Mon | Jan 22, 2018

Jamaica dollar depreciation pushes up debt stock

Published:Friday | February 10, 2017 | 12:05 AMMcPherse Thompson


Currency movements have resulted in a $68.8 billion upward movement in Jamaica's stock of public debt, which stood at $2.15 trillion at the end of December 2016 and is expected to further increase to $2.18 trillion by the end of March 2017.

At $1.31 billion at the end of December 2016, the external debt continued to be the larger portion of the outstanding debt and accounted for 61.2 per cent, while domestic debt at $834.3 billion accounted for 38.8 per cent of the total, according to the medium-term debt management strategy for fiscal years 2017-18 to 2019-20 tabled in Parliament yesterday.

It said the domestic portfolio grew by 2.3 per cent mainly due to the issuance of new benchmark investment notes, while the external debt grew by five per cent due to the depreciation of the Jamaican dollar vis-a-vis the United States dollar.

Total new debt was $37.3 billion and of that amount $26.6 billion represented inflows to the domestic portfolio.

According to the debt management strategy, over the three and a half years of Jamaica's extended fund facility with the International Monetary Fund (IMF), there were significant improvements in the debt-to-gross domestic product (GDP) as growth in the real sector accelerated, providing a fillip for GDP performance.

Concurrently, it said, the Government was proactive in implementing various debt management strategies resulting in the debt decreasing from 145.3 per cent at its peak in fiscal year 2012-13 to a projected 122.5 per cent at the end of fiscal year 2016-17.

However, as a result of the Government's partially pre-financing debt payments due in 2017-18 and depreciation of the Jamaica dollar vis-a-vis the United States dollar, debt-to-GDP is projected to reflect a marginal increase of 2.3 percentage points over 2015-16.

The Government said the main objective of the debt management strategy is to create a portfolio which will best minimise costs and mitigate risks in the medium-term.


... Most targets achieved

It said most of the targets established for the major risk factors inherent in the portfolio - foreign currency, interest rate, refinancing and contingent liability risks - in fiscal years 2016/17 to 2018/19, with minor adjustments to the initial borrowing plan, were achieved.

The strategy pursued allowed the Government to continue benefiting from low interest rates in the domestic market as the interest cost associated with variable-rate domestic debt remained flat due to low Treasury bill rates.

The government said that while US LIBOR increased in the external markets, the external portfolio was cushioned as most of those loans were contracted on a fixed-rate interest basis. LIBOR is a benchmark rate that some of the world's leading banks charge each other for short-term loans and serves as the first step to calculating interest rates on various loans throughout the world.

It said refinancing risks was actively mitigated during the review period and is currently moderate.

However, given the significant proportion of the portfolio denominated in foreign currency, management of the foreign currency risk was difficult and hence the debt continued to increase in Jamaica dollar terms due to depreciation of the local currency against the US dollar.

The Government said the average interest rate of the total outstanding debt remained unchanged at 6.1 per cent at the end of December 2016 when compared with the end of March 2016.

Similarly, the average interest rates of the external and domestic debt remained unchanged at 5.3 per cent and 7.4 per cent respectively.