By Al Edwards, Business Co-ordinator 
Peter Melhado, Charles Ross and Keith Collister
JAMAICA'S DEBT/GDP ratio of 130 per cent is the third highest among sovereigns examined by leading ratings agency Standard & Poors (S&P) according to United States finance analysts Prudential Financial.
Jamaica comes in after Lebanon and Japan and outpaces Brazil's figure of 82 per cent. However, Jamaica's high primary fiscal surplus goes some way to offset this negative impact.
Prudential's Fixed income Strategy and Research paper reads: "On the negative side, Jamaica has a very high debt-to-GDP ratio. On the positive side, the country has an equally high primary fiscal surplus, which has been sustained by a very solid political consensus that supports a serious fiscal posture.
While the vulnerability of the debt currently appears to be limited, it does represent a significant constraint on growth, which could lead to "reform fatigue". Our conclusion is that yields on Jamaican bonds do not adequately compensate for the risks involved. We are initiating coverage on Jamaican bonds with an underweight recommendation."
The report goes on to praise the Government's handling of the fiscal economy and in particular its ability to achieve and sustain a primary fiscal surplus.
"An S&P analyst reminded us that Jamaica has achieved a feat probably unmatched by any other country-producing a primary fiscal surplus (excluding interest cost) in the 10-14 per cent range for three consecutive years - and we were forced to figuratively take off our hats to this government.
"We are concerned that interest expenses in the range of 13-14 per cent of GDP could rapidly spiral out of control, but we respect a government that is capable of generating the tax revenues to pay for these expenses, as reflected in that primary surplus."
Although this serves as some validation and vindication of the Government's policies Prudential did not fail to grasp the bigger picture and pointed to the difficulty the Jamaican Government would face in raising taxes largely as a result of the general government revenue-to-GDP ratio, which is well in excess of the benchmark 30 per cent. This may go some way to explain the Government's preoccupation with the property tax and its need to balance expenditure with revenue.
Regarding the property tax (with a number of businesses getting bills in excess of 200 per cent) in particular, these following words may well prove prophetic: "We can just imagine the negative reaction of the populace if taxes, were increased to cover the government's interest bill, which already consumes 50 per cent of government revenues. "The government has maintained financial stability for several years under such circumstances-an impressive fiscal performance- and this leads us to question what kind of political environment has sustained such a consensus."
TACKLING JAMAICA'S DEBT
The question of how to tackle the country's debt problem has remained the central concern for the Ministry of Finance for some time now. It is acknowledged that there is too much dependence on internal debt which accounts for 60 per cent of the Government's total obligation. However Prudential yet again approves of the Government's attempts to extricate itself of its debt burden by issuing long term bonds on the world's capital markets. Commenting on this exercise the report says: "The country has begun to shift internal debt into external by increasing its issuance of longer term bonds in the global markets. Most of these bonds have been sold to Jamaican institutions, and this fits our "ideal" pattern of the process of financial globalisation.
The purchase by local institutions may be the reason why a shift toward external debt is not yet visible in the internal- debt-to-total-debt percentages shown in the Table. In our view, this pattern seems inherently healthy. It provides local investors with the benefit of international liquidity resources, permitting the average maturity of the debt to be lengthened legitimately. It also puts all bond investors, local or foreign, on the same legal footing, reducing the potential for any future discrimination favouring one category over the other."
Some of the country' leading financial market operators gave Wednesday Business their views on the Prudential report.
Charles Ross, Managing Director of Sterling Asset Management: "There seems to be a prevailing misunderstanding among analysts that the issuance of international bonds constitutes a swapping of domestic debt for foreign debt. This is not the case, the Government is not refinancing local debt. I believe the Government is using the proceeds of bond issuance to amortise maturing foreign debt. It is my view that we are using foreign borrowing through bonds to finance the national budget. We have resorted to going to the capital markets frequently over the last two to three years but how long can that trend continue?
Keith Collister, Business Development Manager, First Global Stockbrokers: " What the Prudential report shows is that our very high debt/GDP ratio (one of the highest in the world) should normally result in Jamaica being rated significantly lower than our current S&P rating. However it also indicates that our very high primary surplus demonstrates a willingness to pay and honour our obligations. This allows Jamaica to enjoy a significantly higher rating than we would otherwise, based purely on our level of indebtedness."
Peter Melhado, President of Manufacturers Sigma Merchant Bank: " The trajectory of external debt through global bonds is steeper than our domestic debt say through Local Registered Stocks (LRS) that is with the exception of our FINSAC debt which was a one off. In January 2001 our outstanding global bond debt stood at US$861 million. By December of that year it had risen to US$1.65 billion. For the same period the total external debt stood at US$3.5 billion rising to US$4.1 billion. Our debt burden is definitely rising that is for sure, and one can see a clear trend of international borrowing overshooting domestic debt. The Minister of Finance has said that the retiring debt stock for this fiscal year should be US$600 million with the NIR employed to address a portion of this figure."
