National Income and Public Finance

Caribbean Islands Table of Contents

The greatest contributor to national income in 1985 was government services, accounting for 18.6 percent of GDP, followed by manufacturing at 15.7 percent, distributive trade at 15.3 percent, agriculture at 8.8 percent, construction at 5.4 percent, mining at 5.1 percent, and the balance in various other services including tourism (see fig.__ Jamaica. Structure of Production-- Distribution of Gross Domestic Product (1985)). The decline of agriculture and the rise of industry and services marked the Jamaican economy in the 1980s. A large underground economy also persisted. Many self-employed peddlers, locally referred to as higglers, worked in the large redistributive trade that often fell outside the formal economy; therefore, they were not taxed or recorded in official data. This included some higglers who received merchandise through illicit imports, thus circumventing official import regulations. More important, there was a large underground economy based on marijuana growing and trafficking. Some analysts estimated that the underground economy was equivalent to over half of the official economy.

The fiscal year in Jamaica extends from April 1 through March 31. As required by the Constitution, the minister of finance submits the annual budget to the House of Representatives, the final authority on the budget, before the end of the prior fiscal year. Budgeted expenditures are divided into a capital and a current account, also called a recurrent account. For decades, the surpluses on the current account were not adequate to finance the envisioned capital expenditures, such as physical and social infrastructure, creating structural budget deficits.

Beginning in the early 1970s, expansionary fiscal policies created deficits in both current and capital accounts, financed by internal and external borrowing. Although the fiscal deficit as a ratio of GDP rose from 5 percent in 1972 to 20 percent by 1979, it had decreased to under 12 percent by 1985 and to under 2 percent by 1986. Total government expenditures in 1985 amounted to US$823 million, whereas revenues reached only US$583 million, resulting in an overall deficit of US$240 million, or 11.6 percent of GDP. Budget deficits in the 1970s and 1980s were increasingly financed by external borrowing. Fueled by extensive foreign borrowing and relatively high interest rates, the national internal debt rose from 9 percent of GDP in 1972 to 45 percent in 1979 and exceeded 58 percent of GDP in 1985. By the early 1980s the economy had spiraled into serious indebtedness, causing total debt servicing to account for 43.6 percent of total government expenditures in 1985. The crisis appeared likely to continue, as over 65 percent of its debt servicing bill was destined for interest payments alone.

More about the Economy of Jamaica.

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Source: U.S. Library of Congress