The total cost of debt servicing (interest and amortization) during 2009/10 is 103% of the Government’s total revenue and grants, Minister of Finance and the Public Service, the Hon. Audley Shaw, told the House of Representatives, Thursday (December 17).
“It is a prescription for persistent poverty and social and economic chaos. We cannot continue to live in a fool’s paradise and believe that we can borrow our way to prosperity. We will have to begin to work our way, to earn our way and pay our,” Mr. Shaw said.
He was making a presentation to the House on the programme for a Stand-By Arrangement with the International Monetary Fund (IMF), as well as announcing new revenue measures, including a one percent increase in General Consumption Tax (GCT) due January 1, 2010.
“So burdensome is this debt burden that except for three of the last 10 years, our interest costs and principal repayments have exceeded our total revenues,” Mr. Shaw said.
He added that for the current fiscal year (2009/10), as per the Supplementary Estimates tabled in September, interest costs ($175.2 billion) and principal repayments ($150.2 billion) totaled $325.4 billion, while total revenue was estimated at only $316 billion.
According to Mr. Shaw, “This picture helps graphically to bring the full extent of our fiscal crisis into sharp focus.”
The Minister tabled information showing comparisons between total debt and total revenue between 1990/91 and 2009/10.
The figures showed that in 1990/91, total debt service was $4.8 billion and total revenue $9.6 billion, and that revenue stayed ahead of debt servicing until 1999/2000, when debt service rose to $96 billion and revenue to only $90.8 billion.
Although revenue recovered in 2000/01 to go ahead of debt service charge, $108.4 billion to $104.6 billion, respectively, things went out of whack in 2001/02, when revenue only rose to $109.7 while debt servicing rose to $141.9 billion.
“We can see from this information that since 1990/91 there has been a steady growth of borrowing as the method of financing the budget. The result has been no or low growth, with only the debt itself growing exponentially over the years,” the Minister commented.
“The Government’s revenue cannot support our level of indebtedness, so the country has to keep borrowing to repay what has been borrowed and to do what little we can to provide desperately needed services to the people,” he said.
He noted that in the circumstances, Government’s insatiable appetite for borrowing from the banking system meant that resources that could be going toward financial investment, creating jobs and stimulating growth were captured by government to service debt.
He explained that because of the lack of access to capital markets, triggered by the global financial meltdown, the debt issue has been brought even more sharply into focus.
“It is unsustainable. It is time for corrective action,” Mr. Shaw said. Accordingly, the Government is developing a comprehensive debt management strategy to deal with the issue.
He predicted that with the IMF agreement, Jamaicans will begin to see a country characterized by improved governance to ensure entities do not run up the debt; increased fiscal responsibility supported by law; industrialization, and an emphasis on export production.
“We will see the emergence of a culture of production and productivity, with increased training and certification of our workforce; we will see lower energy costs and increased levels of international competitiveness,” he predicted.
He also projected greater levels of tax compliance, scaled down public sector entities, a leaner and more efficient public sector ensuring higher standards and greater service delivery.
“We will see lower interest costs and consequently more resources to provide for the health, education and security sectors; we will see welfare to work programmes as part of our social safety net; we will see lower commercial bank lending rates and more initiative and enterprise at the workplace,” he said.