Based on the latest data available (December-2010) the total stock of debt stands at J$1.52 trillion or approximately 130 per cent of GDP (assuming nominal GDP by fiscal year end will grow by 8 per cent relative to FY2009/10). The domestic portion of the total debt stock is estimated at 68 per cent of GDP, while the external portion of the debt is estimated at approximately 61 per cent of GDP.

Since the nation, with strong support of multilaterals, embarked on its economic management program there has been a gradual increase in the stock of nominal debt. At the end of March-2010 the debt to GDP ratio stood at 129.4 per cent. Since March-2010, the International Monetary Fund (IMF) has disbursed over US$193Mn in loans in line with the US$1.2Bn SBA facility. Support from the other multilateral institutions (World Bank, IADB, CDB) has seen over US$650Mn in loans disbursed to the nation.

Domestic Debt

As at December-2010, 86.40 per cent of the J$800Bn in total domestic debt is denominated in local currency, 13.55 per cent is denominated in US currency, and 0.06 per cent is denominated in Euro Currency. The variable rate portion of total domestic debt stands at approximately 40.66 per cent, the fixed rate portion at 59.31 per cent, and the non-interest bearing portion at 0.03 per cent. The maturity structure of the domestic debt is as shown in FIGURE 1.

External Debt

As at December-2010, 82.17 per cent of the external debt stock is denominated in US dollars, 13.5 per cent in Euro, 2.36 per cent in Yen, 0.43 per cent in British pounds, 1.13 per cent in Yuan, and 0.43 per cent in other currencies. Fixed rate loans account for 74.8 per cent of the external debt, and variable rate loans account for approximately 25.2 per cent. The maturity profile of the external debt is as shown in FIGURE 2.

All the fiscal simulations that we have done thus far, show that prudent fiscal management is a necessary condition for the realisation of a gradual reduction in the nation’s debt-to-GDP ratio. Imprudent fiscal spending going forward is somewhat a more difficult task to accomplish, given the newly established fiscal responsibility framework. However, enforcing fiscal responsibility laws hinges on the continued strengthening of institutions, which is in turn, a function of political will. Further, the structural impediments to growth will likely require some time to be addressed comprehensively, and as such, the nation could experience weak growth in the near term which could constrain the rate of reduction in the debt/GDP ratio.

Kario-Paul Brown is JMMB’s Investment & Quantitative Research Analyst