Fiscal Performance and Public Debt Sustainability
The composition of the public debt of Jamaica has changed in the last decade. Domestic debt (issued in J$ or in USD) has grown from 26% to 61% of the total public debt, and concessional debt (both from bilateral and multilateral sources) has declined from 62% of the total debt in FY 1990 to 21% in FY 2001, explained by a growing access to capital markets and the issuance of bonds to compensate the costs of the financial crisis.45 About 15% of the stock of domestic debt has been issued in foreign currency at interest rates that are similar to those paid on bonds issued abroad in voluntary capital markets (between 10 and 11% in USD in March 2002), and the remaining 85% has been issued in local currency at interest rates that basically follow the rate on Treasury Bills (14.30% annual yield in March 2002). Table 10 shows the composition of the public debt as of March 31, 2002 including an estimate of the average interest rate paid on each type of debt. Table 10. Structure of the Jamaican Public Debt as of March 2002 Source of Financing
Share in total debt
As a fraction of the GDP
Average interest rate
External Debt
39.4%
52.4%
7% in USD
Bilateral
10.1%
13.4%
4%
Multilateral
10.6%
14.1%
6.5%
Commercial
2.9%
3.9%
10.5%
Bonds
15.9%
21.1%
11.5%
60.6%
80.6%
15% in J$
Issued in USD
9.1%
12.1%
11% + Depreciation
Issued in J$
51.5%
68.5%
14.3% in J$
Total Public Debt
100.0
133%
9.5% in USD (equiv)
Domestic Debt
In assessing public debt sustainability it is easy to estimate the primary surplus needed to maintain the public debt to GDP ratio constant over time. But there are two reasons to expect that over time the public debt of Jamaica will need to be reduced as a fraction of the size of the economy: concessional debt (from bilateral and multilateral sources) is somewhat high running at 28% of the country’s GDP46 and debt issued under commercial terms also looks very high compared with other emerging countries (running at 105% of the GDP). The first assumption leads to higher interest payments in the steady state if concessional debt is replaced by debt issued at market rates or to a higher fiscal effort if it has to be repaid. The second assumption obviously implies a stronger fiscal effort.
45
Fiscal Years in Jamaica end at the end of March.
46
We use the term “concessional” for debt issued at favorable rates for Jamaica compared with those rates paid in external and domestic bonds.
43