What's the significance of all this debt-to-GDP talk?

Letters to the Editor

What's the significance of all this debt-to-GDP talk?

Friday, November 15, 2019

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Dear Editor,

Only recently, Jamaica was held aloft by the International Monetary Fund (IMF) as a success story.

At the IMF's annual meeting in Barbados, chief officers stated that Jamaica's economy was on the path to recovery having made tremendous strides under the guidance of the IMF. They have now completed the Stand-By Arrangement and it is a model for the world to emulate. The IMF went on to hail the Jamaican Government for its stewardship.

The improvement in the country's gross domestic product (GDP) to the total debt of the country ratio was singled out as an enormous achievement which was enthusiastically applauded. This brought the new mindset and policies of the IMF into focus.

Close scrutiny of this ratio of the GDP to total debt gives rise to the questions: Does this ratio have any accounting significance? Does it offer a worthwhile guidance to a country?

If we just extrapolate for a moment, this ratio would be similar to the total annual income of a company to a ratio of the total debt of that company. What accounting significance does that hold? I believe none whatsoever.

We can recall the Jamaica Government extending itself earlier in the year to reduce this ratio by utilising the well-needed foreign exchange reserves and issuing bonds on the international market at tremendous cost to the nation; all aimed at pleasing the IMF's dictates and policies. I believe it to be a misguided move.

The relevant ratio that would be of accounting significance would be a country's GDP to debt payable in the current financial year. This would provide a picture of the country's liquidity if the system becomes overheated. A simple restructuring of debt would be the answer.

Is it fair to say the IMF is indebted to countries for this ill-conceived ratio.

Dalgalish Henry Sr


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