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The Multilateral Debt Trap in
Jamaica
Jamaica’s economy has long suffered from low growth and high debt.
Over the past 20 years, average annual per capita GDP growth has been
negative 0.1 percent, the lowest in the Caribbean outside of Haiti. The
world recession caused even greater economic hardships in Jamaica, with
GDP falling in four of the last five years. Unemployment has increased
to 14.2 percent, from less than 10 percent in 2008. The poverty rate has
nearly doubled. The gap between rich and poor has gotten larger.
Throughout this time, multilateral development banks, in particular the
International Monetary Fund (IMF), World Bank and Inter-American
Development Bank (IDB) have played a key role. In early 2010, in an
effort to address its unsustainable debt burden, and as a pre-condition for
an IMF agreement, Jamaica undertook a debt exchange that sought to
lower interest rates and extend maturities but did not provide any haircut
(a lowering of the debt principal). The subsequent IMF loan, worth $1.27
billion, unlocked additional funding from the World Bank and IDB,
together amounting to well over $2 billion.
As part of the IMF agreement, Jamaica undertook severe austerity
measures, freezing wages and cutting spending. Even after the debt
exchange, Jamaica was left with the highest debt interest burden in the
world; interest payments alone amounted to 11 percent of GDP.1
The IMF agreement eventually broke down after a Jamaican court ruled
that the government had to distribute back pay to public sector workers,
against the wishes of the IMF. Nevertheless, Jamaica has largely
continued the austerity measures from the first agreement. After a return
to growth –albeit slow- in fiscal year 2011/12, Jamaica slipped back into a
recession this past year, after the government cut non-interest
expenditure by over 2 percentage points of GDP. Even some within the
IMF warned that the fiscal consolidation efforts were going too far and
could threaten “the fragile recovery and social cohesion.”2
Three years after the IMF agreement was signed and the debt exchange
completed, Jamaica once again turned to the IMF and undertook a new
exchange. Once again, the exchange only affected domestically held debt
and did not reduce the principal. Once again, the conditions may prove
unsustainable. The IMF is requiring Jamaica to run primary surpluses
(revenue minus expenditure, excluding interest costs) of 7.5 percent of
Center for Economic and
Policy Research
1611 Connecticut Ave, NW
Suite 400
Washington, DC 20009
tel: 202-293-5380
fax: 202-588-1356
www.cepr.net
BY JAKE JOHNSTON*CEPR The Multilateral Debt Trap in Jamaica2
GDP, which according to the latest IMF World Economic Outlook, would mean Jamaica would
have the highest primary surplus in the world outside of oil exporting countries in 2013 [Oilexporting countries that run large primary budget surpluses are doing so because of excess oil
revenues, not budget tightening as in the case of Jamaica]. And even after the second debt exchange
in three years, Jamaica is projected to have the highest average interest burden in the world over the
next six years.
3
The recently signed IMF agreement, together with funding from the World Bank and IDB, will give
Jamaica access to some $2 billion dollars of loans over the next four-plus years. Crippled with
devastatingly high debt levels and anemic growth for years, Jamaica is certainly in need of financing.
But it is also the case that, after billions of dollars of previous World Bank, IDB and IMF loans,
much of its debt is actually owed to the very same institutions that are now offering new loans.
Figure 1 shows the share of external debt owed to multilateral institutions since 2006. As can be
seen, while Jamaica has owed these multilaterals large sums for many years, in 2010, after Jamaica
signed an IMF agreement, the share of debt owed to multilaterals increased greatly. As of December
2012, Jamaica owed multilateral banks $3.26 billion, accounting for 39.5 percent of its total external
debt. This is up from a low of 17.9 percent ($1.12 billion) in September 2008. Loans from
multilaterals accounted for 70 percent of the total increase in external debt from 2006 to 2012.4
FIGURE 1
Multilateral Share of Total External Debt
Source: Ministry of Finance and Public Servce: Debt Management Unit. 2013.
