Push ahead on PetroCaribe debt deal
Although little discussed, among the positive bits of news surrounding the Jamaican economy is the possibility of the Government being able to buy back the bulk, if not all, of its debt to Venezuela under the PetroCaribe oil agreement. The Dominican Republic did the same thing in February, retiring around US$4 billion at a 52 per cent discount.
Venezuela was willing to do such a deal because of the crisis facing that country's economy. Its revenue from petroleum exports has tumbled because of the collapse of oil prices. But even before this, inappropriate domestic policies, exacerbated by political tensions, had contributed to stalled manufacturing output and a fiscal deficit in the high double digits.
In the circumstance, it makes sense to Caracas to recoup, even at well below face value, some of the debt it is owed by regional countries because the deal, in which they pay cash for up to 80 per cent of their oil, and converting the rest into long-term loans of between one and two per cent, depends on the price of oil. Jamaica's debt under this arrangement is now around US$3.1 billion. The scheme has been an important cushion to Jamaica in the context of its own fiscal and debt crisis.
While we are sorry about Venezuela's difficulties that helped put such a buy-back on the agenda, it is a matter that this newspaper believes that Jamaica, as Finance Minister Peter Phillips says he will, should aggressively pursue. For while the US$3.1 billion is a small fraction of Caracas' reduced oil revenue, wiping off 52 per cent, or more than US$1.6 billion, would be a huge deal for Jamaica.
First, it would immediately wipe off around six per cent from the debt-GDP ratio, accelerating the pace at which the country might be able to reach the 100 per cent of GDP mark, programmed for the 2019-2020 fiscal year. There are other immediate benefits.
improving economic profile
Of course, cash raised to retire the Venezuelan debt would be substantially higher than the current servicing cost of those loans. But more important, with Jamaica's continued improving economic profile, such loans would be cheaper than what Kingston now pays to borrow. The upshot: lower rates on the broader national debt stock on which the Government, in the 2015-16 year, expects to pay around J$132 billion in interest.
Lower debt-servicing costs mean more money for the Government to allocate to the domestic economy, such as education, health, or the upgrade of fiscal infrastructure that is critical to supporting growth. And without the need to violate the primary surplus target of 7.5 per cent of GDP.
The bottom line: by whatever creative means possible, if the Venezuelans are willing, Jamaica should get the deal done.