Sun | Dec 11, 2016

Jamaica to pay back $178b of debt

Published:Wednesday | February 25, 2015 | 12:00 AMMcPherse Thompson
Minister of Finance and Planning Dr Peter Phillips.

The Government of Jamaica's bond redemptions and other principal debt repayments will increase by 76 per cent to more than $178 billion for the fiscal year ending March 2016, as payments on maturing global bonds and benchmark investment notes become due.

In less than four months, the Ministry of Finance will be paying out US$300 million on a 9% global bond due to mature on June 2, which converts to about $34.7 billion.

Domestic debt maturities will increase by almost 195 per cent to $83.44 billion from $28.32 billion in fiscal year 2014-15 due to maturing benchmark investment notes which account for 75 per cent of the repayments, according to the 2015-16 Fiscal Policy Paper tabled by Finance and Planning Minister Dr Peter Phillips in Parliament earlier this month.

The Fiscal Policy Paper said the upcoming US$300-million bond will contribute to a 30 per cent increase in external amortisations to just under $95.14 billion, up from $73.11 billion in 2014-15.

Total debt service, inclusive of maturities and interest payments, for fiscal year 2015-16 is projected at $310.19 billion, or 48 per cent of the Budget. The figure is 4.7 per cent higher than the estimated out-turn for fiscal year 2014-15.

Interest payments are budgeted to increase by 2.2 per cent over the estimated out-turn for 2014-15 to $131.61 billion, or about 7.8 per cent of GDP.

But domestic interest costs are projected to fall by 1.9 per cent to $75.23 billion, while external interest costs are projected to rise by 8.3 per cent to $56.38 billion.

GLOBAL BONDS

According to the policy paper, on the external side, the costs from existing and maturing global bonds are mainly responsible for the budgeted increase.

As regards domestic interest payments, the Ministry of Finance said that although marginally lower than the estimated out-turn for fiscal year 2014-15, it "is still relatively significant". Maturing benchmark investment notes has been identified as the main factor behind the projected costs.

According to the Fiscal Management Strategy, as global bonds become due for payment in fiscal year 2015-16 and 2017-18, "external debt service relative to the value of exports of goods and services and current transfers is projected to be 17.1 per cent and 18.5 per cent for the respective years."

For fiscal year 2016-17, the ratio is projected to be 9.7 per cent as there is no large obligation to be settled.

"The ratio shows no risk of insolvency as the country can more than adequately finance its external debt obligations from foreign earnings," it said.

It added that "despite an increase in external debt service cost, there are improvements in the global economy and competitiveness which influence the country's capacity to earn foreign exchange."

REPUTATION FOR PAYMENT

The Government said that despite the high debt levels, it continued to maintain a reputation of honouring its obligations.

During fiscal 2015, which closes on March 31, it has been repaying debt at a faster pace than scheduled, thereby deriving savings across the medium term which can be redirected to social and other programmes, according to the Finance Ministry's Fiscal Management Strategy.

Amortisation of external and domestic debt will amount to 10.5 per cent of GDP in fiscal year 2015-16 and 12.2 per cent in 2017-18.

The finance ministry also points out that for fiscal year 2015-16, central government budget includes contingency provisions for domestic and external interest payments on guaranteed loans of $8.37 billion, and principal payments of $19.91 billion. It also includes liability management of the external debt, with principal payments of $9.75 billion and interest payments of $1.21 billion.

Central government budget also includes contingency provisions for an amount to cover wage arrears and new rates to be settled for public- sector workers for the contract period fiscal years 2015 to 2017, and an allocation to hedge against adverse movements in oil prices in the future.

The ministry also points out that beyond the revenue and expenditure estimates and their comparison with the previous year's results, the Fiscal Management Strategy also includes a fiscal risk assessment which evaluates contingent liabilities and other risks that may affect the fiscal accounts. However, due to uncertainty as to their actual occurrence, these were not budgeted.

mcpherse.thompson@gleanerjm.com