US$2 Billion Raised By Government Will Result In Significant Benefits – EPOC Co-Chair

Co-Chair of the Economic Programme Oversight Committee (EPOC), Richard Byles, says the recent move by the Government in raising US$2 billion of bonds on the international financial markets, will have significant benefits for the country, its debt stock and financial position going forward.

The funds were raised on July 23, 2015 in two tranches of US$650 million over 30 years, at 7.875 per cent and US$1.35 billion over 13 years, at 6.75 per cent.

The Government has explained that US$1.5 billion of the proceeds was used to purchase approximately US$3.3 billion of debt owed to Venezuela under the PetroCaribe agreement, while the remaining US$0.5 billion will be used for budget support, specifically for repayment of  J$62 billion debt in February 2016.

“This PetroCaribe transaction is a fundamental transaction for Jamaica; it really has put the economy in a different place, given us different prospects, hopes and possibilities,” he argued.

Speaking to journalists at the EPOC’s monthly press briefing on August 13, Mr. Byles said there are three significant positives of this transaction for the country.

He said importantly, the transaction reduces the debt to Gross Domestic Product (GDP) ratio by at least 10 per cent, allowing Jamaica to achieve the March 2017 debt to GDP target of 127 per cent, 20 months earlier than planned.

“So, if we are at about 137 or 138 per cent debt to GDP today, that 10 per cent reduction is going to put us where the International Monetary Fund (IMF) plan says we should be by March 2017. So, this is a major accomplishment and a major benefit to the country,” he explained.

Secondly, Mr. Byles said the transaction will improve the country’s ability to generate a primary surplus because of earnings from assets of the PetroCaribe Fund that previously serviced the US$3.2 billion debt.

“Those assets now come to the Government of Jamaica and the income from those assets will flow through central Government accounts. And so, that will give the central government more income which helps with the primary surplus,” he added.

Additionally, the EPOC Co-Chair said the February 2016 debt maturity of J$62 billion will now be fully paid out, creating a very large pool of Jamaican dollar liquidity, with the prospects of lower interest rates.

Mr. Byles noted further that the PetroCaribe debt buy-back is an important step that lays the foundation for Jamaica to meet the target of 96 per cent debt to GDP in 2020.

He said this will be a major milestone in the transformation and strengthening of the Jamaican economy under the Economic Reform Programme (ERP), to get below 100 per cent debt to GDP.

“And whilst it was possible before, but we had to really struggle to achieve it, I think that target of 96 per cent is today a lot more achievable, having done the PetroCaribe transaction,” Mr. Byles asserted.

In the meantime, he said because of the transaction, Jamaica is now in a position to receive a further upgrade in its rating from international rating agencies, such as Standard and Poors, Fitch and Moodys.

Mr. Byles argued that with this transaction and the successes of the quarterly reviews so far, the possibility now exists for the IMF and Jamaican teams to review the targets for the remaining 18 months of the programme, with a view to placing more focus on GDP growth.