‘Don’t spend rainy day fund on Covid-19 crisis’

JERSEY’S ‘rainy day fund’ must be preserved and not spent on the Covid-19 crisis because a future economic collapse could leave the Island unable to borrow money, an economic adviser has warned.

Dame Kate Barker, chairwoman of the Fiscal Policy Panel, which advises the Island’s government, said that the Strategic Reserve, the value of which stood at £874.2 million at the end of June, should be kept aside for other possible economic shocks, such as a collapse of the financial-services industry.

Last week, the FPP published its annual report, in which it outlined that Jersey was likely to need more revenue, such as through tax rises, from 2022 onwards to repay the £800 million cost of the Covid-19 outbreak.

And the FPP has advised the government to protect the Strategic Reserve, nicknamed the Rainy Day Fund, and look to boost its value in the longer term rather than seeking to use it to pay for the current crisis.

The government has taken out a £500 million revolving debt facility with a consortium of local banks to help cover the cost of Covid-19.

Dame Kate said that if Jersey were to find itself in financial trouble in the future, it might be unable to borrow money in the way it could today, particularly at the favourable interest rates that were presently available.

‘Today Jersey is in a strong position. You’ve got good net assets and people think Jersey has a good future,’ she said.

‘So probably today it is possible for you to borrow quite a lot and to run borrowing up higher than it is.

‘The reason why we think it’s important to have the Strategic Reserve is if you went into circumstances where there was a shock – say to the financial sector, which is very Jersey-specific – it might be hard for Jersey to borrow.

‘That’s when it would become more difficult and the Strategic Reserve would be really important.’

She added that there was some risk attached to making investments through the Rainy Day Fund.

‘People sometimes say a Strategic Reserve is a good idea because we can invest it in equities and that’s bound to bring a better range of return,’ she said.

‘That’s quite a risky strategy because we don’t know that in all circumstances equities will bring up higher rates of return.

‘What we do know is that if there was a shock that just affects Jersey, then that’s the point where you will really need a Strategic Reserve because then people might not want to lend to you.

‘So, if people are happy to lend to you and we see interest rates are low, it seems sensible to borrow.’

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