Thursday, January 04, 2007

Strategic planning is important

The government recently released the fiscal numbers for the eight months ended November 2006. The overall fiscal deficit shows better than projections, as it was J$28.0 billion versus a projected J$29.6 billion. In order to fully appreciate the outturn, however, we have to go behind the numbers to see what it is telling us. In fact a closer analysis shows that we are in fact behind on our development targets, even though the absolute number appears to be better than projected.

The fact is that the deficit currently stands at over 3.0% of GDP versus a projected 2.5% of GDP. There are still four months to go but based on the growth rate it seems unlikely that this target will be achieved. As I have been saying since the start of the fiscal year, given the cement crisis and the infrastructural support, the economy does not show the capacity to grow at 3% to 4%. We did not have any natural disasters this year so in true Jamaican style we created our own, the cement crisis.

Tax revenues
My projection is that for the fiscal year the deficit will come in at over 3% of GDP simply because GDP growth will not be at the 3% to 4% projected. Because of this tax revenues will also come in below target, which already was very difficult to meet, as a 20% increase in tax revenues was always going to prove challenging. My own projection remains that we will achieve tax revenue growth of approximately 10% to 15% at most. My reasons are (i) the MOU will restrict growth in income; (ii) single digit inflation will keep prices relatively stable, meaning little growth in company profits, if any; (iii) the reduction in interest rates has affected company profits negatively; (iv) the first three months was positively affected by tax arrears collection; and (v) the planned increase in the income tax threshold would have negatively affected payroll taxes.

Many would argue that tax revenues are just J$2.7 billion (2%) behind budget with eight months gone. However, the last four months represents 39% of total tax revenues, and relies heavily on increased payroll, profits and interest taxes. Companies have shown less than expected profits; the savings rate has declined, and companies have laid off staff in order to deal with lower profitability. In addition lower profits means less Christmas bonuses. This translates to less tax collections, and may be a reason behind the government’s late decision to postpone the increased tax threshold until other allowances are removed to neutralize the effect.

This postponement can only negatively affect business and consumer confidence. We must bear in mind that the only real difference between today and a few months ago, when economic prospects did not seem so upbeat, is increased confidence. It is confidence that will lead persons to invest and spend monies. If we continue to make decisions that adversely affect the confidence in government pronouncements then it will only serve to restrict our growth. After all when taxes are to be increased the legislation is always hurried through, and in many cases not put into law until months or years after. It seems as if only when there is to be a credit given to the public that the administrative preparation has to be perfect. The cost of this decision could be more than the potential loss in revenues.

The fact that we always seem to struggle to meet our tax revenue and growth targets is symptomatic of the way we plan and approach budgets. As an example, each year we prepare budgets as if natural disasters are an exception rather than the norm. So when the hurricanes and the floods happen the government always seems surprised at the extent of the damage even though this occurs almost every year.

Strategic planning process
This is not a problem only to be found in the government budget, as private companies face this issue also. Budgets are seen as the beginning and end of the planning process when in fact they really should just be used to support the strategic planning process. Unless we understand this then each year we will be surprised that we miss the budget targets, and will also place the blame at the wrong feet. Whenever budget targets are not met we tend to focus on the Finance Minister as failing when it is because the operational objectives were not met why the budget was not achieved.

Looking at the annual budgetary process it seems as if there is little or no strategic planning. And if it is actually happening it seems to be overshadowed by the actual budget. The budget should be the outcome of the strategic planning process, thereby supporting the objectives set for the year. These strategies should be driven by the operational ministries, such as Education, Security, Health etc.

The strategic planning process should be as follows:
The Cabinet (Executive) should sit each year (maybe 6 months before the budget is presented) and set broad objectives for the coming fiscal year, e.g., to reduce unemployment by 1% or improve per capita income by $500. The important point here is that high level objectives should be set and measurements must be carefully selected so that they can guide growth objectives;
Each operational ministry should translate the high level objectives to achievable tasks, based on their operational capacity, and set timelines for each. Measurable targets should be set and at this stage each Ministry should prepare their own blueprint as to how the targets will be achieved;
The various ministries / departments should next put realistic costs to each operational strategy. Each task should have documented (i) the assumptions for meeting the target; and (ii) the impact it will have on meeting the high level objective for the ministry / department;
The executive team should meet to go over the plans of all Ministries. The strategic plans of the Ministries should include all departments and statutory organizations that falls within its accountability;
The Finance Ministry should consolidate the budgets and prioritize expenditure based on the value added to overall objective and resource availability. At this point the budget will be finalized and presented to the nation along with the strategic objectives.

It is important to understand that the budget is merely a support for the strategic plan, so that if the operational objectives are not met then the budget may not be met. Once we start focusing on the budget then we lose sight of the strategic objectives, which is really what will drive growth.

Unless we can approach our annual budget in this way then we may end up meeting our fiscal targets but not making any real progress. Because of this we get preoccupied with the absolute fiscal target when we should be concerned with whether or not our strategic objectives have been met. So at the end of 2006/07 fiscal year we may meet our absolute fiscal target, but productivity, per capita income and the quality of education may have all declined. Maybe we need to change the name to the fiscal strategic plan and in that way hold ministries responsible for achieving the targets they set at the start of the year.

