Michelle ThompsonIn summary…
- Independent financial experts warn that Jersey’s economy could face a substantial downturn if it fails to replenish its reserve funds.
- Experts emphasize the necessity for the government to take “urgent action” by allocating additional funds to bolster its Rainy Day Fund.
- Ministers are reviewing the report in preparation for the Government Plan debate scheduled for December.
Jersey’s economy faces susceptibility to a significant downturn unless it restores its reserve funds, as highlighted by independent finance experts.
The Fiscal Policy Panel (FPP), an autonomous body responsible for overseeing the island’s financial management, indicated in its recent report that the finance industry reaped benefits from increased interest rates. Despite a 0.8% decrease in the annual inflation rate from June to September, the FPP cautioned that a continual decline in rates could reduce Jersey’s revenue.
Dame Kate Barker, the Panel’s chairwoman, emphasized the necessity for the government to inject additional funds into the Rainy Day Fund (the States Strategic Reserve), presently valued at £922m, particularly during periods of robust growth.
“While the global economic outlook is subdued, Jersey has witnessed amplified profits in the banking sector and heightened government revenues due to higher interest rates,” Dame Kate Barker noted. “Given the economy is operating at maximum capacity, this should have been an opportune moment to replenish Jersey’s reserves.”
The finance sector contributes 20% to the island’s economy.
The FPP raised concerns that both the Rainy Day Fund and the Stabilisation Fund, designed to assist the island during significant economic upheavals, had diminished without restoration despite robust economic growth and substantial government income.
According to projections, the reserve is estimated to dwindle to £1.2m by 2027, half of the minimum value recommended by the panel. This depletion is deemed inadequate to cope with a major crisis.
Additionally, the report warned that savings for long-term healthcare could be depleted by the mid-2030s in the absence of policy alterations.
“Immediate Action is Imperative.”
The FPP stressed the government’s imperative need to “take urgent action” by bolstering its Rainy Day Fund. Additionally, it provided six recommendations to the treasury minister and the States assembly, which included:
- Assessing the sustainability of health insurance and long-term care funds before they are “depleted” or “exhausted.”
- To uphold long-term objectives, such as preserving living standards across all age groups, and to counteract the downward trend in labor productivity.
- Reevaluate the housing sector as the high cost of housing and land is anticipated to impede productivity on Jersey, given the decline in housing transactions while housing prices persist at elevated levels.
Government ministers are scheduled to review the report before the upcoming Government Plan debate scheduled for December.
