Sun | Apr 23, 2017

Get the debt-to-GDP facts straight

Published:Thursday | April 30, 2015 | 4:00 AMDonovan Nelson

This is in response to an article published in The Gleaner of April 28, 2015, titled 'The Government's debt-to-GDP mirage' by Fayval Williams, deputy spokesperson on finance and member of the Jamaica Labour Party's Economic Advisory Council, which leaves the impression that the country's debt, as measured by the debt-to-GDP ratio, is not being reduced.

Indeed, this matter and much of the confusion may have been obviated if Ms Williams had fully reviewed the Fiscal Policy Paper (FPP), including the Fiscal Responsibility Statement which was laid in the House of Representatives by the minister of finance and planning during the recent Budget Debate. The ministry's website also provides information related to total public debt from FY 2005-2006 to FY2014-2015, including the facts on the debt-to-GDP ratio (using both the Financial Administration and Audit Act and the Extended Fund Facility definitions). A complete review would have helped to remove the apparent confusion in Ms Williams' analysis of the country's debt-to-GDP ratio. The definition of debt-to-GDP used in the FPP is based on the definition legislated in the Financial Administration and Audit Act.

figures can change

As should be evident, projections include expected future results, based on present conditions and provision for contingencies. For example, the extent of the drought of FY 2014-2015 was not foreseen in the Fiscal Policy Paper of April 2014. In that instance, as a result of the drought, inter alia, the GDP outturn for FY 2014-2015 was lower than estimated, which would contribute to the debt-to-GDP outturn deviating from programme. It should also be noted that GDP is periodically revised by the Statistical Institution of Jamaica and, on that basis, historical GDP figures can change.

Additionally, in the closing presentation of the FY2015-2016 Budget Debate, Minister of Finance and Planning Dr Phillips provided historic and current data on the debt-to-GDP calculations by stating:

"Debt-to-GDP, using the definition under the Extended Fund Facility, which stood at 115.2 per cent in 2007-2008 moved to 126.7 per cent in 2008-2009; moved to 142.5 per cent by 2010-2011 and 140.1 per cent in 2011-2012. The truth is that during that 2007-2008 - 2011-2012 periods, the debt grew by $713.35 billion, a whopping 68 per cent."

The minister went on to state that "the current estimate of debt-to-GDP for FY 2014-2015 is 138.5 per cent".

For completeness, we should indicate that the following statement uses the definition in the Extended Fund Facility (EFF), which was approved in May 2013. The fact is that at the end of 2012-2013, the debt-to-GDP ratio was 144.9 per cent, which compares favourably with the 2014-2015 estimate of 138.5 per cent referenced earlier.

As has also been publicly indicated by the minister, the 138.5 per cent was higher than programmed because the Government took the opportunity to raise more (US$800 million) than programmed in the international capital markets because of the favourable market conditions at the time. This allowed for greater certainty of amortisation payments and increased flexibility for liability management transactions.

Reference was also made to the fact that there has been an increase in US denominated borrowing; this is as a result of greater utilisation of PetroCaribe and, to some degree, the Government borrowing more on the international capital market as a result of the domestic capital market being effectively closed because of the National Debt Exchange.

The article is stating that it is because of investors' desire to hold foreign currency that is the explanation for the continued growth in foreign currency denominated debt took a reference out of context. The full context may be seen in the Medium Term Debt Strategy, which is available on the Ministry of Finance and Planning's website.

The Ministry of Finance and Planning and its agencies maintain a policy of transparency regarding our public accounts, including the debt. This is in an effort to facilitate not only clarity in the public's understanding, but to obviate the efforts of highly charged sectional discourse, which could have a deleterious impact on the country's reputation in capital markets and the international community.

We trust that this information will help to clarify the concerns raised, as everyone is entitled to their own opinion but not their own facts.

• Donovan Nelson is communications advisor in the Ministry of Finance and Planning.