Call for government to rebuild reserves against increased global uncertainty

Independent economic advisers are calling on Jersey's government to rebuild its reserves, amid ever-increasing global uncertainty.

The 2027 budget proposes some growth in day-to-day spending, but the government's plans mean it will collect slightly more money than it spends day-to-day.

Head of the Fiscal Policy Panel, Sir Jon Cunliffe, said:

"Between 2022 and 2025, Jersey's income, the money coming in through tax, grew pretty strongly, by around 20%.

"But Jersey's day-to-day spending, that's everyday spending, not investing, grew by 43%.

"If spending grows twice as fast as the money coming in, that can't continue forever.

"We started to see some moves in last year's budget to slow down that growth in spending, bring it more into line with income, but this budget we've seen a bigger move in that direction and actually looking forward, the money coming into Jersey will grow faster than Jersey's day-to-day expenses, which means there'll be a little bit left over which can be used for capital investment, investing in the things Jersey needs, or to rebuild Jersey's reserves, which are really its insurance policy against being hit by a bad shock from the rest of the world.

"If Jersey wants to invest in capital, if it wants to rebuild those insurance policies, it needs to continue to move in that direction, to have a bit of money left over after the day-to-day spending that you can invest, that you can save going forward."

The war in Iran and the impact that is having on energy prices and the supply chain is being offset by the strong investment into AI globally.

Sir Jon added:

"It's completely unprecedented. If I think of the investment that happened during the railway boom in the 19th century or when electrification came in in the 1920s, this is twice the size of that, and it's happened really quickly.

"AI, I'm sure, will bring positive benefits to society and the economy if it's done carefully, but whether it can actually support all this investment, a lot of which has been funded by borrowing, that's another matter.

"At the moment, all of that investment has offset some of the bad effects of what's happened with the war of Iran.

"If there was a correction in the expectations around AI, if people start to think well it won't quite be able to repay all of this investment, then that's not just a correction in stock markets, that can lead to corrections in debt markets, and that lead to economic impacts.

"The world economic prospects are now very dependent on what happens on the AI side and, of course, Jersey because it depends so heavily on its financial sector, it's connected to the global finance sector, it's connected to people's perceptions of risk.

"Those two unpredictabilities, I think, make this a very uncertain world, which I think is one of the reasons why a small open economy like Jersey, without its own currency, without its own monetary policy, with limited ability to raise tax, needs to have insurance policies and why we think they (reserves) need rebuilding."

Jersey is around halfway to the minimum recommended level of the Strategic Reserve, which is essentially the government's 'rainy-day' savings fund.

The Stabilisation Fund, created to support the island's economy, public finances, and employment during economic downturns, has also been exhausted.

Sir Jon said:

"There's a fair way to go to bring those insurance policies up to the level which, if you look at what has happened in the past to other places, Jersey might need.

"We think it's moving in the right direction. In Budget 2027, there's been some extra money coming in in 2026 because of these Pillar Two tax changes.

"The government has put that extra money into funding the new hospital, that's meant that the new hospital hasn't had to reduce the reserves to the extent that was planned.

"We think that's a good step, but that just means that the reserves aren't drawn down further to pay for the hospital. We think they need, over time, to be built back to a higher level."

The budget will be debated in December.

The government says it welcomes the report.

Chief Minister, Senator Lyndon Farnham, said:

"It is vital that we continue to protect our strong financial position. Significant actions have already been taken to secure the Island’s public finances and this area remains a high priority for our Government.

Treasury Minister, Senator Alan Maclean, said:

"I would like to thank the Panel for their report and for recognising the positive steps we are taking to strengthen Jersey's public finances. This Government is committed to improving the Island's financial stability and increasing fiscal resilience to ensure Islanders are well protected against any future economic challenges.

"Budget 2027 takes action to strengthen the Strategic Reserve. It uses windfall Pillar Two revenues to reduce the transfers that need to be made from the Fund to help finance the New Healthcare Facilities Programme. The Government has also committed to publishing detailed plans to increase the long-term value of the Strategic Reserve and replenish the Stabilisation Fund as part of Budget 2028-2030."