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JDX won't tame the next Budget - Debt servicing to top $306b, total spending $553b in 2010/11

Published:Friday | February 12, 2010 | 12:00 AM

EVEN AFTER major re-structuring of the country's domestic debt, the Jamaican Government is projecting a debt-servicing bill of $306.5 billion in 2010/11, suggesting a $27.4 billion or nominal 10 per cent hike on the cost of servicing its debt for the fiscal year that ends on March 31.

But while Government's pay-ments to its bankers, bondholders and external lenders will consume 55.3 per cent of the new budget - estimated overall at $553.8 billion in the year ahead, or 1.2 percentage points higher than for the current period - it will represent a declining proportion of tax revenue.

For instance, for the fiscal year now ending, debt servicing re-presents nearly 105 per cent of projected tax revenues. In the coming Budget, that will fall to 101 per cent.

These projections, including the broad outlines of the Budget that Finance Minister Audley Shaw is expected to present to Parliament next month, are contained in the programme documents the Govern-ment presented to the International Monetary Fund (IMF) to support its application for a US$1.3-billion loan under a 27-month standby agreement.

The figures on the central government operations for the coming fiscal year project govern-ment expenditure, outside principal payments, at $408.2 billion -$1.3 billion, or little under half a per cent, lower than in the current Budget.

Iinflationary adjustments

But with inflation expected to end the fiscal year at over 12 per cent, the numbers represent a steep real decline.

However, when the projected $145.6 billion of principal payments - up $40.1 billion or 38 per cent - is added to primary spending and interest costs, the overall budget will reach $553.8 billion.

This is a nominal increase of $38.8 billion, or approximately eight per cent, on the Budget for 2009/2010, but is moderated when inflation is factored in.

The most significant decline in the Government's projected spending in the coming fiscal year will be interest payments, which at $160.9 billion will be $12.7 billion, or over seven per cent, lower than in 2009/2010.

Top finance ministry officials were not immediately available for comment, but the major part of the explanation is likely to be the Government's recently completed debt-rescheduling programme, in which it called on the domestic market to surrender over $700 billion in bonds, which were reissued at lower rates and longer tenors.

The Government estimated that it would "save" around $40 billion on interest costs by that move.

That, clearly, has not translated into one-to-one reduction in the interest bill in a budget in that is projected to show a public sector deficit of $89.6 billion and the Government will have to finance $222.3 billion, including $77.6 billion of new debt.

In most other areas of the Budget, expenditure, in nominal terms, will be essentially flat but down in real terms.

For instance, with the administration having announced a two-year freeze in public-sector salaries, the Government has projected a wage bill of $130.5 billion, up $4.1 billion, or 3.2 per cent. The hike is expected to cover some back pay which the administration had previously committed to clear this fiscal year.

Capital expenditure, at $39.9 billion, will be similarly flat, when compared to the $35.2 billion in the current fiscal year.

Spending on programmes, too, its initial allocation slashed by 20 per cent to the current $74.4 billion, will enjoy only a nominal increase of 3.5 per cent, to $76.8 billion.