An independent panel of economists have sounded the alarm over Jersey’s “unsustainable” public spending, depleted reserves and record levels of debt, which they warn could leave the Island vulnerable to economic shocks.
The Fiscal Policy Panel issued its annual report this morning in the build-up to the Budget debate scheduled for next month.
Increasing day-to-day spending is a trend that continues in the proposed Budget, the panel notes, and that with such spending approaching total income, there is no headroom for capital spending and a likelihood of overspends, a frequent feature in recent years.
“Unsustainable” spending trajectory
The report notes that “the trajectory of day-to-day spending is unsustainable given Jersey’s revenues, and will need to be curtailed in future Budgets” and that “high levels of public spending, especially on services, is likely to add to existing inflationary pressures”.
Total public debt is forecast to peak at £1.3 billion in 2026, around 17% of GDP, with debt-interest costs approaching £48 million by 2028, the report notes.
There is also a focus on the Government’s financial assets, which represented 68% of gross domestic product in 2019 but only 44% this year and are set to fall to 42% by 2029. The weaker balance sheet is described as leaving the island “susceptible to fiscal and economic shocks that would damage public services and employment”.
In its recommendations, the panel calls for the Strategic Reserve and Stabilisation Fund to be rebuilt.
“These reserves were specifically created to protect Jersey from economic shocks that can be detrimental to a small island economy,” the report states.
“The Strategic Reserve is underfunded, and the Stabilisation Fund is empty.
“The commitment made in Budget 2025 to use relatively certain revenues from Pillar Two [a new international tax regime] to replenish the Stabilisation Fund has been abandoned – without adequately funded reserves the risks to Jersey and its economy are greater.”
Social Security Fund plans are “not prudent”
The Strategic Reserve is currently below 20% of GDP and will fall to 18% as £277 million is used to fund New Healthcare Facilities, the panel notes, well below its previous advice recommending a Strategic Reserve between 30% and 60% of GDP.
There is also criticism of the plan to cut the annual grant made to the the Social Security Fund before receiving an updated actuarial review. “Not prudent” is the panel’s verdict on this move.
Fiscal Policy Panel chair Sir Jon Cunliffe said: “The outlook for global growth has improved marginally but remains below pre-Covid levels.
“Global inflation has fallen considerably but remains above target in many economies amongst a background of escalating geopolitical tensions and increased uncertainty.
“Jersey’s economy contracted in 2024 as banking profits fell compared to 2023, whilst the rest of the economy saw some growth – banking profits are forecast to grow at a much slower rate from 2025 and Jersey’s economy is expected to grow at a comparatively weaker rate.”
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