Published: Wednesday October 8, 2008
Last week, Finance Minister Audley Shaw announced that the Inter-American Development Bank (IDB) has committed to lending Jamaica at least US$600 million over the next three years.
He was speaking at an investment luncheon hosted by the Financial Services Commission, where he indicated that this commitment was as a result of discussions initiated originally by him with officials at the IDB last year.
These discussions were followed by a meeting last week between Prime Minister Bruce Golding and the president of the IDB, Luis Alberto Moreno.
The JIS release from the Office of the Prime Minister on the outcome of Golding's meeting in Washington provided greater details.
It stated: "Mr Golding said that the IDB has given an explicit commitment to working towards a positive net flow of resources to Jamaica. To achieve this objective, the IDB will seek lending approvals ranging between US$100 million to US$200 million per year over the next three years. This will be aligned with the pace at which Jamaica implements it own set of policy reforms in the areas of taxation, public sector and private sector development."
New policy thrust?
Is this a new policy thrust by the IDB in its relationship with Jamaica?
The finance minister has positioned this move as part of an overall shift in Jamaica's debt strategy towards increased borrowing from the multilateral institutions.
The current IDB Country Strategy was prepared by the IDB in August 2006 and covers the period 2006-2009.
The IDB is the leading lender to Jamaica among the multilateral lending institutions. As at February 2008, the country's outstanding debt to the bank stood at US$583.2 million - this represents 12 per cent of total public external debt and 35 per cent of outstanding multilateral debt.
Public-sector loans account for US$581.8 million, while loans to the private sector totalled US$1.4 million.
The bank's portfolio as at February 2008 consisted of 10 investment loans valued at US$217 million and 37 non-reimbursable technical cooperations valued at US$10.3 million. Of this amount, US$86.7 million was still available for disbursement.
One of the primary reasons for the reduction in the amount of IDB loans to Jamaica in recent years has been the continued slashing of capital expenditure in successive budgets.
A feature of the annual budget cycle has been the crowding out of capital expenditure by recurrent expenditure. This has resulted in a severe reduction in public-sector investment in infrastructure projects.
Even when capital projects are budgeted for in the annual budget allocations, these are usually severely reduced in warrants during the fiscal year.
This has resulted in delays in the pace of capital project execution. And this, in turn, has led to increased administrative and overhead costs for these projects, as well as the original design of operations becoming outdated.
As a result, capital expenditure as a percentage of GDP moved from nine per cent in the 1980s to around four per cent in the 1990s.
This was further reduced to 0.9 per cent in FY2002/03 to FY2005/06.
The current 2006-2009 IDB Country Strategy de-emphasises public-sector investment lending and instead places emphasis on policy-based lending, grant modalities and private-sector lending.
Main areas of focus
The main areas of focus are on reducing risks and vulnerability to natural hazards, as well as providing assistance in the event of a disaster; getting value for money from project execution; and improving incentive framework and the business environment that will result in private-sector development.
The Country Strategy report made the following important points with regard to lessons for future country strategy:
Jamaica should only borrow for projects with a high economic rate of return.
Rate of return estimates should be realistic and take into account possible delays and cost overruns.
The Public Sector Investment Programme needs to be much more consistent and realistic in terms of the country's fiscal situation.
The IDB report also noted that "a world recession or rising world interest rates combined with a pull-back from emerging markets could complicate macroeconomic management. Jamaica will remain vulnerable to shocks as long as its public debt remains at a high level, and reducing the debt through increasing economic growth and generating fiscal surpluses is likely to be challenging".
It will therefore be interesting to hear the finer details of the revised IDB Jamaica Country Strategy in the context of the current global economic crisis and the Jamaican macroeconomic environment.
Source:
R. Anne Shirley
Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20081008/business/business5.html
rashir0@hotmail.com
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