Jamaica Debt Exchange Frees Resources for Human Development
Jamaica is known for its beautiful beaches, rich music tradition, excellent cuisine and warm welcome. Less well-known is the fact that Jamaica is critically indebted. The total public debt burden stood at approximately US$13 billion or 135 percent of GDP at the end of 2009. If this debt was divided among the population, each Jamaican would carry a debt burden of US$7,920, roughly three times the average annual income per person. The country owes 55 percent of its debt to domestic creditors and 45 percent to international creditors.
Jamaica made impressive progress towards the Millennium Development Goals (MDGs). Between 1997 and 2007, it halved the poverty rate from 20 percent to 10 percent. Jamaica has already achieved MDG2 of universal primary education. Life expectancy is over 73 years and access to health care is universal. Nevertheless, significant challenges remain. Violence and insecurity persist. The island is extremely vulnerable to natural disasters and climate change. Hurricanes Gilbert in 1988, Ivan in 2004 and Dean in 2007 extensively damaged agriculture, homes and businesses. More erratic rainfall, more frequent tropical storms and a rise in sea levels are predicted to further exacerbate these vulnerabilities.
High public debt severely limits the government resources to invest in poverty reduction programmes and infrastructure. In 2009, interest repayments alone consumed 65 percent of government tax revenues. On average over the last 10 years, annual debt service costs exceeded the entire revenues than the government collects through taxes and other channels.
During the recent economic crisis, exports, tourism and remittances all declined simultaneously. Tax revenues followed suit. A solution to the government's unsustainable debt burden became not only necessary but urgent.
The Government of Jamaica decided to seriously tackle its public debt problem. UNDP provided the government with sound policy advice and technical expertise and served as an honest and independent resource in the Government's difficult negotiations with creditors. With the assistance of an expert contracted by UNDP, they developed a swift solution.
The Jamaica Debt Exchange (JDX) programme was launched in January 2010. The initiative aimed to reduce the domestic debt service burden on the central government by exchanging fixed-rate high-interest, short-maturity debt instruments for lower-interest, longer-maturity coupons, but which still offered domestic investors positive real rates of return. The initiative did not reduce the nominal value of the securities held by domestic investors; rather it reduced the present value of the returns from the securities. Impressive 99 percent of creditors participated in the debt exchange programme. The initiative has reduced the interest obligations by over US$500 million in 2010 (or 3.5% of GDP).
The government has pledged to redeploy the freed-up funds to critical social programmes, increasing social expenditures by 25 percent. The work is not yet done. UNDP will continue working with the government and local organizations to monitor and scrutinize whether the government lives up to its commitments and to ensure that these funds are indeed used for human development and achievement of the Millennium Development Goals.