Jamaica increases
domestic debt
The Jamaican government plans to raise US$150 million (J$5.5b) to finance its structural adjustment programme and dampen consumer demand through Treasury Bills on the local capital market.
The move could cost the government an extra US$16 million in interest payments over the next twelve months as domestic interest rates have not settled since the country's currency crisis several months ago. Reducing confidence and a lower S&P rating on the Jamaican economy has made it difficult for government to access the foreign capital markets.
Prime Minister P.J. Patterson the Finance Ministry pick up the
required funding from Treasury Bill auctions as and when it is
required to meet Government's cash flow needs.
The news will disappoint several local financial services players
who had been pushing for the government to take a more creative
debt financing approach and raise the money through issuing U.S.
dollar instruments locally.
Apart from easier access to the local finance markets, local debt
financing was the more attractive option as it can encourage more
domestic savings, dampen spending - particularly on imported goods
and sure up the Jamaican dollar.
Yields on Treasury Bills are at about 24 per cent compared with
some EuroBond issues which can attract interest of just 5 percent.
This means that government will be paying a heavy premium locally
to raise the required funds.
In April, Finance Minister Dr. Omar Davies outlined expected spending
on recurrent or housekeeping expenses of J$85.1 billion and a
capital budget, spending on new or improved facilities and equipment
of $10.9 billion. Added to this was an anticipated $34 billion
on amortisation for repayment of interest and principal on debt,
making a total budget of $130 billion.
When Davies formulated his budget he had intended to raise about
$14.5 billion from the international markets to fund the spending
gap in the government's plans. Dr. Davies had expected to raise
$25.9 billion through domestic borrowing. This will increase domestic
borrowing in this fiscal period to $31 billion.
The news came in advance of the new Supplementary Estimates which
are being presented to cater for a shortfall in Government revenue.
Several local projects, including the North Coast Highway Improvement
Project (NCHIP) and the Montego Bay Sewage Scheme, may experience
premature shutdowns until the government's cashflow problems have
improved.
Davies said the impact of the crisis in international financial
markets on government's operations was among the most important
issues facing the country and it could have sweeping effects on
local business and the economy.
He plans to cut the $85 billion government housekeeping budget
by 15 per cent and the $10.9 capital projects budget by a third.
This will require government departments to reign in spending
and a re-evaluation of several major governmental works projects.
Dr. Davies now anticipates a fiscal deficit of 7.4 percent of
gross domestic product this is nearly three percentage points
higher than the 4.6 percent deficit forecast when the national
budget for the 1998/99 fiscal period was initially presented.
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