Note: Data is reported as end of period totals. 1 and 2 refer to half years, so data corresponding to “2006:1” is from
end of June 2006.
Jamaica has twice restructured its debt in just the last three years, extending the maturity and
lowering interest rates, but neither time has external debt been affected. Funds from the IMF, World
Bank and IDB carry much lower interest rates than private loans and so are not necessarily as
damaging, yet debt servicing to these institutions still eats up a large share of Jamaican finances.
After the previous IMF agreement went off-track in 2011, financing from other multilaterals was
also cut; after considering repayments, net cash flow from multilaterals actually turned negative in
21.1%
18.9% 18.9%
21.5%
36.6%
38.3% 39.5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1 2 1 2 1 2 1 2 1 2 1 2 1 2
2006 2007 2008 2009 2010 2011 2012
Percent of External Debt
Other IMF World Bank IDB TotalCEPR The Multilateral Debt Trap in Jamaica3
2012 and is projected to be negative again in 2013. Amazingly, Jamaica is actually paying more to the
multilaterals than it is getting back this year, even after the approval of the IMF agreement.5
FIGURE 2
Net Flows from Multilaterals, 2010-2013
Source: IMF, 2013
Despite multilaterals offering up another $2 billion in loans over the next four years, the net cash
flow to Jamaica will be drastically lower than this due to debt repayments. From 2013-2017 (the last
IMF disbursement is projected to be in March 2017), Jamaica is projected to spend $1.6 billion on
repayments, resulting in a net cash flow of $346.1 million or 0.4 percent of GDP over the period.6
FIGURE 2
Projected Net Flows From Multilaterals, 2013-2017
Source: IMF, 2013. IDB, 2013. World Bank, 2013.
What this shows is that simply by providing debt cancellation to Jamaica, the World Bank, IDB and
IMF could leave the country with more available resources than through new loans. As compared to
a net cash flow of $350 million, debt cancellation would free up $1.6 billion from 2013-2017, much
needed resources for a country which is being forced to drastically cut spending as part of the IMF
agreement.
1470.1
51.5
-2.9 -98.5
-300
-100
100
300
500
700
900
1100
1300
1500
1700
2010 2011 2012 2013(p)
Millions of USD
IMF World Bank IDB Total Net Cash Flow
-2000
-1500
-1000
-500
0
500
1000
1500
2000
2500
Disbursement Repayment Net Flow
Millions of USD
IMF World Bank IDB
1,606.2
346.1
1,952.3CEPR The Multilateral Debt Trap in Jamaica4
The IMF-backed program aims to achieve a debt/GDP ratio of 126.5 percent by the end of the
current program.7 While debt/GDP ratios can be a misleading target8
, if this is truly the goal, it
could be achieved virtually overnight. As mentioned previously, interest on multilateral loans is
relatively low, and so while the debt cancellation would only reduce interest payments by a small
margin, it would drastically reduce Jamaica’s overall debt load. With multilateral debt cancellation,
Jamaica’s debt/GDP ratio would shrink from 146.9 percent of GDP to 123.4 percent.
This would also have the added benefit of reducing the share of Jamaica’s debt that is denominated
in dollars. Currently, since such a large portion of the debt is in dollars, as the Jamaican currency
depreciates the burden of the debt increases. But Jamaica might have to depreciate its currency in
order to have a sustainable current account deficit, thus placing the health of public finances at odds
with Jamaica’s long-term economic development.
Thus far, efforts to reduce Jamaica’s debt, supported by the IMF and other multilaterals, have
focused exclusively on domestic debt, so as not to lock Jamaica out of foreign capital markets. At
the same time, haircuts on the domestic debt have been ruled out because this would negatively
affect local financial institutions. The result is that even after two debt restructurings, Jamaica’s debt
burden remains unsustainable. The IMF’s country representative recently stated that “debt reduction
will come from very tight government budgets” because “there is no alternative.” But clearly there
is. By providing meaningful debt cancellation, as opposed to providing billions in new loans, the
multilaterals could make a strong statement that they are serious about Jamaica’s development and
the needs of its people.
