Thu | Sep 24, 2020

Rough seas ahead

Published:Tuesday | March 24, 2020 | 12:31 AM


ACCORDING TO the Oxford Dictionary, deleveraging is the process or practice of reducing the level of one’s debt by rapidly selling one’s assets. The global debt is US$257 trillion, according to an International Monetary Fund estimate for the end of March 2020. Jamaica is the 18th most indebted country in the world, with a debt-to-gross domestic product (GDP) ratio of 92 per cent. After the coronavirus (COVID-19) passes, Jamaica and the world will have to deleverage.

Historically, there are four ways to deleverage. The first is to cut government spending. This will mean an increase in unemployment. Second is debt restructuring. This includes debt reduction and decreasing instalments amount. Third is taxing the rich and business companies. The fourth way of deleveraging is by printing money. It is likely that a combination of all of the above will be employed.

The United States (US) has the world reserve currency, and 70 per cent of its GDP is based on consumption. Currently, and for the next few months, consumption is anaemic. The US is Jamaica’s most important trading partner and major contributor to the tourism industry and remittances. The sky is not falling, but we have rough seas ahead and need to navigate these rough seas skilfully.