March 14, 2022
Jamaica’s debt-to-gross domestic product (GDP) ratio is projected to recover to 96 percent by March 2022, as the economy continues its strong rebound from the coronavirus (COVID-19) pandemic reports, meanwhile minister of finance and the public service, Dr Nigel Clarke credits the economic rebound to prudent fiscal management.
Debt-to-GDP ratio
The debt-to-GDP ratio was 94 percent at the onset of COVID-19 in March 2020, but due to the pandemic and the measures implemented to slow its spread, the ratio increased to approximately 110 percent by March 2021.
“For Jamaica, given our vulnerabilities, this was a high and risky level of debt,” said minister of finance and the public service, Dr Nigel Clarke, while opening the 2022/23 budget debate on Tuesday, March 8 in the House of Representatives.
“Well, a year later, I am pleased to report that along with strong GDP growth and strong jobs growth, we have also significantly reduced our debt-to-GDP ratio,” noting that, barring any major surprises, by the end of the upcoming fiscal year, the ratio should be below 90 percent for the first time in 23 years.
The finance minister noted that Jamaica is ranked second, among 30 countries in the Latin America and Caribbean region in restoring the national debt level to almost pre-COVID-19 levels by 2021.
He said that most countries in the region have debt-to-GDP ratios that are up to 60 percentage points higher than their pre-COVID-19 levels.
“This is Jamaica’s achievement and this achievement lowers the risk of the Jamaican economy and provides better protection for turbulence,” he pointed out. The debt-to-GDP ratio compares what the country owes to what it produces annually.
Government debt as a percentage of GDP is used by investors to measure a country’s ability to make future payments on its debt, thus impacting borrowing costs and government bond yields.
Economic rebound due to prudent fiscal management
Meanwhile, minister Clarke is crediting Jamaica’s economic recovery from the coronavirus (COVID-19) to the prudent fiscal measures implemented by the government.
The minister said that the buffers put in place prior to the pandemic, including the strategic decision to increase cash cushions through privatizations, reintegration of public bodies, and targeted fiscal overperformance enabled a strong rebound.
He said that the government took the decision to increase non-borrowed reserves by US$1 billion since 2016, through exchange rate flexibility and inflation targeting, and put away disaster funds in 2018 and 2019 that were drawn down in the first few months of the pandemic.
Other strategic decisions taken, he noted, included abolishment of distortionary transaction taxes and capitalization of the central bank with $20 billion in 2018 and 2019, which allowed it to make unprecedented liquidity injections into the banking system.
Dr Clarke said that the government made sustainable and internally consistent policy choices during the crisis and maintained discipline in rejecting proposals that fell outside of that criterion.
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