1 See Johnston, Jake and Juan Montecino. 2011. “Jamaica: Macroeconomic Policy, Debt and the IMF.” Washington,
DC: Center for Economic and Policy Research. Available at
http://www.cepr.net/index.php/public...bt-and-the-imf
and Johnston, Jake and Juan Montecino. 2012. “Update on the Jamaican Economy.” Washington, DC: Center for
Economic and Policy Research. Available at http://www.cepr.net/index.php/public...maican-economy
2 Johnston, Jake. 2012. “Austerian Dissent.” CEPR Blog, Center for Economic and Policy Research. June 18, 2012.
Available at http://www.cepr.net/index.php/blogs/...ca-and-the-imf
3 Johnston, Jake. 2013. “IMF Approves Jamaica Loan – Pain, No Gain.” The Americas Blog, Center for Economic and
Policy Research. May 23, 2013. Available at http://www.cepr.net/index.php/blogs/...n-pain-no-gain
4 Ministry of Finance and Public Service: Debt Management Unit. 2013. “External Debt Stock by Creditor (Various
Years).” Jamaica: Ministry of Finance and Public Service. Accessed February 2013.
http://dmu.mof.gov.jm/default.asp?c=1000&page=1008
5 International Monetary Fund. 2013. “Jamaica: Request for an Extended Arrangement Under the Extended Credit
Fund Facility.” Washington, DC: International Monetary Fund. May. Available at
http://www.imf.org/external/pubs/cat...spx?sk=40549.0
6 For projected debt service payments to the IMF, see IMF 2013. For projected debt service payments to the World
Bank see World Bank. 2013. “Jamaica: Estimated Debt Service Payments – Summary.” Accessed January
http://www.cepr.net/documents/publications/jamaica-debt-2013-06.pdf
Jamaica
Jamaica’s economy has long suffered from low growth and high debt.
Over the past 20 years, average annual per capita GDP growth has been
negative 0.1 percent, the lowest in the Caribbean outside of Haiti. The
world recession caused even greater economic hardships in Jamaica, with
GDP falling in four of the last five years. Unemployment has increased
to 14.2 percent, from less than 10 percent in 2008. The poverty rate has
nearly doubled. The gap between rich and poor has gotten larger.
Throughout this time, multilateral development banks, in particular the
International Monetary Fund (IMF), World Bank and Inter-American
Development Bank (IDB) have played a key role. In early 2010, in an
effort to address its unsustainable debt burden, and as a pre-condition for
an IMF agreement, Jamaica undertook a debt exchange that sought to
lower interest rates and extend maturities but did not provide any haircut
(a lowering of the debt principal). The subsequent IMF loan, worth $1.27
billion, unlocked additional funding from the World Bank and IDB,
together amounting to well over $2 billion.
As part of the IMF agreement, Jamaica undertook severe austerity
measures, freezing wages and cutting spending. Even after the debt
exchange, Jamaica was left with the highest debt interest burden in the
world; interest payments alone amounted to 11 percent of GDP.1
The IMF agreement eventually broke down after a Jamaican court ruled
that the government had to distribute back pay to public sector workers,
against the wishes of the IMF. Nevertheless, Jamaica has largely
continued the austerity measures from the first agreement. After a return
to growth –albeit slow- in fiscal year 2011/12, Jamaica slipped back into a
recession this past year, after the government cut non-interest
expenditure by over 2 percentage points of GDP. Even some within the
IMF warned that the fiscal consolidation efforts were going too far and
could threaten “the fragile recovery and social cohesion.”2
Three years after the IMF agreement was signed and the debt exchange
completed, Jamaica once again turned to the IMF and undertook a new
exchange. Once again, the exchange only affected domestically held debt
and did not reduce the principal. Once again, the conditions may prove
unsustainable. The IMF is requiring Jamaica to run primary surpluses
(revenue minus expenditure, excluding interest costs) of 7.5 percent of
Center for Economic and
Policy Research
1611 Connecticut Ave, NW
Suite 400
Washington, DC 20009
tel: 202-293-5380
fax: 202-588-1356
www.cepr.net
BY JAKE JOHNSTON*CEPR The Multilateral Debt Trap in Jamaica2
GDP, which according to the latest IMF World Economic Outlook, would mean Jamaica would
have the highest primary surplus in the world outside of oil exporting countries in 2013 [Oilexporting countries that run large primary budget surpluses are doing so because of excess oil
revenues, not budget tightening as in the case of Jamaica]. And even after the second debt exchange
in three years, Jamaica is projected to have the highest average interest burden in the world over the
next six years.
