THE Government's borrowing on the domestic market has continued apace and has risen by $9 billion in the first six months of the fiscal year to almost $184 billion.
The five per cent increase in the mountain of domestic debt is down from a high at the end of August of $189 billion but comes despite regular inflows of cash from overseas and pledges by Finance Minister Dr. Omar Davies to cut the stock of debt raised by Government locally as part of his plan to bring down interest rates.
According to the latest figures from the Ministry's debt management unit (DMU), domestic debt has risen from $175 billion at March to $184 billion at the end of July this year. External debt at the end of July had slipped from US$$3.13 billion to US$3.02 billion. The total debt stock at the end of July is up from $308.7 billion to $318.1 billion.
Local analysts focus on domestic debt because of the cost of servicing it and the impact it has on local interest rates.
Total interest payments this year are expected to be $500 million less than last year at $41.4 billion. Domestic interest accounts for $33.1 billion of that, with external interest expected to be just $8.3 billion. On top of this is domestic repayments on existing loans of an estimated $43 billion, while external amortisation is just $13.1 billion.
At the end of March 2000, domestic debt service totalled $74.4 billion, some $39.2 billion in amortisation and repayments and $35.2 billion in interest payments. While amortisation fell by 18 per cent during 1999/00, interest expenses rose 17 per cent.
The memorandum to the budget said this was mainly as a result of, "The failure to attain the interest rate target. Budgeted interest costs were based on a projected reduction in domestic interest rates to 16.0 per cent per annum by September 1999. However, interest rates were 19.2 per cent at September 1999, heavier than programmed domestic debt raising following the delay in raising external financing."
Similar problems appear to be affecting this year's debt projections, with interest rates at about 18 per cent, when Government estimates indicate they should be closer to 16 per cent, falling to around 14 per cent by the end of the March 2001.
During his Budget speech on April 6 this year, Dr. Davies said: "We have embarked on the first step of this journey this year as no significant increase to the debt stock is anticipated in this fiscal year."
He added: "In this fiscal year it is also proposed to approach the domestic market for $28 billion less than the amount borrowed last financial year. This reduction in GoJ's participation in the domestic market should have a positive impact on domestic interest rates - to the benefit of both private borrowers and the Government itself."
Dr. Davies said he expected to raise $38 billion in local registered stock, index linked bonds and Government debentures, almost all of which would not be new money but used to roll over or repay existing debt.
Between April 19 and August 17, DMU figures show that nearly $21 billion has been raised in the local market, with at that time some $14 billion added to the stock of domestic debt.
But a decision not to roll over a maturing investment debenture in early September led to the stock of domestic debt declining to $184 billion.
Some $11 billion was raised in July during the issue of a investment debenture at 19 per cent coupon for a year and a half.
The state's continued thirst for cash means that Government continues to pay relatively high yields to investors to raise cash, while other private sector players struggle to be able to compete and find investment for alternative projects.
In Dr. Davies's 1997 Budget speech he identified cutting debt and restructuring the country's debt pile as one of the biggest challenges facing the Government. But borrowing on the local market has ballooned.
At the end of March 1998, domestic debt stood at $101.5 billion, it rose to $139.2 billion a year later, $175.3 billion or 57 per cent of the total debt outstanding at the end of March 2000.
At the end of March, Local Registered Stocks (LRS), continued to be the major component of the domestic debt and accounted for 72 per cent or $126 billion of the total outstanding. Investment debentures accounted for the second largest share of the total domestic debt at 14 per cent or $24 billion.
At the end of September, LRS accounted for $132.7 billion, debentures another $23 billion, US dollar issues on the local market another $15.5 billion and loans from commercial banks of some $2 billion.
The current figure of $184 billion appears to be higher than expected and does not include the domestic debt taken on by the Financial Sector Adjustment Company (FINSAC), which will come on to the Government books next April.
At the end of June this year FINSAC had shelled out $127.9 billion on dealing with the crisis in the financial sector. Interest on the gross or overall bill is expected to be $16 billion in the year to the end of March 2001.
"Of the $127.9 billion in FINSAC securities outstanding at June 30,2000, the Bank of Jamaica, the Ministry of Finance and Planning and other governmental agencies hold $50.0 billion, which the Government has agreed to cancel," according to details supplied in the offer memorandum for August's US$225 million bond issue.
In his recent memorandum to the International Monetary Fund (IMF), Dr. Davies said he expected the Government to take $73.6 billion of FINSAC debt on to its books at the end of March 2001 and that interest payments would cost around 3 per cent of gross domestic product (GDP) or close to $9 billion.
The offer document said: "FINSAC has financed its operations through the issuance of Government-guaranteed securities, of which $127.9 billion, inclusive of accrued interest, remained outstanding at June 30, 2000.....Payments due during FY 2000/01 total approximately $16.0 billion, with $1.2 billion to be paid in cash and the remainder to be capitalised.
"In FY 2000/01, the cash payments will be financed by FINSAC from the sale of assets and the collection of non-performing loans. At the beginning of FY 2001/02 the Government expects to assume all remaining FINSAC liabilities and to begin making all interest payments in cash."
