Debt ceiling remedy
Gov’t moves to meet IMF obligations
THE Government’s outstanding private sector debt is some $300 billion above the current debt ceiling, but a Bill reintroduced in the House of Representatives last week sets out clear objectives for managing public debt as a prelude to a new agreement with the International Monetary Fund (IMF).
The last time the debt ceiling was raised was in 2008, when it was increased from $700 billion to $920 billion. In the meantime, Government’s private sector debt has grown to some $1.2 trillion of the total $1.7 trillion debt. But with no real sanctions to contend with, successive Governments have paid little attention to the ceiling.
Just over a year ago, a debt limit stand-off brought the US Government within days of that country’s first-ever default. That situation is unlikely to be experienced in Jamaica under current conditions, but with quick passage of the new Public Debt Management Bill that should change soon.
Last year, the previous Government not only drafted the Bill, but restructured the Debt Management Unit in the Ministry of Finance and the Public Service along the lines of international best practices. The process has been ongoing and should be completed this financial year.
It will facilitate additional analytical reporting on Government debt, as well as improve efficiency by specialising functions, and enhance capacity-building in debt management.
Jamaica’s multilateral partners have been providing assistance in the transformational process.
The Public Debt Management Bill was drafted under the watch of former minister of finance and the public service, Audley Shaw, and tabled in the House last year. However, it failed to make it through the legislative process before the December General Elections which changed Governments.
Shaw admitted that, in the interim, the breach of the debt ceiling was allowed to grow into hundreds of billions, but insisted that since the change of Government he has been urging the current minister of finance and planning, Dr Peter Phillips, to regularise the situation by lifting the debt ceiling.
Shaw referred to his statement on the subject during his May presentation in the 2012/2013 Budget Debate, when he blamed the Debt Management Unit for failing to follow through on his request to deal with the issue through Parliament.
“Shortly before my departure as minister, I had instructed the staff to take immediate steps to regularise the increase in the loan ceiling in Parliament. This was not done and has not since been done. But it is necessary that we obey our own laws, so I urge the minister to have the matter brought to Parliament with dispatch,” he said in the debate.
The Debt Management Unit had the task of monitoring debt rising passing the ceiling, but obviously has not been paying enough attention for the past few years. But, with the new Bill, and the IMF obviously cracking the whip on debt management, the issue seems to be finally getting the attentions it deserves.
At present, the power of the minister of finance to raise loans for and behalf of the Government of Jamaica is conferred in several enactments, some of which have fallen into disuse. This Bill will amend, consolidate and modernise the laws relating to the management of the public debt of Jamaica, by providing a single statutory source for the minister’s authority to borrow money for and on behalf of the Government, both within and outside Jamaica, whether in Jamaican or foreign currency.
The provisions make it clear that loans raised by the Government, and amounts guaranteed by the Government, are charged on, and payable out of the Consolidated Fund which feeds the budget.
The Bill also introduces some new features aimed at ensuring that the public debt is managed in a more strategic manner, including: prescription of the purpose for which loans borrowed by the Government should be utilised; a duty placed on the minister to table in the House of Representatives, a Medium-Term Public Debt Management Strategy covering a three- to five-year period, that is subject to annual review; coherence among fiscal, monetary and debt policies; and the requirement that there should be tabled in the House of Representatives, each financial year, a full report on the management of the public debt, including an indication of the level of compliance with the Medium-Term Public Debt Management Strategy, and an assessment of the extent to which the debt managed objectives specified in the law are being achieved.
The minister will be given explicit authority to engage in various arrangements with respect to loans, including the conversion of loans from one form to another, the renegotiation of terms and conditions, and the consolidation of two or more loans.
The Bill will also repeal several enactments related to the raising of loans, in order to maintain validity of existing loans made to the Government under those enactments, as well as existing guarantees.