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The Government’s debt-to-GDP mirage

Published:Tuesday | April 28, 2015 | 12:00 AMFayval Williams

During the Budget season in 2013, approximately 16 months after the People's National Party (PNP) Government started its reign, the Ministry of Finance, via the Fiscal Policy Paper dated April 18, 2013, projected the debt-to-gross domestic product (GDP) as follows:

FY2013-14 - 126.7%

FY2014-15 - 119.6%

FY2015-16 - 112.0%

FY2016-17 - 104.7%

This looks like a pretty good debt-to-GDP reduction path. By FY2016-17, the debt-to-GDP ratio should be just a touch above 100 per cent and Jamaica would be well on the path to prosperity.

The truth is, this has not really happened, though the PNP Government keeps proclaiming how good it has been at "bringing down the debt".

The reality is the debt-to-GDP figures have been getting mostly larger. Fast-forward to the Budget season in 2014-15, the actual and projected debt-to-GDP figures are actually worse. At April 17, 2014, as per the Fiscal Policy Paper, the figures were as follows:

FY2013-14 - 131.9% 

FY2014-15 - 129.3% 

FY2015-16 - 122.7% 

FY2016-17 - 114.5%

Now ask yourself the question, is the Government really 'bringing down the debt' or is it just saying it is bringing down the debt? You know the answer.

This Budget year, 2015-16, is no better. The Fiscal Policy Paper dated February 19, 2015, has the debt-to-GDP ratios mostly climbing. The out-turn of 126.7 per cent that was reported in 2013 for FY2013-14 has morphed to 133.3 per cent without any explanation. The 112.0 per cent debt-to-GDP figure for FY2015-16 is now 121.3 per cent, almost 10 percentage points higher than in 2013.

FY2013-14 - 133.3% 

FY2014-15 - 131.6% 

FY2015-16 - 121.3% 

FY2016-17 - 115.7%  

FY2016-17 - 107.4% 

FY2017-18 - 98.5%

This has been a difficult target for the Government because of the havoc the depreciating currency has on the mountain of debt. Between the end of March 2014 and the end of December 2014, depreciation of the currency added $54.8 billion to the debt stock. That is a huge number for which we the taxpayers must bear the additional interest cost. It hurts when one considers that this is money that could have gone into providing better health care, better educational outcomes, and training for the young men and women languishing on the street corners.

Approximately 61 per cent of the total public debt is denominated in foreign currency. This is almost 10 percentage points higher than where the Jamaica Labour Party (JLP) Government left it. A reason the Government gives for continuing to grow the foreign-currency-denominated debt and increase the country's exposure to foreign-exchange risk: "... Some local investors have expressed a desire to hold foreign-currency assets in their portfolios." I was shocked at this explanation.

ratios are all over the place

The debt is the biggest elephant in the room; yet, the ratios are all over the place. Sometimes the debt ratios include the PetroCaribe debt, and sometimes they do not. Sometimes the debt ratios include government-guaranteed debt, and sometimes they do not.

Audley Shaw, the JLP's shadow spokesperson on finance, has called, on many occasions, for the finance minister to stick to one debt ratio, the one the Government has agreed with the IMF.

For clarity, under the IMF's extended fund facility, total debt is defined as central government debt + Bank of Jamaica debt + the net PetroCaribe debt + external and domestic guaranteed debt. Compare this to the Government's calculation, in which it includes only central government debt + Bank of Jamaica debt + external guaranteed debt. Herein lies the massive confusion, whether intended or not.

The debt is like a millstone around all our necks. The Government has said nothing else is as important as reducing the debt. I,therefore, call on the Government to report the debt ratios consistently, once and for all, so that all Jamaicans can follow the progress. No more confusion, please.

- Fayval Williams is deputy spokesperson on finance and member of the JLP's Economic Advisory Council. Email feedback to and