Thread by @marcgayle

I am going to pull the curtain back on the design of #Budget2021. There are some strategic decisions made throughout and the budget tells us a story about GOJ’s thinking.

It’s interesting digging into the story so we can understand the mindset.

//MEGA Thread

#FinanceTwitterJa

This is a very important budget for the following reasons:

- GOJ revenues are expected to fall by $70B or ~12% in FY 20/21
- GOJ expenses increased by ~$24B due to COVID
- PIOJ expects GDP to fall by 12% this FY ending March 31.
- GOJ had to do more, with less in the current FY.

- Due to prudent decisions by the MoF, GOJ had deliberately set aside $90B to pay down debt. That was ultimately used to cushion the revenue fall off and increased expenses due to the crisis.
- Despite these prudent decisions that helped with the heavy lifting re: spending...

due to the significant drop in GDP (even though no new 'major' borrowing was done), JA's debt-to-GDP ratio is projected to skyrocket from 94% (at the beginning of the crisis) to 110%.
- Given the economic uncertainties regarding the timing of the rollout of vaccines...

without intentional policy decisions, there is only so much time that GOJ has to maintain the existing fiscal discipline of not doing any major borrowing to survive (which is what JA has done many times in our independent history that led us to our horrendous ~150% debt-to-GDP).

So, GOJ was faced with two choices:
- Borrow now and implement growth policies (risky)
- Restrain itself and implement creative growth policies (prudent)

What choice did they make?

The short version is that GOJ via the MoF chose the latter. It's a very mature, and fiscally responsible/prudent path that should be widely praised by all Jamaicans.

The former is risky for two reasons:
- Growth is not guaranteed

If GOJ borrows heavily for growth and growth doesn't materialize we are stuck with more debt and no growth, aka we are worse off.

- JA still faces multiple vulnerabilities - Tropical Cyclones, Excess Rain (that can wipe out crops), Drought (that can wipe out crops)...

Commodity Price Shocks (aka oil price spikes, etc.), Geo Political Risks (our PetroCaribe facility has been negatively impacted by Venezuelan sanctions, our Bauxite Investments from Russia were negatively impacted by Russian sanctions & the Chinese Trade War has impacted...

Alumina prices are some recent examples), etc. All of these vulnerabilities can negatively impact GDP growth, so we are not out of the woods yet.

Considering all of the above, it is better to be measured and very strategic (by implementing specific growth-inducing strategies),

while also protecting our downside (by not taking on significant debt). Especially considering that due to the fall in GDP, our debt-to-GDP ratio has spiked significantly.

In other words, not only do we have to plan for today, we have to plan for tomorrow.

Think back to the $33B BOJ dividend and the $90B opening cash balance, both were as a direct result of GOJ planning for tomorrow.

See tweets below for more context.

https://twitter.com/marcgayle/status/1370634704366542848

@drnigelclarkeja repeatedly spoke about JA having 'agency' to create a better future for ourselves. This budget is the full manifestation of that 'agency'. It is specifically crafted to try to secure upside (with growth), while limiting downside risks.

In financial terms, GOJ is seeking 'risk-adjusted returns', not just 'nominal returns'.

There are many great choices in the budget, but I am only going to highlight a few:

1. Creative Risk Reduction Measures
2. Growth via Infrastructure Investment
3. Growth via Tech Investment

4. Employment Growth via MSME Growth

Each of these deserve a thread by themselves, so see the links to each thread below.

1. Creative Risk Reduction Measures

https://twitter.com/marcgayle/status/1371643333118951425

2. Growth via Infrastructure Investment.

https://twitter.com/marcgayle/status/1371643236230529025

3. Growth via Technology Investment.

https://twitter.com/marcgayle/status/1371643019963854849

4. Employment Growth via MSME Growth.

https://twitter.com/marcgayle/status/1371642898509348864

All of these initiatives bode well for my hypothesis that Jamaica has entered her Golden Window.

Even though COVID has disrupted it significantly, it is policies like these that help to put it back on track.

https://twitter.com/marcgayle/status/1205250373834940422

Btw, the reason this Golden Window hypothesis holds true is because as we keep paying down debt, every year GOJ gets more resources to further diversify risks out of the economy and invest in growth.

That CAT bond insurance policy is just 1 example.

As it stands right now, this upcoming FY there will be more funds budgeted to roads & infrastructure than has been budgeted in the last 20+ years if not more. As much as it seems like there was a lot of construction before, we are going to see more this year.

Not only that, next year, all other things being equal, we are likely to see more before more debt will be paid down and more resources will be available.

The country is literally being transformed before our eyes and it will be increasingly so, barring any externalities.