Understanding government accounting

REFERENCE IS made to The Gleaner’s editorial captioned ‘Of PSOJ and the Supplementary Estimates’ in the September 30, 2019, issue and in particular to the reference that “ninety per cent (J$45.5 billion) of the increase (in the Supplementary Budget) will go towards debt servicing, which will reach approximately J$320 billion, or an increase of 16.5 per cent. Debt servicing will move from around 34 per cent of the original Budget to more than 37 per cent. It’s not, on the face of it, a stimulus”.

The substance of the statement reflects a misunderstanding of the presentation of the Government of Jamaica’s accounts, and it is misleading as it leaves the reader with the impression that the $45.5 billion could have been allocated for other purposes while maintaining the targeted primary balance. This, however, is not the case.

The Supplementary Estimates of Revenues and Expenditure in any year identify expected variations in budgeted tax and non-tax revenue, based on the real out-turn for the first five or so months of the financial year and other developments, as well as areas of expenditure that may be impacted by the expected revenue adjustments. They also propose the reprioritisation of expenditure among and within ministries based on year-to-date budget execution and emerging priorities.

The $45.5 billion in debt service in the Supplementary Budget does not arise from tax or non-tax resources available to be applied to non-debt recurrent or capital expenditure. Instead, $40.2 billion of this $45.5 billion represents principal payments, which is a below-the-line item, disclosed for completeness and transparency in accordance with public accounting principles.

BUY-BACK TRANSACTIONS

This increase in principal payments is primarily because of the Government’s recent successful liability-management operation on the international capital markets, which included a buy-back transaction package that, all things being equal, reduces Jamaica’s debt stock, reduces annual interest costs, and extends the maturity profile of Jamaica’s external debt.

This buy-back transaction resulted in the repurchase of bonds at market value financed through a combination of longer-term bond issues and cash payments. Included in the buyback bonds were bonds held by the PetroCaribe Development Fund (PCDF). Administration of the PCDF operations, your readers will recall, has been assumed by the Ministry of Finance and the Public Service and is now captured within the central Government’s operations. Therefore, bonds held by the Central Government, i.e., PCDF, were repurchased with cash from the Consolidated Fund, i.e., the Central Government, at a cost of US$285.5million (J$39,969.3 million). (The remainder of repurchased third-partyowned bonds were financed through the issue of new longer-term bonds).

As an accounting matter, this means that amortisation increased by J$39,969.3 million as a result of the debt buy-back. However, by definition, it also means that the J$39,969.3 million flowed back to the Consolidated Fund. The Gleaner appears to have missed the corresponding entry in the Government accounts (recorded under Other Inflows).

The Government continues to finance growth-enhancing capital expenditure through budgetary allocations. For the financial year 2019-20, capital expenditure is larger in both nominal and real terms than it has been in substantially more than a decade, if not longer. In addition, the 2019-20 Budget articulated a number of economic stimuli in the form of the abolishment of distortionary fixed and ad valorem taxes.

As Jamaica continues on its positive development transition, more and more economic, social, and other data will become available in the public sphere. The increasing level of transparency is designed to increase public understanding, support public confidence, and enhance public policy discourse. These noble ideals can be reinforced by diligent, responsible, and complete representations of the facts by the media that will facilitate the understanding, interpretation, and application of the data.