In 1989 when the then Prime Minister Edward Seaga led JLP administration demitted office Jamaica’s debt stock stood at J$31 billion. By 2007, after over 18 consecutive years of PNP rule, the debt exploded by over 2000 percent (yes over 2000 percent) to J$973 billion, or roughly J$1 Trillion.
When the Golding then Holness led JLP administration demitted office in December 2011 Jamaica’s stock of debt stood at J$1.6 Trillion.
What were the main components of this increase?
- larger than programmed deficits due to the fallout of revenue occasioned by the worst global economic crisis the world has ever seen in a lifetime;
- the devaluation of the exchange rate which also was as a result of the global crisis, and which caused the nominal Stock of debt to increase sharply as a result of the fact that half of the debt is external (denominated in US Dollars), so when the dollar devalues, there is a larger figure reported in Jamaican Dollars as a result. A big portion of the reported increase in the stock of debt was not occasioned by actually borrowing more, but was due to devaluation. (During the crisis the dollar devalued from J$70:US$1 to J$86:US$1);
- Assumption of debt for Air Jamaica, Sugar Company of Jamaica, World Cup Cricket, Portmore Wastewater Treatment Plant, Clarendon Alumina Productions faulty agreement, as well as Deferred Financing Agreements entered into by previous PNP Governments, which had to be paid, and;
- Honouring labour union agreement with Teachers based on a signed commitment by the previous Finance Minister Dr. Omar Davies that the Government would honour the recommendations of a one man Commission who recommended private sector parity for teachers pay. This led to a J$30 billion increase for teachers alone, who got a 62 percent increase in salaries.
These are the main reasons for a 60 percent increase in the debt, but bear in mind that had we not had a sharp reduction in interest rates from the Jamaica Debt Exchange, borrowing US$3.0 billion from the multilaterals at interest rates mostly at less than 2.0 percent per annum, the increase in debt would have been much worse.
Most importantly, despite the global economic crisis, and despite delays in reviews by the IMF, the previous JLP administration left an economy that was stable with the Net International Reserves (NIR) at US$2.0 billion, exchange rate stable at J$86: US$1 for 2 years, prices stable, interest rates at an all time low with Central Bank rates at 6.25 percent and mortgages cut in half from 18 to 9.5 percent with the economy growing at 1.3 percent in 2011.
Ever since the Prime Minister Portia Simpson-Miller administration took office the NIR has collapsed to US$1.1 billion, the dollar has devalued by 7.5 percent (with no world crisis), prices have gone up on everything due to devaluation, interest rates are trending up and the economy is back in recession.