Editorial | Jamaica must join call for debt reform
Standard and Poor’s (S&P) decision to maintain the existing speculative grade B-range ratings on Jamaica’s debt, while upgrading its outlook for the island’s economy to stable, is, in the circumstances, a welcome development. It is something for Finance Minister Nigel Clarke to hold out to creditors if, and when, he goes to the market to roll over loans or seek new ones.
But the Holness administration must be wary of using S&P’s action for leery chest-thumping and separating Jamaica from global efforts for debt reform, including initiatives that favour middle-income developing countries, within whose ranks the island falls.
This is a matter on which Jamaica’s voice has not been particularly loud in recent times, leaving a sense, if not of disengagement, of Kingston looking down its nose at those of its peers, especially those in the Caribbean, that have not been as successful at fiscal containment.
Like most developing countries, Jamaica has been hit hard by the COVID-19 pandemic. Its economy declined by more than 10 per cent in 2020. Lower inflows and increased spending to cushion the worst effects of the pandemic forced the Government into higher deficits and slowed the pace at which it pays debt.
Indeed, Government debt, which had fallen to just below 95 per cent of gross domestic product (GDP) in early 2020 (from nearly 150 per cent a decade earlier), has crept back past 110 per cent of GDP. Further, the Government was forced to push back, by at least two years, its earlier 2025-26 date to bring the debt down to 60 per cent of GDP.
But last week, with the economy showing signs of recovery, Standard and Poor’s affirmed its B+ rating on the Government’s long-term foreign and domestic debt and B for its short-term borrowings. Whereas S&P previously had a negative outlook for the economy, this was revised to stable.
“Jamaica has demonstrated commitment to fiscal consolidation, despite the ongoing COVID-19 pandemic, and we believe the risks for its economy and government finances have receded,” the rating agency said. “In addition, the passage of the Bank of Jamaica Act revisions strengthens the central bank’s monetary policy credibility.”
NOT A SOLO PURSUIT
Jamaica’s aggressive posture on fiscal containment, some economists argue, is not sufficiently mirrored in most regional economies. The critics highlight The Bahamas and Suriname (both of which have been in talks with creditors) as well as Trinidad and Tobago, despite S&P’s affirmation in July of that country’s investment-grade BBB-/A-3 ratings on its sovereign debt. However, Standard and Poor’s adjusted its outlook for the Trinidad and Tobago economy from stable to negative.
In assessing Jamaica’s situation, officials here are inclined to contrast the praise Kingston receives for fiscal rectitude against the perceived problems of regional counterparts.
This newspaper does not wish for the Government to return to the bad old days of fiscal indiscipline, when the State gourmandised on debt and crowded out the private sector from borrowings. However, it would be wrong if Jamaica assumed that fixing the country’s problem of debt in this global environment ought to be a solo pursuit, on which there was no common cause with other nations. Unless, that is, Jamaica’s policymakers believe that fiscal containment is an end in itself.
Like other middle-income developing countries, Jamaica, as is the case with most of its partners in the Caribbean, is locked out of most debt initiatives, such as the recent G-20’s payment moratorium for the world’s poorest nations. Most of the region’s countries are also ineligible for some categories of loans soft from multilateral financial institutions, although the Caribbean is the world’s most indebted region.
MORE VOICES NEEDED
As was highlighted by the Caribbean Community’s (CARICOM) secretary general, Carla Barnett, at last week’s session in Barbados of the United Nations Conference on Trade and Development (UNCTAD), the COVID-19-induced economic downturn has exacerbated the region’s debt crisis.
“We applied funds that were budgeted for other purposes to meet the needs of the health sector for PPEs, medical equipment, testing supplies and vaccines,” she said. “We shifted funds to meet basic social safety nets. We repurposed loans and borrowed additional funds. Already-high debt burdens grew even higher.”
This situation has further shrunk the region’s ability to invest in other areas of development, such as to address the effects of climate change, public infrastructure, security, health and education. Which is what the UN’s secretary general, Antonio Guterres, understood. In a June address to the General Assembly, he called for innovative measures to address the problem of debt and to help middle-income countries lift their economies out of the mire of COVID-19.
Barbados’ prime minister Mia Mottley made much the same argument in her address at the UNCTAD meeting in Bridgetown. But more voices are needed in carrying what is an economically sound and logically unimpeachable message.
Jamaica should be front and centre of this discourse – as it used to be in such matters. Which does not mean giving up or betraying its policy of fiscal prudence.