPP FY2019/20 indicated that a public private partnership (PPP) arrangement for the Normal Manley International Airport, had been approved by Cabinet and commercial closure was achieved with the signing of a 25-year Concession Agreement. An assessment for minimal contingent liability would not be undertaken until after financial closure, which are expected by end- Q3 FY2019/20. Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

9. My Recommendation The Ministry should consider reporting on the performance of tax arrears collected relative to the budget as this could further enhance transparency of the compliance and administrative efforts. Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

10. Performance against Fiscal Framework To attain a fiscal balance as a percentage of Gross Domestic Product, as at the end of the financial year ending March 31, 2018 and thereafter, that allows the requirement specified in paragraph (b) to be achieved, and to be maintained or improved thereafter, and the fiscal balance to be attained shall be computed in accordance with the Fifth Schedule. To reduce the public debt to sixty per cent or less of Gross Domestic Product by the end of the financial year ending March 31, 2026, and maintain or improve the ratio thereafter. To ensure that neither the Appropriation Act nor any Supplementary Estimates of Revenue and Expenditure for any financial year will cause any negative deviations from the fiscal balance to be attained pursuant to paragraph (a). To ensure that no deviation is recorded in the notional account until the fiscal accounts for the financial year in question have been finalised. To reduce the ratio of wages paid by the Government as a proportion of the Gross Domestic Product to 9 per cent or less by the end of the financial year ending March 31, 2019 and maintain or improve the ratio thereafter [FAA (Amendment) Act 2016]. Key On track Keep in view At Risk Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

11. Trend in Fiscal and Primary Balance 8 7 6 5 4 3 2 1 0 -1 FY2019/20 Proj. -0.1 6.5 FY2020/21 Proj. 0.6 6.5 FY2021/22 Proj. 1.1 6.5 FY2022/23 Proj. 1.7 6.5 FY 2016/17 FY2017/18 FY2018/19 Fiscal Balance Primary Balance -0.2 7.6 0.5 7.4 1.2 7.5 Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

12. Forecast for Tax Revenue 800,000.0 26.8 700,000.0 26.6 600,000.0 26.4 500,000.0 26.2 400,000.0 26 300,000.0 25.8 200,000.0 25.6 100,000.0 25.4 - 25.2 FY2019/20 Proj. 575,710.5 570,008.3 26.7 26.4 FY2020/21 Proj. 612,185.9 591,077.0 26.4 26 FY2021/22 Proj. 651,910.3 625,047.9 26.3 25.9 FY2022/23 Proj. 693,337.7 666,223.1 26.2 25.7 Tax Revenue (Feb FPP) Tax Revenue (Interim FPP) Tax Revenue % of GDP (Feb FPP) Tax Revenue % of GDP (Interim FPP) Tax Revenue (Feb FPP) Tax Revenue % of GDP (Feb FPP) Tax Revenue (Interim FPP) Tax Revenue % of GDP (Interim FPP) Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

13. Forecast for Wages & Salaries 250000.0 9.4 9.3 200000.0 9.2 150000.0 9.1 9 100000.0 8.9 50000.0 8.8 0.0 8.7 FY2019/20 Proj, FY2020/21 Proj. FY2021/22 Proj. FY2022/23 Proj. FY2016/17 FY2017/18 FY2018/19 Actual Budget % of GDP 166484.7 170193.5 9.3 178366.3 185258.1 9.2 183505.5 185274.7 8.9 194958.1 9.0 204282.0 9.0 217422.0 9.0 233478.0 9.0 Actual Budget % of GDP Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

14. Public Debt Debt/GDP - Budget vs Actual Public Debt to GDP (February FPP vs Interim FPP) 140 100.0% 90.0% 120 80.0% 100 70.0% 80 60.0% 60 50.0% 40 40.0% 30.0% 20 20.0% 0 10.0% -20 2019/20 (Proj) 0.0% 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 90.9% 2020/21 87.6% 2021/22 82.9% 2022/23 75.9% Interim FPP Actual Debt to GDP% 130.6 122.3 120.7 101 94.4 February FPP 90.9% 85.9% 80.9% 74.3% Budgeted Debt to GDP % 129.3 121.3 126.7 108.6 96.2 90.9 Variance 0.0% 1.7% 2.0% 1.6% Variance 1.3 1.0 -6.0 -7.6 -1.8 Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019

15. Thank You Auditor General s Department, Jamaica FPP FY2019-2020 Interim October 2019