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Overall public-sector deficit planted at 12.75% - Shaw blames low revenues, Jamaica Debt Exchange

Published:Friday | January 22, 2010 | 12:00 AM

Finance Minister Audley Shaw. - File

Jamaica's fiscal deficit is now estimated at 10 per cent of gross domestic product (GDP), and the overall public-sector deficit will likely round out the year at 12.75 per cent of GDP, according to information presented to Parliament by Finance Minister Audley Shaw Tuesday.

The finance minister, at the close of summer, had projected that the fiscal deficit would have com-pleted the year at 8.7 per cent of GDP, after the national Budget was recast. His original forecast in April was 5.5 per cent.

Shaw not only blamed dis-appointing tax revenue intake, which was $18 billion below projected collections at the end of November, but said in his prepared text for presentation to lawmakers this week that the gap between income and expenditure was "also due to additional interest payments associated with the Jamaica Debt Exchange (JDX)".

The JDX was just launched January 14 and opened for sub-scription Monday.

Bondholders have until January 26 to take up the offer, but the transaction will not be settled until February 16 - and the first set of interest payments do not become due until the next fiscal year, on May 16, 2010.

Shaw said a day later, however, that some interest payments that were due in April were being brought forward into the current fiscal year for payment in February.

The JDX is recalling some 350 domestic bonds with high-priced coupons, which will be replaced at par by 24 tenors priced at fixed rates of 11 per cent to 13.25 per cent, and variable bonds priced on the benchmark Treasury rates, and US-dollar issues with coupons ranging from 6.75 per cent to 7.25 per cent.

The finance ministry is also testing the market with two issues indexed to Jamaican inflation. Maturities on the 24 mostly 'non-callable' bonds range from six months to 30 years.

The finance ministry is targeting 90 to 100 per cent take-up of the offer, saying the JDX was integral to the Government's medium-term programme to turn around the economy, and a deal breaker with the IMF were the swap to fail.

Government is projecting that the debt programme, plus other fiscal and financial reforms, should pull Jamaica out of recession and deliver a half-point of growth (See insert for macroeconomic targets).

"The growth outlook over the medium-term reflects both a gradual pick-up in activity in the mining sector, as global demand recovers, and continued investment and growth in Jamaica's highly competitive tourism sector," Shaw said.

A successful take-up of the JDX would save the Government more than $40 billion in debt-servicing costs per year.

At the close of the current fiscal year in March, Government esti-mates that it would have spent $325 billion on debt servicing and repayments, or the equivalent of 103 per cent of projected revenues of $316 billion.

The medium-term programme targets:

✔ economic growth of 0.5 per cent in the first year, and two per cent by 2011/12;

✔ inflation at single digits of 6-7 per cent;

✔ reduction in the interest bill;

✔ reduction in the fiscal deficit from projected 12.75 per cent of GDP in FY2009/10 to 1.0 per cent by FY 2013/14;

✔ reduction in the debt to GDP ratio from projected 140 per cent in FY2009/10 to 120 per cent by FY 2013/14;

✔ narrowing of the current account to 10.5 per cent of GDP ratio in FY2009/10 to about 9.0 per cent by FY 2010/11, and around 5.0 per cent thereafter; and

✔ gross foreign reserves equivalent to 3.5 months of goods and services.