19 comments:

Anonymous said...

Mr Chung,
I like ur blog and the contents thereof. But can u please consider changing the background colour from black, as it messes with my eyes. I would not be surprised if it did other people too.
Anyway, continue doing what u doing, in time this will be a great source of information.

Anonymous said...

I have been exploring for a bit for any high-quality articles or blog posts on this sort
of space . Exploring in Yahoo I ultimately stumbled upon this site.

Reading this information So i'm glad to show that I've a very excellent uncanny feeling I discovered just what I
needed. I such a lot indisputably will make sure to do not put
out of your mind this site and give it a glance on a constant basis.



Here is my web-site :: Diet Plans

Anonymous said...

I quite like looking through an article that will make people think.
Also, thank you for permitting me to comment!

My blog: resting metabolic rate calculator

Anonymous said...

My developer is trying to persuade me to move to .
net from PHP. I have always disliked the idea because of the costs.

But he's tryiong none the less. I've been using WordPress on a number
of websites for about a year and am anxious about switching to another platform.

I have heard fantastic things about blogengine.net. Is there a way I can transfer
all my wordpress posts into it? Any help would be really appreciated!



Here is my blog post - healthy Diet plans for women

Anonymous said...

Howdy just wanted to give you a quick heads up.

The words in your content seem to be running off the screen in Ie.
I'm not sure if this is a formatting issue or something to do with browser compatibility but I thought I'd post
to let you know. The layout look great though! Hope you get the issue fixed soon.
Thanks

Check out my web blog :: diet plan to lose weight

Anonymous said...

My programmer is trying to convince me to move
to .net from PHP. I have always disliked the idea
because of the expenses. But he's tryiong none the less. I've been using Movable-type on a number of websites
for about a year and am anxious about switching to another
platform. I have heard good things about blogengine.
net. Is there a way I can transfer all my wordpress posts into it?

Any kind of help would be really appreciated!

My website; diets that work for women

Anonymous said...

Attractive component of content. I just stumbled upon your site and
in accession capital to assert that I get actually enjoyed account
your blog posts. Any way I'll be subscribing on your augment and even I fulfillment you get right of entry to constantly rapidly.

my website ... best diet

Anonymous said...

Hmm it seems like your site ate my first comment (it was super long) so I guess I'll just sum it up what I submitted and say, I'm thoroughly enjoying your
blog. I too am an aspiring blog writer but I'm still new to everything. Do you have any tips and hints for newbie blog writers? I'd genuinely appreciate it.



my webpage - diets that work fast for women

Anonymous said...

Wonderful blog! Do you have any hints for aspiring writers?
I'm planning to start my own blog soon but I'm a little lost on everything.
Would you recommend starting with a free platform like Wordpress or go for a paid option?

There are so many options out there that I'm completely confused .. Any ideas? Thanks a lot!

Also visit my blog - Rejuvenex Wrinkle Reducer

Anonymous said...

Thank you for the auspicious writeup. It in fact was a amusement account it.
Look advanced to far added agreeable from you! By the way, how
could we communicate?

My website: Test Force Xtreme Reviews

Anonymous said...

Saved as a favorite, I really like your web site!

Here is my homepage :: by acai ultral lean

Anonymous said...

When some one searches for his necessary thing, therefore he/she wants to be available that in detail, therefore that thing is maintained over here.


Feel free to visit my web-site Vimax Male Enhancement Reviews

Anonymous said...

Hello there! Do you use Twitter? I'd like to follow you if that would be ok. I'm absolutely enjoying your blog and look
forward to new updates.

My weblog ... Buy Pure garcinia cambogia

Anonymous said...

You are so cool! I do not think I have read a single thing like that
before. So nice to discover someone with some original thoughts on
this subject matter. Really.. thanks for starting this up.
This website is something that is needed on the web, someone with some originality!


Also visit my web blog ... web site

Anonymous said...

My brother recommended I might like this web site. He was entirely
right. This post actually made my day. You can not imagine just
how much time I had spent for this information! Thanks!


Feel free to surf to my web-site 1285muscle review

Anonymous said...

Thank you for sharing your thoughts. I truly appreciate your efforts and I am waiting for your further post thanks once again.


my webpage - AnatomyX5

raybanoutlet001 said...

fitflops
coach outlet
browns jerseys
ralph lauren
michael kors handbags
ugg boots
ugg outlet
replica watches
coach outlet online
coach outlet
2017.7.26

Unknown said...

longchamp
fitflops sale
golden goose
yeezy boost 350 v2
jordan shoes
converse outlet
adidas neo
michael kors outlet
kobe byrant shoes
pandora bracelet

Anonymous said...

curry 9
yeezys
supreme clothing
supreme clothing
hermes bag
gap yeezy
jordan shoes
supreme outlet
pg 4
chrome hearts