2013 – Marginal Increase in Jamaica’s External Debt Burden

Quick Analysis of The Increase in Jamaica’s External Debt as at December 31, 2013

1. As at December 31, 2013, Jamaica’s external debt grew by barely 1% compared to December 31, 2012. This is both good and bad at the same time. While Jamaica should not try to incur any new debt, it is good to see that lending agencies and other friendly nations are willing to lend to Jamaica. This is an implicit sign that the world believes the IMF programme is yielding some positive effects.

jamaica-external-debt-outstanding-2013
Source: Debt Management Unit, Ministry of Finance & Planning

The most debt is owed to private creditors. This includes the huge amount of bonds Jamaica has outstanding on the international capital market. This is typically the highest cost debt and diG is glad to see that US$145million has been shaved off of that amount over the past year.

Multilateral debt is debt owed to entities like the IMF, the World Bank and the Inter-American Development Bank (IDB). Interestingly, the IDB is our largest creditor, not the IMF. Passing these IMF tests has opened the door to already approved loans from the World Bank and the IDB. As at the end of 2013, the IDB accounted for nearly 38% of multilateral debt, whereas the IMF accounted for less than 25%.

Bilateral debt is money owed directly to other nations. The statistics divide the borrowed funds into debts owed to OECD nations and to non-OECD nations. The OECD is the Convention on the Organisation for Economic Cooperation and Development. It contains thirty-four (34) nations, including the US, UK, Canada, Japan, France and Germany. Data show that debt owed to OECD nations has decreased by 21% while the debt owed to non-OECD has increased by 24% over the past year.

jamaica-external-debt-outstanding-by-creditor-category-2013
Source: Debt Management Unit, Ministry of Finance & Planning
Source: Debt Management Unit, Ministry of Finance & Planning

2.  As a slight hedge against the depreciating US$, the GoJ has diversified the currency composition of its debt portfolio. In other words, Jamaica is borrowing in different currencies more than ever before. The increase in “Other” from 1.4% to 9% highlights this shift dramatically, combined with the significant decrease in US$ borrowing from 89% to 82%. DiGJamaica was unable to ascertain what these other currencies were, but will report back if we do find out.

jamaica-external-debt-currencycomposition-2013
Source: Debt Management Unit, Ministry of Finance & Planning
3. Jamaica has US$91.1million to repay in 2014. This represents a measly 1.1% of the total debt. Anyone would be forgiven for thinking that the IMF would be receiving the majority of our repayments this year given that Jamaica is trying to repay the 2010 Stand-By Agreement. However, in actuality, the largest payment this year will go to commercial banks, valuing just over US$29million. To put that value in perspective, the entire budget for Early Childhood Education for 2013-2014 at February’s exchange rate would be about US$23million.
Between 2015 and 2020, Jamaica has US$2.9Billion, or 35% of its portfolio becoming due. From 2020 to to 2025, that value falls to US$2.4Billion of which US$1.1Billion are bonds. 
jamaica-external-debt-outstanding-maturity-structure-2013
Source: Debt Management Unit, Ministry of Finance & Planning

4. The chart below shows a subtle shift in the ratio of fixed rate to variable rate loans. As the US and Europe remain in low interest rate regimes, international lenders are slowly shifting to a variable rate. As long as the benchmark rates (LIBOR and EURIBOR) remain low, this is in Jamaica’s favour. However, these rates can rise very quickly. In the long-term, it is in Jamaica’s interest to have more of its loans in Fixed Rate instruments as this allows for better budgeting and planning purposes.

jamaica-external-debt-loantype-2013
Source: Debt Management Unit, Ministry of Finance & Planning

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