Jersey's economy is "vulnerable to a serious downturn" if it does not replenish its reserve funds, independent finance experts have said. The Fiscal Policy Panel (FPP), an independent group that looks at how well the island generates and looks after its money, said in its latest report, external that the finance industry had "benefited from higher interest rates". The annual rate of inflation fell by 0.8% between June to September, but the FPP said that, if rates continued to fall, Jersey could be left with less income.
Panel chairwoman Dame Kate Barker said the government should provide additional money to the Rainy Day Fund [the States Strategic Reserve], currently valued at £922m, external, while growth was high.
She said: “Whilst the global macroeconomic outlook is weak, Jersey has benefited from higher interest rates boosting banking sector profits and government revenues. “With the economy at full capacity, this should have been used as an opportunity to rebuild Jersey’s reserves."
The finance industry accounts for 20% of the island's economy. The FPP said the Rainy Day Fund and the Stabilisation Fund, used to support the island through major economic shocks, had "shrunk" and "not been replenished, despite strong economic growth and exceptionally strong government revenues". It said the reserve was forecast to stand at £1.2m in 2027, "half the minimum value recommended by the panel", and that the reserve was "unlikely to be sufficient to meet a major crisis". It also said long-term health care savings could be "exhausted by mid-2030s" without any policy changes.
'Take urgent action'
The FPP said the government should "take urgent action" and add more to its Rainy Day Fund. It also gave six recommendations to the treasury minister and the States assembly, including:
Considering the sustainability of health insurance and long-term care funds before they are "exhausted"
To maintain long-run goals, including maintaining living standards for all ages, and to reverse the trend of declining labour productivity
Review housing as the cost of housing and land is "likely to be a drag on productivity on Jersey" due to housing transactions dropping but housing prices remaining high
Ministers are due to consider the report ahead of the Government Plan debate in December.