Economic independence, fiscal council and Jamaica’s future
DR NIGEL Clarke is not Audley Shaw. He is not as ubiquitous, nor does he possess evangelical zeal when presenting complex and sometimes mundane economic issues. However, when he makes an intervention, it is timely, and, importantly, done with great sobriety.
In his short stint so far as finance minister, Clarke has put on the table two fundamentally important policy positions that are aimed at furthering the transformation of Jamaica’s economic management, which started in 2010 and gained much velocity during the period 20122016 when Dr Peter Phillips was minister of finance.
Recently, Clarke argued that Jamaica should move towards economic independence, which translates to moving away from the jaws of supranational financial institutions determining policy options, and, instead, allowing those policy options to be determined domestically, while still having an eye on the complex interactions with the international and global community.
Specifically, this is what Clarke noted:
“... What is economic independence? As we all know, independence, in a political sense, is the exercise of sovereignty over a territory by a people who also exercise self-governance over that territory. The people of Jamaica earned political Independence in 1962, and since that time, we, the Jamaican people, have chosen our own governments without external consultation. Political independence, however, does not automatically mean economic independence. And an absence of economic independence ultimately threatens political freedoms.
“When a country remains economically dependent for a long time, it loses the space to address adequately its social problems – squatting, crime, low education outcomes – and, over time, these threaten the ability for free political expression for many people.
“... Achieving economic independence requires, among other things, that successive Jamaican governments manage the affairs of Jamaica so as to maintain a sustainable and credible economic path for future generations. This does not imply that we do not borrow, but instead, it means we should be mindful of the long-term sustainability of public debt.”
The other big policy option Clarke put on the table is the institutionalisation of a fiscal council. The general idea behind this thinking is that there will be some independent body that can be used to constrain policymakers’ discretion towards profligate fiscal spending and also their appetite for pro-cyclical policies. The aim is to prevent undesirable policy outcomes.
Indeed, Clarke noted that the fiscal councils “... foster greater transparency around fiscal policy by having legislated access to economic data, having sufficient analytical capacity, and by providing unbiased information to the public”.
NECESSARY GRADUATION
The idea behind the establishment of a fiscal council in Jamaica is not new. The same principles of transparency and accountability that guided the establishment of EPOC more than five years ago are the same principles that are enshrined in the institutional architecture of the fiscal council. Indeed, Clarke is correct when he noted that “the principal objective of an independent fiscal institution in Jamaica would be the guardian, interpreter, and arbiter of Jamaica’s fiscal rules. A Jamaican fiscal council could monitor the compliance with the [fiscal responsibility] rules and keep the public informed on economic matters according to a scheduled timetable.”
However, the council is a bit more substantial than EPOC, which mainly served as a watchdog for judicious fiscal management of the economy. The fiscal council, once properly designed, will go beyond the watchdog role and include things such as direct inputs to the budget process through technical work in areas such as macroeconomic and budgetary forecasts, having formal interactions with critical stakeholder groups in the budgetary process, and monitoring compliance with fiscal policy rules. These services are much more than what an EPOC-style watchdog arrangement would be able to provide, especially if we are serious about the economic independence that Clarke is aiming for.
So, while fiscal councils are not new, the graduation from EPOC to a more institutionalised independent oversight body is a welcome move. Independent fiscal councils have been prevalent in Europe, Asia, Africa, and even in the Western Hemisphere. However, their impact is not always clear.
Recent work by the International Monetary Fund showed that a fiscal council is associated with more accurate and possibly less optimistic fiscal forecasts, as well as greater compliance with fiscal rule. The impact, however, is less clear because of the varying ways in which these councils are established in the different jurisdictions and the remit they have.
ACADEMIA TO LEAD CHARGE
Despite the fact that there is not much clarity about the impact of fiscal councils in ensuring that the most desirable policy decisions are made in a democratic system, what is impatient of debate is that there is still a need for independent institutions to serve as a watchdog to prevent profligacy in government spending and lessthan-desirable policy out-turns.
It is important, therefore, that as Jamaica enters into this realm of policy independence and weaning itself from the dictates of the supranational financial institutions, it establishes a strong watchdog agency that is free of political interference, has credibility, and can discharge its functions in an efficient and effective manner in order to ensure desirable policy outcomes.
At least, if nothing else, the council should ensure that it makes its noise loud enough to get people to recognise its presence, and can, therefore, take a second look at policy options proposed by the Government.
As such, for the council to work effectively in Jamaica, there needs to be strong institutional support from all the stakeholders involved in the budgetary process. The make-up of the council will be paramount if it is to be credible and taken seriously. In this regard, academia should be called upon to lead the design architecture for the council in Jamaica.
Academia is generally independent of political interference, has the technical expertise, the gravitas, and can command the respect of all stakeholders who will sit at the table. We have some of the finest universities in the country with some of the brightest minds who have been researching and writing on these issues for decades. The rich stock of resources in the academic community should be brought to bear on this process as Jamaica embarks on this new journey.
Allowing academia to lead this process will be a true test of the value-added services our higher educational institutions provide to the society. The debate is raging about value for money at higher educational institutions. This is an opportunity for them to prove their worth.
Jamaica is entering into new and exciting territory as it relates to the management of its fiscal affairs. This will require great care, less hubris, and a strong level of sobriety. The sacrifices the people have made cannot be reversed. Steady leadership, along with vision and foresight, will be needed to ensure that the economic independence we so desire can be delivered – once and for all. The next generation should be focusing on another project, not economic management.