Interim Fiscal Examination Report Overview
In-depth examination of the components of the Interim Fiscal Policy Paper laid before Parliament, covering assessments of fiscal management principles, budget assumptions, deviations, and risk mitigation strategies.
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Presentation Transcript
EXAMINATION OF THE COMPONENTS OF THE INTERIM FISCAL EXAMINATION OF THE COMPONENTS OF THE INTERIM FISCAL POLICY PAPER, WHICH WAS LAID BEFORE THE HOUSES OF POLICY PAPER, WHICH WAS LAID BEFORE THE HOUSES OF PARLIAMENT ON SEPTEMBER 28, 2021 PARLIAMENT ON SEPTEMBER 28, 2021 Independent Auditor s Report The Auditor General of Jamaica Financial Year 2021/22 Vision Statement A better country through effective audit scrutiny
Auditor Generals Comments Auditor General s Comments I reviewed the Fiscal Policy Paper (FPP), presented in Parliament on September 28, 2021 The report complied with the Financial Administration & Audit (FAA) Act
Auditor Generals Responsibilities Auditor General s Responsibilities 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: - The Conventions & assumptions underlying preparation of the FPP comply with principles of prudent fiscal management. Reasons given for deviations from the Budget are reasonable, having regard to the circumstances. There are public bodies that do not form part of the specified public sector that were part thereof in the preceding fiscal year. A public private partnership involves only minimal contingent liabilities.
a) Regarding the conventions and assumptions underlying the preparation of the Fiscal Policy Paper Principles of Prudent Fiscal Management What I found The Budget must be based on reasonable revenue projections, underpinned by realistic macroeconomic assumptions; Risk mitigating measures were not indicated for all risks identified. For example, there was no mention of measures to mitigate the downside risk to revenues from lower economic growth. Estimates of expenditure must be based on reasonable revenue projections; Also, no measures to mitigate the risks from a possible US rate increase was identified despite the potential impact on external variable rate debt servicing costs. Public deficit to be maintained at a level consistent with other macroeconomic objectives; The Interim FPP acknowledged inflationary and exchange rate risks and indicated possible upward adjustment to moderate expectations and to address temporary foreign exchange market imbalances. Risks must be identified and evaluated, to enable cost-effective and appropriate risk mitigating measures inflation
b) the reasons given, pursuant to subsection (5)(d)(ii) are reasonable having regard to the circumstances; The FAA Act requires an assessment relative to Original Budget. For the FY2020/21, I found the explanations for the deviations of outturn from target, to be mostly reasonable. For April to July 2021, I found the explanations for some positive deviations from budget to be reasonable. However, no explanations were provided for the above-budget revenue collection from Betting, Game and Lottery (24.2 per cent) and Telephone Call Tax (44.3 per cent. Notably, tighter COVID-19 containment measures adversely impacted demand and by extension, revenue collections.
c) pursuant to regulations made under Section 50 (1), there are public bodies that do not form part of the specified public sector that were part thereof in the preceding fiscal year. The Minister of Finance s Responsibility The Auditor General s Responsibility However, notification on October 18, 2019, no public body met consideration. Hence, the Auditor General was not required assessment during FY2021/22. based on the Minister s The FAA Act requires the Minister, no later than August 31, in every third year, to provide a list of public bodies the Auditor General (AG) consider for certification. the condition for should to carry out an
d) a public private partnership involves only minimal contingent liabilities The FY2021/22 Interim FPP did not identify any new PPP for assessment. The Jamaica Ship Registry PPP to be executed through the Maritime Authority of Jamaica is a Users-Pay PPP. The FAA Act requires the Auditor General to assess whether a public private partnership (PPP) involves only minimal contingent liability accruing to the Government . Two PPP partners submitted claims under the force majeure clause of the PPP agreement which Cabinet approved on December14, 2020. However, there was no reference to this PPP in the Interim FPP. The Fiscal Risk Statement did not indicate the size of the claim, funding arrangements or implication for the Public Debt.
The Auditor Generals Recommendations As indicated in my previous reviews, the Ministry should consider reporting on the performance of tax arrears collected relative to the budget as this could provide greater transparency in explaining revenue performance. Considering the ongoing effects of the COVID-19 pandemic on economic activity and travel, the Fiscal Policy Paper should include a more robust assessment of the risks from existing PPPs to the fiscal targets and the debt dynamics.
Performance against Fiscal Framework Performance - FY2020/21 relative to Original Target Inflation marginally exceeded target, there were significant deviations from target in respect of nominal and real GDP, as well as oil prices.
Performance against Fiscal Framework Variations in Macroeconomic Indicators: Original Forecasts in Feb FPP FY2021/22 vs. Revised Forecasts in Interim FPP FY2021/22 Actual 2020/21 -13.8 Revised Forecast 2022/23 -2.8 2021/22 3.7 2023/24 -0.4 2024/25 -0.2 Nominal GDP Growth (%) Real GDP Growth (%) Inflation (%) Oil Prices (avg WTI) (USD) -12.2 0.8 -28.8 3.8 1.4 33.9 -3.1 0.0 13.3 -0.3 0.0 5.2 -3.0 0.0 5.2 Given the corresponding relationship between energy demand and output levels, the upward revisions to the FY2021/22 oil price and GDP forecasts were consistent. However, for medium-term, the factors influencing the direction of the forecast revisions were not evident.
Primary and Fiscal Balance Forecast The Interim FPP maintained the Fiscal Surplus of 0.3 per cent of GDP presented in the February 2021 FPP, while the Primary Surplus as a percentage of GDP showed a slight uptick for FY2021/22 to FY2024/25
Public Debt: GDP Ratio For FY2020/21, the Public Debt stock as a percentage of GDP was estimated at 109.7 per cent, down from the 110.1 per cent estimated in the February FPP. Debt as a percentage of GDP is projected to fall in FY2021/22 to 96.9 per cent, a 12.8 percentage point decrease relative to FY2020/21 outturn. Debt (% of GDP) from FY2014/15 to FY2021/22
