Gov't assumes $143b public bodies debt
The Jamaican Government has assumed loans totalling US$1.3 billion (J$143.3 billion) or 9.7 per cent of gross domestic product (GDP) on behalf of state entities for the period January 2010 to March 2014, according to the medium-term debt-management strategy tabled in Parliament recently.
The Ministry of Finance said that in light of those developments and in keeping with the wide range of fiscal and other reforms being undertaken by the Government, explicit contingent liabilities will be limited to no more than eight per cent of GDP by the end of March 2017 and three per cent by March 2027.
It said a comprehensive framework is being developed in respect of the monitoring of guarantees. Towards this end, public bodies are required to provide a monthly report to the minister of finance with details on the status of all their debt and liabilities, whether or not they have been guaranteed.
Contingent liabilities are obligations that materialise if a particular event occurs. They can be explicit, if the sovereign contractually acknowledges its responsibility to cover the beneficiary under specific circumstances, or implicit, when the Government is expected to do so because it has a 'moral' obligation to act, in most cases related to a high opportunity cost of not intervening.
However, the Government said contingent liabilities pose significant risks to the Budget, as well as to the stock of public debt if they are not properly monitored and provisions are not made in the Budget to accommodate them.
According to the debt-strategy document, the Government of Jamaica has been called upon in the past to assume loans related to guarantees on behalf of state-run entities, as well as to rescue failed financial institutions because of the systemic risk that they pose to the wider economy.
This resulted in significant costs to the Jamaican public in the form of higher taxes, and to the Government in terms of increased expenditures and debt stock.
"Consequently, the Government has established a stringent regulatory framework to facilitate improving and enhancing the prudential operations of the financial sector to help contain systemic risk," the document said.
In response to a growing crisis in the financial sector starting in the early 1990s, the Government established the Financial Sector Adjustment Company (FINSAC) in January 1997 to address liquidity and solvency problems through a process of intervention, rehabilitation and divestment.
Up to August 2000, the FINSAC bailout had cost taxpayers an estimated J$130 billion, liabilities which pushed the domestic debt stock past 80 per cent of GDP during the early 2000s.
As part of its borrowing plan for fiscal year 2014-15, the Government said that of the $56.28 billion in budgeted loan receipts to be raised from domestic sources, $24.16 billion is programmed to be obtained from the Venezuela-backed PetroCaribe Development Fund.