ALL POSSIBLE solutions to reducing Jamaica's large public debt pose difficult challenges, the International Monetary Fund stated in the report of its February Article IV consultation on the island's economy.
After several months delay, the report was published on the Ministry of Finance and Planning web site on Christmas Eve. "The sustainability of the current situation requires rigorous implementation of the strongest policies," the IMF report stated. "The required fiscal adjustment could be politically difficult to achieve - particularly if expenditure reductions are ruled out."
The Jamaica authorities have shown considerable determination to remain current on their debt payments and value their reputation as a good player, it stated. "However they did not rule out renegotiations on a bilateral basis with individual domestic creditors."
Paying down debt through privatisations is not feasible as most of the large state enterprises have already been privatised.
The recent resort to issuing US dollar indexed bonds in the context of tightened market access could increase vulnerability to external shocks, it said.
There is limited scope for restructuring the public debt. Most of the external debt has a fairly long maturity profile the report stated. The authorities have also been seeking to lengthen the maturity of their domestic debt, although at relatively high interest rates.
Three-fifths of the public debt is domestic, it said. Banks, brokers and building societies hold about 60 per cent of the domestic debt and half the domestic debt is at a floating interest rate while one-sixth is indexed to the US dollar. Jamaica's extremely high public debt, at nearly 150 per cent of the gross domestic product, is mainly a legacy of high fiscal deficits during the 1980's and the resolution of cost of the financial sector crisis in the mid-1990's, the report sated. The depreciation of the Jamaican dollar and large fiscal overruns caused the public debt to increase substantially last year, rather than decline, as expected.
