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From the discussion of the expenditure budget it is obvious the extent to which debt servicing dominates all other aspects of the fiscal accounts. Although this is not a new situation, the formal assumption of the FINSAC debt makes this issue of greatest importance in fiscal year 2001/02, when total debt service obligations will account for 62% of total expenditure. During the last fiscal year the major components of Government debt strategy were:
As regards the management of our external debt improvements in the critical indicators resulted in the World Bank reclassifying Jamaica from "severely indebted" to "moderately indebted". Moodys maintained the Ba3 rating assigned to Jamaica whilst S&P upgraded the outlook from "stable" to "positive". In terms of the debt management objectives for fiscal year 01/02 and for the medium term the principal objective is to satisfy the borrowing requirements of the budget while ensuring that the debt service burden is reduced to sustainable levels. The four strategies to be utilized to achieve this objective are:
As regards strengthening the market mechanisms, particular reliance will be placed on using the auction for the sale of LRS. The Ministry will borrow on a regular pre-announced basis in order to increase awareness and attract a wider range of investors. Since the introduction of the auction mechanism for the LRS, there has been a notable tightening of spreads resulting in yields falling significantly in the fiscal year from 25% to 18%. In terms of achieving a more prudent debt structure during this fiscal year, there will be a deliberate attempt to increase the share of fixed rate debt in the domestic debt portfolio. A year ago over 85% of the domestic debt was variable rate – that is less than 15%, was on a fixed rate basis. The medium term target is to increase that percentage to 60% which will be consistent with international best practices. The most significant benefit from having a large percentage of debt with a fixed rate of interest is that it will be possible to have a more reliable estimate of future debt servicing needs. Hence, fiscal programming can be executed with greater certainty. Another critical component of the debt structure is to further extend the maturity portfolio of the debt. As an integral part of this strategy, monthly auctions of LRS will include offers with terms of seven years or over. Since the beginning of fiscal year 00/01, over 30% of LRS issued have had a maturity of seven years and over with 10 year issues comprising 12% of new LRS issues. The objective is to surpass this level and increase the share to 50%. As regards the external capital markets the objective will be to issue bonds with maturities of five years and over. A critical element of the debt strategy will be to reduce the reliance on domestic debt issuance by making use of our favourable external accounts ratios and borrowing lower cost funding from overseas. In fiscal year 01/02 the Government will continue to approach the international capital markets. As I have stated before, this access has dual benefits of reducing interest rate cost as well as reducing the "crowding out" of the private sector in the domestic market. The strategy will also seek to diversify debt portfolio, an important part of this strategy will be to continue to offer US dollar indexed bonds on the domestic market. On the external side, the strategy will involve sourcing low cost fund from previously unexploited markets. We will be attempting to build on earlier successes on gaining access to the European market and to establish a presence in the Asian market. A critical element in the reduction of the debt stock will be in terms of using divestment proceeds. In that regard much of the proceeds from the sale of 80% of JPS will be used for that purpose. This is done for two main reasons. The first is that creditors both domestic and external operate best within a context of a greater flow of information. Simply put, they wish to know, within the context of the macro-economic framework, what is the strategy to deal with this most important problem. Issues have to be dealt with in this manner not simply carrying out hand wringing exercises and proclaiming the obvious that the debt stock is high. Nobody needs to be told that, it is self-evident. What is more important particularly to those from whom you hope to borrow is the strategy for paying your existing debts and reducing the stock overtime, relative to tax revenues. This Government dissociates itself from any call for unilaterally rescheduling, or cancellation, or artificial interest rates adjustment. Such expressions are dangerous and can only lead to scepticism amongst potential creditors. I call on the Opposition to publicly state its position with regard to such utterances. || Previous | Table of Contents | Next ||
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