3
The recently signed IMF agreement, together with funding from the World Bank and IDB, will give
Jamaica access to some $2 billion dollars of loans over the next four-plus years. Crippled with
devastatingly high debt levels and anemic growth for years, Jamaica is certainly in need of financing.
But it is also the case that, after billions of dollars of previous World Bank, IDB and IMF loans,
much of its debt is actually owed to the very same institutions that are now offering new loans.
Figure 1 shows the share of external debt owed to multilateral institutions since 2006. As can be
seen, while Jamaica has owed these multilaterals large sums for many years, in 2010, after Jamaica
signed an IMF agreement, the share of debt owed to multilaterals increased greatly. As of December
2012, Jamaica owed multilateral banks $3.26 billion, accounting for 39.5 percent of its total external
debt. This is up from a low of 17.9 percent ($1.12 billion) in September 2008. Loans from
multilaterals accounted for 70 percent of the total increase in external debt from 2006 to 2012.4
FIGURE 1
Multilateral Share of Total External Debt
Source: Ministry of Finance and Public Servce: Debt Management Unit. 2013.
Note: Data is reported as end of period totals. 1 and 2 refer to half years, so data corresponding to “2006:1” is from
end of June 2006.
Jamaica has twice restructured its debt in just the last three years, extending the maturity and
lowering interest rates, but neither time has external debt been affected. Funds from the IMF, World
Bank and IDB carry much lower interest rates than private loans and so are not necessarily as
damaging, yet debt servicing to these institutions still eats up a large share of Jamaican finances.
After the previous IMF agreement went off-track in 2011, financing from other multilaterals was
also cut; after considering repayments, net cash flow from multilaterals actually turned negative in
21.1%
18.9% 18.9%
21.5%
36.6%
38.3% 39.5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1 2 1 2 1 2 1 2 1 2 1 2 1 2
2006 2007 2008 2009 2010 2011 2012
Percent of External Debt
Other IMF World Bank IDB TotalCEPR The Multilateral Debt Trap in Jamaica3
2012 and is projected to be negative again in 2013. Amazingly, Jamaica is actually paying more to the
multilaterals than it is getting back this year, even after the approval of the IMF agreement.5
FIGURE 2
Net Flows from Multilaterals, 2010-2013
Source: IMF, 2013
Despite multilaterals offering up another $2 billion in loans over the next four years, the net cash
flow to Jamaica will be drastically lower than this due to debt repayments. From 2013-2017 (the last
IMF disbursement is projected to be in March 2017), Jamaica is projected to spend $1.6 billion on
repayments, resulting in a net cash flow of $346.1 million or 0.4 percent of GDP over the period.6
FIGURE 2
Projected Net Flows From Multilaterals, 2013-2017
Source: IMF, 2013. IDB, 2013. World Bank, 2013.
What this shows is that simply by providing debt cancellation to Jamaica, the World Bank, IDB and
IMF could leave the country with more available resources than through new loans. As compared to
a net cash flow of $350 million, debt cancellation would free up $1.6 billion from 2013-2017, much
needed resources for a country which is being forced to drastically cut spending as part of the IMF
agreement.
