The country’s Ministry of Finance yesterday launched a National Debt Exchange Offer. It wants domestic holders of $860bn worth of high interest government bonds to swap them for lower interest options.
Jamaica’s debt currently stands at over 140% of its gross domestic product and servicing it accounts for 55% of government spending. With a further 25% spent on public sector wages, this leaves just 20% for roads, schools, hospitals and other ‘critical services’.
It is estimated that the debt exchange – the country’s second in three years – would reduce the debt-to-GDP ratio by 8.5% a year between now and 2020, down to 95% of GDP.
Finance, planning and public service minister Peter Phillips said the exchange would be a ‘significant sacrifice’ for debt holders but there was ‘no other option’. Debt reduction was the ‘most urgent’ condition of the IMF loan the country was trying to secure, he noted.
Prime Minister Portia Simpson Miller added: ‘This National Debt Exchange offer is a critical component of both the IMF agreement and our debt reduction programme. It can only succeed with the fullest co-operation of the broad financial sector and the support of the entire country.
‘I am therefore inviting every Jamaican to make this investment in our country’s future. A Jamaican economy with a significantly reduced debt ratio would facilitate sizeable investments in building a stronger and more prosperous country.’
The IMF welcomed the launch of the exchange, noting that the high costs of servicing the debt were limiting the government’s ability to provide the public services needed for sustained growth and to increase the welfare of its citizens.
Jan Kees Martijn, head of the IMF mission to Jamaica, said: ‘The mission welcomes the debt exchange announced by the Jamaican authorities for their domestic debt, which is an important element aimed at helping to put public debt firmly on a downward trajectory, reduce the stock of debt, and provide fiscal space for other needed government initiatives.
‘In that regard, a successful debt exchange will require high participation from creditors to help secure financing assurances for a Fund-supported program.’
However, the announcement received a less positive response from ratings agency Fitch, which said that the debt exchange amounted to an ‘adverse change’ in the terms of the government’s debt. As a result, it downgraded the country from B- to C and warned that if the IMF programme was not finalised, Jamaica was likely to face ‘rising financing pressures and increased risks for macroeconomic stability’.
