Tue | Aug 3, 2021

Beware black hole of debt

Clarke calls for public-private partnership to navigate looming crisis

Published:Sunday | April 25, 2021 | 12:16 AMNeville Graham - Business Reporter
Minister of Finance Dr Nigel Clarke.
Minister of Finance Dr Nigel Clarke.
Minister of Finance Dr Nigel Clarke.
Minister of Finance Dr Nigel Clarke.
Minister of Finance Dr Nigel Clarke.
Minister of Finance Dr Nigel Clarke.

Finance Minister Dr Nigel Clarke is calling for more public-private partnerships to help Jamaica navigate away from what he calls the black hole of a looming regional debt crisis.

Citing the latest IMF World Economic Outlook, released earlier this month, Clarke said Jamaica remains in the top handful of most indebted countries in the Western Hemisphere even after bringing its debt ratio down to 94 per cent of GDP.

“We were the third most indebted country out of 35, and the other two that were ahead of us were island states of the Caribbean. We’ve been so far out of mainstream for so long in this hot water that we don’t realise what hot water is any more,” the minister said during the Private Sector Organisation of Jamaica’s virtual economic forum, PSOJ Roadmap to Jamaica 2.0, held online on Thursday.

Clarke, in warning of a possible debt crisis, says Jamaica is enjoying the relative safety of having its debt traded at more favourable terms than its debt levels dictate because the market believes that Jamaica is serious in executing its economic programme with fiscal discipline.

The national debt as of February amounted to over $2.15 trillion, more than half of which, $1.32 trillion, is classified as external debt.

“Any one of a number of factors can send Jamaica south, and we are at the event horizon of a very big black hole, and we cannot afford to cross that horizon. We have to get away from it quickly,” Clarke said.

The warning signs are already there of an emerging-market debt crisis in a few years, and Jamaica runs the risk of contagion in situations where lenders put it in the same box as other peer countries in economic trouble.

“We cannot afford to be mixed up with the group of countries that are going to find themselves in crisis – and many of them are going to have debt levels that are similar to ours,” Clarke said, noting that it was already happening in the case of Suriname, which recently saw an explosion of its debt levels, as well as inflation, which climbed from four to over 40 per cent.

Jamaica must seek to differentiate itself from those that may be caught in the looming debt crisis by the maintenance of fiscal discipline and spurring growth through private sector initiatives, the minister told the forum.

Government’s ability to lead the growth effort is constrained by limited resources, he said. As such, the best model to pursue at this time, he told corporate Jamaica, was private sector-led growth where efforts are complemented by government resources through a public-private partnership and privatisation that can absorb private capital.

Clarke said definitively that the alternative of loosening fiscal rules or even once again asking the Jamaican financial market to take a hit – as they did years before under two debt exchanges, JDX I and JDX II, as a precursor to the IMF rescue of the economy – is not on the cards.

“Having had two debt restructurings in the last decade, we cannot, under any circumstances, afford a third. It would be disastrous. We would be the new Argentina,” Clarke warned.