1470.1
51.5
-2.9 -98.5
-300
-100
100
300
500
700
900
1100
1300
1500
1700
2010 2011 2012 2013(p)
Millions of USD
IMF World Bank IDB Total Net Cash Flow
-2000
-1500
-1000
-500
0
500
1000
1500
2000
2500
Disbursement Repayment Net Flow
Millions of USD
IMF World Bank IDB
1,606.2
346.1
1,952.3CEPR The Multilateral Debt Trap in Jamaica4
The IMF-backed program aims to achieve a debt/GDP ratio of 126.5 percent by the end of the
current program.7 While debt/GDP ratios can be a misleading target8
, if this is truly the goal, it
could be achieved virtually overnight. As mentioned previously, interest on multilateral loans is
relatively low, and so while the debt cancellation would only reduce interest payments by a small
margin, it would drastically reduce Jamaica’s overall debt load. With multilateral debt cancellation,
Jamaica’s debt/GDP ratio would shrink from 146.9 percent of GDP to 123.4 percent.
This would also have the added benefit of reducing the share of Jamaica’s debt that is denominated
in dollars. Currently, since such a large portion of the debt is in dollars, as the Jamaican currency
depreciates the burden of the debt increases. But Jamaica might have to depreciate its currency in
order to have a sustainable current account deficit, thus placing the health of public finances at odds
with Jamaica’s long-term economic development.
Thus far, efforts to reduce Jamaica’s debt, supported by the IMF and other multilaterals, have
focused exclusively on domestic debt, so as not to lock Jamaica out of foreign capital markets. At
the same time, haircuts on the domestic debt have been ruled out because this would negatively
affect local financial institutions. The result is that even after two debt restructurings, Jamaica’s debt
burden remains unsustainable. The IMF’s country representative recently stated that “debt reduction
will come from very tight government budgets” because “there is no alternative.” But clearly there
is. By providing meaningful debt cancellation, as opposed to providing billions in new loans, the
multilaterals could make a strong statement that they are serious about Jamaica’s development and
the needs of its people.
1 See Johnston, Jake and Juan Montecino. 2011. “Jamaica: Macroeconomic Policy, Debt and the IMF.” Washington,
DC: Center for Economic and Policy Research. Available at
http://www.cepr.net/index.php/public...bt-and-the-imf
and Johnston, Jake and Juan Montecino. 2012. “Update on the Jamaican Economy.” Washington, DC: Center for
Economic and Policy Research. Available at http://www.cepr.net/index.php/public...maican-economy
2 Johnston, Jake. 2012. “Austerian Dissent.” CEPR Blog, Center for Economic and Policy Research. June 18, 2012.
Available at http://www.cepr.net/index.php/blogs/...ca-and-the-imf
3 Johnston, Jake. 2013. “IMF Approves Jamaica Loan – Pain, No Gain.” The Americas Blog, Center for Economic and
Policy Research. May 23, 2013. Available at http://www.cepr.net/index.php/blogs/...n-pain-no-gain
4 Ministry of Finance and Public Service: Debt Management Unit. 2013. “External Debt Stock by Creditor (Various
Years).” Jamaica: Ministry of Finance and Public Service. Accessed February 2013.
http://dmu.mof.gov.jm/default.asp?c=1000&page=1008
5 International Monetary Fund. 2013. “Jamaica: Request for an Extended Arrangement Under the Extended Credit
Fund Facility.” Washington, DC: International Monetary Fund. May. Available at
http://www.imf.org/external/pubs/cat...spx?sk=40549.0
6 For projected debt service payments to the IMF, see IMF 2013. For projected debt service payments to the World
Bank see World Bank. 2013. “Jamaica: Estimated Debt Service Payments – Summary.” Accessed January
http://www.cepr.net/documents/publications/jamaica-debt-2013-06.pdf