Editorial | Clarity on the recovery package

With impressive speed, the Jamaican Government and its international financial partners announced a US$6.7 billion package to finance the island’s reconstruction from the destruction from Hurricane Melissa.

The Category 5 storm, packing sustained winds of 185 miles an hour, devastated the western third of the island on October 28. By December 1, the International Monetary Fund (IMF) was publicly announcing the package that will include funding from that institution, the World Bank, the Inter-American Development Bank, the Development Bank for Latin America-CAF, and Jamaica government resources.

Given the glacial pace at which global financial institutions often move, even when countries face crises, this, in many quarters, will be considered warp speed.

But even as the country welcomed the proposed package, serious questions remain unanswered. These relate not only to the structure of this massive package but also to the Government’s recently announced US$150 million loan to the privately owned light and power company, the Jamaica Public Service (JPS), to help repair extensive hurricane damage to its infrastructure.

The loan to the JPS – which is meant to bridge the gap while additional financing unfolds – is coming directly from the government coffers, the Consolidated Fund. It is equivalent to the payout from the Government’s catastrophe bond (cat bond) and a third more than the payment Jamaica received under its parametric insurance with the Caribbean Credit Risk Insurance Facility.

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Yet despite repeated requests for clarity, the finance ministry has not provided direct or comprehensive answers about how this arrangement was designed, what conditions apply, and whether taxpayers will ultimately bear any additional risk. The only publicly disclosed detail, but without the fine print, is that the loan is for five years and 5.5 per cent per annum, and that the JPS has an option to repay in two years.

An important context is that the JPS’ operating licence expires in July 2027. There is no guarantee that the company will still control the power transmission and distribution grid after that.

Even if the loan becomes part of the payment should the Government reacquire the JPS in less than two years, there are questions about how the asset – particularly the rebuilt bit – will be valued given that such assets are normally depreciated over 30 years.

The lack of clarity about the loan is of concern. For at a moment when the country is mobilising extraordinary resources for reconstruction, Jamaicans have a right to expect full, confident, and timely explanations from their fiscal leaders.

The broader recovery package, as announced, blends Jamaica’s own money, including the JPS loan; sovereign loans from the international financial institutions; the mobilisation of private-capital mobilisation; and grants and technical assistance.

Given the intertwining of domestic and external financing, there is need for a clear, disaggregated breakdown of who is providing how much and the circumstances and the terms thereof.

Specific questions to be answered include;

• How much of US$6.7 billion will be from the Jamaican Government and from what sources;

• Which components represent new borrowing and on what terms;

• What part reflects the triggering of the Government’s existing Disaster Risk Financing (DRF) mechanisms such as the cat bond, contingent credit lines, and the Natural Disaster Reserve Fund;

• How much of the external financing is new and how much is repurposed?

• What does this mean for debt sustainability over the medium term?

IMPRESSIVE HEADLINE

Without direct answers, the public is left with an impressive headline number without a full understanding of all the risks.

Having fumbled over the loan to the JPS, where reasonable questions in parliamentary opposition have been responded to with bad political theatre, the finance minister, Fayval Williams, should lay a comprehensive ministry paper that sets out the full terms of that arrangement, the impact – if any – on the Government’s cash position and borrowing plans, and if any fiscal target had to be modified or worked around to accommodate the scheme.

A separate ministry paper should answer the questions posed by The Gleaner about the recovery package.

The raising of these issues, and responding to the questions, is not some esoteric abstraction. It is an opportunity for the kind of transparency that can engender consensus around, and support for, the government response to a national crisis.

Jamaica has built an admirable disaster risk financing framework over the last decade. Hurricane Melissa was the first real test of the system at scale. The DRF instruments should, therefore, be understood by the public: how they are triggered and what rules govern their use and whether they are in need of tweaks or reassessment.

This national conversation should also cover how much of the US$6.7 billion recovery package is earmarked for parish-level rebuilding in the west and what portions specifically target infrastructure reconstruction such as schools, hospitals and housing, as well as livelihoods.

There is also need for clarity on whether or not Jamaica may require a new IMF stabilisation or precautionary programme to anchor macroeconomic stability during the multiyear recovery.

Minister Williams must address these issues directly rather than leaving them to speculation. She will find that there is value in transparency and clarity.