Debt to GDP Ratio Continues to Fall

The country’s debt to gross domestic product (GDP) ratio is expected to continue its downward trajectory during the new fiscal year to reach 130.7 per cent by March 2016.

This was disclosed by Minister of Finance and Planning, Dr. the Hon. Peter Phillips, as he opened the 2015/16 Budget Debate in the House of Representatives on Thursday, March 12.

The debt to GDP ratio compares what the country owes to what it produces annually. Government debt as a per cent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and Government bond yields.

The ratio stood at 145.7 per cent at the end of 2013/14, and is projected to drop to 139.7 per cent at the end of 2014/15.

Dr. Phillips told the House that the “debt would have been further reduced at this point, but for the fact that we took a deliberate decision last year to borrow more than had been programmed, in order to make certain that we would be able to honour our commitments to bondholders that are due to be repaid this year.”

He reminded Jamaicans that the major rationale for the Economic Reform Programme (ERP) was to reduce “the stranglehold of debt” on the national economy, adding that “it must therefore be a source of relief for every Jamaican that our debt is on a downward trajectory.”

He said it is due to the continued fall in the debt, that the Government was able to borrow US$800 million on the international capital markets at the lowest rates ever obtained by the country, instead of the US$500 million that had been originally sought.

In addition, he said, the Government has been able to guarantee its debt repayment for more than a year and to engage in more ambitious debt buyback arrangements than had been previously anticipated.

This is a sound economic decision, he said, which has been confirmed by improvement in the outlook of Jamaica’s credit rating.