Part 1
Since 1998/99, debt financing activities have been guided by the Government's medium term debt management strategy. The strategy is critical to the management of the fiscal operations and the Government's overall macro-economic programme. The key objective of debt management has been modified to broaden the focus from minimising borrowing costs to include risk management. Such an objective is consistent with the guidelines for public debt management established by the IMF and the World Bank.
FY2002/03 proved to be a particularly challenging year for debt management. The Government met the need for increased financing consequent on the higher than programmed fiscal deficit and a deteriorating borrowing environment locally and internationally. Interest rates fell in the first half of the fiscal year followed by dramatic increases in rates during the second half of the year. The money market was particularly tight during the last quarter. The relative stability in the international capital markets deteriorated towards the end of the fiscal year due largely to uncertainty caused by the threat of war. In light of these market developments, the Government had to adjust its borrowing programme, particularly in the second half of the fiscal year.
The credit rating agencies re-assessed Jamaica's credit standings. Moody's Investors Service again re-affirmed its Ba3/Stable outlook for Jamaica's foreign currency external debt. Standard & Poor's changed its outlook from "Stable" to "Negative" but maintained its B+ rating in December 2002.
Government achieved some success during the fiscal year in increasing the fixed rate portion of the debt portfolio and further extending the maturity profile of the domestic debt to include securities with 20- to 30- year maturities. The debt portfolio was further diversified in terms of the range of maturities, the type and geographic distribution of investors. The Government continued to maintain a presence in the international capital markets.
Despite the challenges, the Government has and will continue to service its debt obligations, in accordance with Section 116 of the Constitution which stipulates that all loans (both external and domestic) represent a statutory charge on the revenues and assets of the country.
REVIEW OF FY2002/03 DEBT STRATEGY
At the end of March 2003, total public sector debt stood at $601.2 billion or 151.8 per cent of GDP. This represented an increase of 21.0 per cent over the $497.1 billion at the end of March 2002. The stock of public and publicly guaranteed external debt stood at $235.1 billion (US$4,180.0 million) or 59.4 per cent of GDP and Central Government domestic debt totalled $366.2 billion or 92.4 per cent of GDP. The main factors accounting for the increase was the issuance of debt instruments to correct the imbalance on the central bank's balance sheet; the assumption of contingent liabilities; the higher-than-programmed fiscal deficit; disbursements under the social safety net programme and the sharp depreciation in exchange rates.
The stock of domestic debt stood at $366.2 billion or 92.4 per cent of GDP at the end of March 2003. This represented an increase of 22.0 per cent relative to the $300.2 billion at the end of March 2002. The increase is attributable to:
The need to finance a higher-than-programmed fiscal deficit;
The fallout in external financing due to unfavourable conditions in the international capital markets;
The issuance of additional debt instruments to the Bank of Jamaica finalising the arrangement to convert BoJ/FINSAC bonds to LRS;
The issuance of debt instruments to cover the Bank of Jamaica losses;
The assumption of debt obligations of public sector entities such as the National Water Commission; and the sharp depreciation in the J$ vis-a-vis the US$, given the increased share of US$-indexed bonds in the portfolio. While the stock of US$-denominated bonds increased by 1.2 per cent in US$ terms, the increase in J$ terms was a significant 19.6 per cent.
8. Public and publicly guaranteed external debt increased by 19.4 per cent to $235.1 billion or 59.4 per cent of GDP at the end of March 2003. In US$ terms, the external debt rose by a mere 1.1 per cent from US$4,135.3 million at the end of March 2002 to US$4,180.0 million. This growth primarily reflected:
The final disbursement of funds from the multilateral institutions for the restructuring of the financial sector which were used to redeem the LRS converted FINSAC bonds flows under the social safety net programme;
Increased Government guarantees mainly for the Government-supported portion of Highway 2000; and adverse movements in the Euro/US$ and J$/US$ exchange rates.
Part 2 next week
