Dr. Omar Davies, Minister of Finance, during the opening of the 2007-08 Budget Debate at Gordon House, Kingston, on April 12. - File

Lavern Clarke, Business Editor

Finance Minister Dr. Omar Davies eked out a small budget surplus of $1.9 billion at the fiscal year just ended, but got there only by massive over-borrowing.

Faced with underperforming revenue collections which ended the 2006/07 year at 4.8 per cent or 10.6 billion below target, and expenses that got out of control - rounding out the year at 3.5 per cent or 8.5 billion above budget - Davies went hunting for cash on the open markets and ended up borrowing $41.7 billion more than lawmakers had originally approved.

For the year, Davies collected $211.6 billion, but spent $249.1 billion mostly on wages and debt servicing, which together sucked away 83 per cent of revenues and grants.

Debt over-reach

Corporate taxes, GCT and PAYE were each between $2 billion and $3 billion off-base, suggesting either inefficient collectors or Davies was overoptimistic in his projections at the start of the year.

The debt over-reach was sufficient to cover the $37.5 billion fiscal deficit, and give Davies his small budget surplus.

The deficit, which was $19 billion more than projected, amounts to about 5.4 per cent of GDP, the Finance Minister told Parliament when he presented the country's budget in mid-April.

Davies had planned to borrow just under $120 billion, but ended up taking $161.4 billion from investors, with March taking the dubious title for the most debt raised in a month, $24.08 billion, the majority of which was from a 30-year US$350 million eurobond issue.

Downward pressure

That level of demand from the treasury should have fed into igher local prices, but in a counter to market forces, Davies and his monetary team managed to maintain a downward pressure on the interest rate, which essentially is the price at which the government buys debt.

The yield on the benchmark six-month treasury bill ended the year at 11.65 per cent, or two and a half points below the 13.18 per cent yield in March 2006.

In his accounts for the financial year, Davies also reported a $60.3 billion primary surplus, which is a record of income less non-debt expenditure, but that too was almost $14 billion lower than projected at the close of the fiscal year in March.

Worrying outturn

That outturn would have been worrying for overseas investors who use the primary balance as a yardstick for the coverage available to Davies to pay returns to creditors.

Davies' over-reach into the markets will likely see the national debt ending the 2006/07 year at $924 billion, according to Financial Gleaner estimates, based on a net increase of $13.4 billion in the debt pool ($24.1 billion of loan receipts less $10.7 billion in principal repayments or amortisations) in March.

The national debt in February, the last published figures, stood at $909.5 billion.

At $924 billion, the debt would remain at 133 per cent of GDP by Financial Gleaner estimates, assuming a nominal GDP of $695 billion.

lavern.clarke@gleanerjm.com