Thread by @marcgayle

Ok these two words uttered by Dr. Phillips need to be expounded on.

"DEFICIT FINANCING" is the act of allowing GOJ to spend more than they receive in taxes and then borrowing to pay for the difference.

This was the hallmark of the Omar Davies MoF.

britannica.com/topic/deficit-…

https://twitter.com/marcgayle/status/1299904597537034240

Deficit Financing has been VERY, VERY destructive to Jamaica.

It can create a negative cycle that is very hard to break where GOJ has to keep borrowing to effectively pay off debt. We were stuck in that cycle for at least 1.5 - 2 decades.

The ONLY thing that broke the cycle for us were:
- A global financial crisis in 2008 that prevented GOJ from being able to continue borrowing.
- The need for an IMF programme, where we are 'inconsequential' in the sense that we have to take the terms they insist.

Those terms included us needing to do a number of very, very difficult things, including but not limited to:
- Selling Air Jamaica & Sugar Company (because both required GOJ to keep spending -- and therefore borrowing -- on them EVERY year)
- Doing JDX & NDX.

- Implementing public body reforms where state owned companies can no longer issue debt and stick GOJ with the bill without approval by MoF. NWC did this for years, hence the atrocious water infrastructure.

The amount of abuse we have suffered as a country is incalculable.

- Passing legislation that forces GOJ to reduce debt from 150% of GDP 10 years ago to 60% by 2025. Over the last 10 years, GOJ reduced debt by 50% of GDP without any debt forgiveness. With just us banning our belly and making it work with what we have.

To be clear, this is where PDP shined. Yes, many will decry his effort that "all he did" was "stuck to the IMF playbook", but that was a creditable effort.

There are many countries that entered IMF agreements and failed out of them (Argentina, Greece & JA many times before).

So the fact that Dr. Phillips gave the country 'bitter medicine' that Holness had warned us about in 2011, is surely to his credit. We owe him a debt of gratitude for doing that. In fact, he had planned to resign if the IMF didn't accept certain proposals he put forth...

that move was a very, very patriotic move and I will forever be grateful to him for that.

I have tweeted about that on many occassions and there are 2 great Financial Times articles about it that you can read.

ftalphaville.ft.com/2019/11/04/157…

ftalphaville.ft.com/2020/02/13/158…

Which is why those two words "DEFICIT FINANCING" are so chilling coming from his mouth.

Now, to be clear, there MAY be cause for GOJ to do some Deficit Financing within the context of COVID.

BOJ is forecasting GDP to drop 10% this year. So just for normal operations...

and responding to COVID (both financially to stimulate the economy and a health perspective) GOJ may need to relax the fiscal rules and potentially run a deficit.

But it HAS to be controlled and it HAS to be the absolute LAST RESORT. It should also be restricted...

for the most necessary measures and the budget therefore needs to be very conservative, targeted and creative.

It should NOT be used to finance wild campaign promises like giving every Tom, Dick & Harry $48K towards their JPS & NWC bills.

When GOJ borrows wildly and just spends loosely, eventually it leads to higher inflation which leads to a devaluation of the dollar which leads to the need for GOJ to pay more interest on debt which drives up debt servicing expenses.

To fight high inflation, BOJ would then need to raise interest rates which will raise rates on everything (mortgages, auto loans, credit cards, small business loans, etc.). It will make credit more expensive which will stall any chances of economic activity and growth.

So given the history of the PNP with their infamous "RUN WID IT" (that was basically deficit financing on steroids), the fact that Dr. Phillips - who withstood 4 - 5 years of giving the country much needed bitter medicine of higher taxes and less spending - uttered those words...

Is very, very concerning and quite frankly chilling.

That alone, makes him unfit for office, if I am going to be blunt.

Primarily because it shows that he is prepared to do ANYTHING to get power, including destroying his hard-earned legacy of fiscal prudence.

Suffice it to say, what makes it even worse is that the economic plans in the manifesto are not that great -- in fact many are downright horrible.

The only one I liked was the Rent-to-Own scheme.

Everything else felt like handouts.

So with those famous words he uttered tonight, he has communicated that he is willing to wreck the hard-won economic programme we are currently on, just to finance the ludacris and crazy economic programmes he has published in his manifesto.

That is the most disappointing takeaway for me from this debate.