J'cans to pay more for debt
published: Tuesday | April 22, 2003

By McPherse Thompson, Assistant News Editor

JAMAICA'S STOCK of public debt, which rose to $601.2 billion as at the end of March 2003, means that each Jamaican will now be nominally required to repay at least $231,000, mainly through taxes, just to cover the principal payment.

That is because the Government, in the 12-month period, has added $104.1 billion to the national debt, on account of borrowing in the local and external markets to finance a range of ongoing programmes, including the multi-billion-dollar debt obligations of the National Water Commission (NWC).

The increased borrowings is reflective of Government's expenditure programme, which has not kept pace with revenue intake from tax and non-tax revenues, the bauxite levy, capital revenue and grants as reflected by data on central government operations for the 11 months to February 2003. During the period, the Government collected $98.3 billion in revenues and grants, but incurred expenses totalling $135.4 billion in recurrent expenditure, programmes, wages and salaries, as well as interest on domestic and external debts. The result was a fiscal deficit of just over $37 billion.

INABILITY TO INVEST

During the same 11-month period, it borrowed $101.4 billion but had to repay $80.2 billion to its creditors - just under $45.3 billion domestically and almost $35 billion externally.

Economists point out that in real terms, the debt, which will consume about 65 per cent of the Budget for this fiscal year, would continue to affect individual Jamaicans by virtue of the Government's inability to invest in physical and social infrastructure such as schools, the health services, roads and bridges which are necessary to promote investment and growth.

In a Ministry paper on the debt strategy for the 2003/2004 financial year, tabled in Parliament last Thursday when he opened the Budget debate, Dr. Omar Davies, the Minister of Finance, said the increase in the domestic debt during the past year was attributable to the need to finance a higher-than-programmed fiscal deficit, the fallout in external financing due to unfavourable conditions in the international capital markets, as well as the issue of additional debt instruments to the Bank of Jamaica (BoJ) to finalise an arrangement to convert BoJ/ Financial Sector Adjustment Company (FINSAC) bonds to Local Registered Stocks. In addition, domestic debt was propelled by the issue of debt instruments to cover BoJ losses, assumption of debt obligations of public sector entities such as the NWC, and the sharp devaluation in the Jamaican dollar, which resulted in an increase in the debt.

On the external side of the debt, the increase was caused by a final disbursement of funds from multilateral institutions for the restructuring of the financial sector, which was used to redeem the Local Registered Stocks converted FINSAC bonds. The external debt was also impacted by flows under the social safety net programme, increased Government guarantees mainly for Highway 2000, and adverse exchange rate movements.

THE POSITIVES OF DEBT

In outlining the revenue side of the budget, Dr. Davies sought to defend the Government's increase in the debt stock, arguing that debt has brought positives.

"It is through debt that we have modernised our hospitals - whether it's the Kingston Public Hospital, Mandeville, St. Ann's Bay, May Pen or Cornwall Regional," he said.

He said it was debt, which has now accumulated to more than $10 billion, that was used to modernise the public bus system in the Kingston Metropolitan Transport Region, as well as finance the dualisation of Hope Road in St. Andrew. Part of the debt was also used to improve the North Coast Highway project, and roads at Washington Boulevard and Trafalgar Road, St. Andrew, Dr. Davies said, adding that it was also part of the public sector debt that was used to finance modern water and sewage systems for the major tourist resorts of Negril, Montego Bay and Ocho Rios.

DEBT MANAGEMENT STRATEGIES

"So even as we take steps to reduce the debt-to-GDP ratio, and to reduce the deficit, let us not pretend that these debts were incurred to buy fighter planes or to carry out extravagant acts," Dr. Davies said.

According to the Ministry paper, the Government's strategy is now to return the fiscal operations to a balanced budget by the 2005/2006 fiscal year, using the same strategies established since 1998/1999.

However, he said the emphasis for this fiscal year will be modified in light of prevailing market developments, the fiscal performance and the size of the debt, while keeping the broad objectives unchanged.

The strategies include maintaining a prudent debt structure, use of market mechanisms for domestic debt issuance, promoting and building a liquid and efficient market for Government securities, increasing the transparency and predictability of primary market debt issuance, financing the fiscal deficit and debt redemption.

Dr. Davies said that reducing the debt stock and debt servicing costs was part of the Government's overall medium-term strategy and would be facilitated by accelerated growth and return of the fiscal operations to surplus. The medium-term programme has been designed to attain a balanced Budget by 2005/2006, said the paper.

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