IN a recent research piece, entitled “Jamaica, Greece, and Belize – What’s the Difference”, Oppenheimer’s Dr Carl Ross again compared Jamaica and Greece.

He started by noting that it was too late for Greece to learn anything from Jamaica, but that in his opinion, there were at least two reasons why Jamaica has not sunk into a devastating debt spiral like Greece.

“The first is that Jamaica proactively restructured its domestic debt two years ago.” Ross observes. “Importantly, the debt restructuring, known locally as the JDX, provided a positive confidence shock, securing the local interest rate curve at the new, lower level”.

A quick look at the recent supplementary budget estimates, tabled in house last Tuesday, appears to support Ross’s assertion. The estimates revealed a nearly $21.5 billion reduction in the total budget, from nearly $547 billion in the first supplementary budget, to just over $525 billion. The largest portion of the reduction in the budget was reduced interest costs, which fell from $128.2 billion to $120.7 billion. It should be noted that this was a significant further fall from what was originally budgeted for interest costs in April 2011, namely $131 billion. The final figure of $120 billion is only two thirds of the approximately $180 billion of interest costs in the crisis year of 2009, or an average interest rate of 7.5 per cent on our approximately $1.6 trillion debt. Encouragingly, Jamaica just issued $4 billion in fixed rate paper at an average auction rate of 7.2 per cent, maturing in three years.

Ross believes that had the Greeks been more proactive in restructuring their debt, like the Jamaicans, as he had argued in his May 5, 2010 piece “The Greek Tragedy – Thoughts and Implications”, it is possible that “Greece could be looking at its crisis in the rearview mirror by now, instead of staring it in the face”.

According to Ross, “The second difference between Jamaica and Greece is that Jamaica runs a primary budget surplus, while Greece runs a deficit”. Ross observes that both countries are similar in that the overall level of government spending is too high for private sector taxpayers to support. However, Jamaica has shown its taxpayers can afford to finance non-interest spending, and have some money left over for debt service. “Greece’s tax revenues, by contrast, are not able to cover non-interest expenses.” Even if Greek debt were zero, instead of its current debt to GDP ratio of 162 per cent, it would still be running a budget deficit. As he observes, this explains why “the bailout authorities in Europe are insisting on such excruciatingly deep budget cuts from the Greek people”.

This is certainly true, although Jamaica’s primary surplus of 6.8 per cent of GDP in early 2011 (at the date of the last IMF review), has been falling and is expected to be below four per cent for the full budget year. The exact number for the primary surplus is the difference between tax revenues (and grants) and non – interest expenditure. One expenditure component, recurrent expenditure, in the second supplementary budget remained flat at $228.2 billion compared with the first supplementary budget in August. This was an increase of nearly $8 billion over the original April budget of just under $221 billion, almost entirely due to the increase in the public sector wage bill. However, it was the other main component of non – debt expenditure, namely capital expenditure (excluding repayment of debt) that was further reduced from $55.5 billion in the first supplementary budget (compared with the original amount budgeted of $60.4 billion) to $48.2 billion in the second supplementary. Amortisation, meaning debt repayment, was also reduced due to the elimination of the contingency amount for a liability management programme, a source of unnecessary controversy earlier in the fiscal year.

It is the combined non-debt expenditure figure of $276.4 billion that, subtracted from revenues and grants (which we don’t yet know) will produce the primary surplus that goes toward the payment of interest. The original April 2011 budget had projected an 11.5 per cent increase in revenues and grants to $350.8 billion (including a 10.2 per cent increase in tax revenue to $308.4 billion), but we know that this will not be met, due to substantial underperformance from tax revenues and grants (in particular). Instead, the overall growth in revenue is likely to be about half of what was projected.

Ross observes that the Greek people have come to expect an enormous amount in subsidies and transfers from their government, while “the Jamaican people expect relatively little from their government”, which he argues is “a huge advantage for Jamaican policymakers”. Although Jamaica has endured years of fiscal austerity, it has not been asked to make cuts of the order of what Greece has been asked to do, allowing it to maintain some degree of social and political order, “crucial for a tourism based economy”.

As Ross observes, Jamaica’s challenges, namely continuing to lower our debt servicing costs through enlightened debt management, and creating a growth orientated economic policy, whilst no easy task, is much easier than the one being faced by Greece.