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Fiscal deficit does not account for bulk of debt
The Louis Alberto Moreno-led Inter-American Development Bank (IDB) says it is a myth that the bulk of the debt accumulated by the countries in the Latin America region, including Jamaica, is due to excessive fiscal deficits.
The fiscal deficit measures the difference between total revenue and grants and the amount of money governments spend on programmes, wages, interest charges and capital programmes.
Jamaica’s fiscal deficit, which ran at five per cent of Gross Domestic Product (GDP), was $37 billion last year, although the target was $22 billion. The target for this year is $32 billion or five per cent of GDP.
The IDB, however, supported the view that the bulk of Jamaica’s debt and those of many other Latin American countries, are due to banking sector crises, exchange rate fluctuations, lack of fiscal transparency, negligence and off-budget expenses.
The multilateral agency which was established in 1959, also posited that the levels of debt in Latin America and the Caribbean are not systematically different from the rest of the developed or developing world. The agency, however, stated that the composition is much different because it is concentrated in US dollar securities and short-term local currency instruments.
Turning to the impact of government spending on debt levels in the region, the IDB asserted that the levels of government expenditures in the region are currently below international norms. On average, public expenditure account for about 31.8 per cent of Gross Domestic Product (GDP) in Latin America and the Caribbean. The agency, however, stressed this would fall to just 20.4 per cent if Brazil and Argentina are excluded.
Moreno and his team at the Washington-based agency, however, argued that these international comparisons are skewed by the inclusion of developed countries, which significantly ramped up government spending between 1960 and 1980. Deepening the analysis, the IDB said that a comparison of the debt levels of Latin America and developed countries at a similar stage of development gives very different results.
The average share of consolidated government expenditure of developed countries during the 1930’s was approximately 22 per cent, the same average for Latin American and Caribbean in 2000. The study also stated that contrary to conventional wisdom, Latin America and the Caribbean countries spend 6.2 per cent more of their budgets on the social services, such as health and education, than other regions of the developing world.
The agency further argued that because total government expenditure in Latin America and the Caribbean is below international norms, total social spending is one per cent lower than in other regions of the developing world. However, in comparison to developed countries when they had similar GDPs, Latin America and the Caribbean is currently spending more on the provision of basic social services.
The Louis Alberto Moreno-led Inter-American Development Bank (IDB) says it is a myth that the bulk of the debt accumulated by the countries in the Latin America region, including Jamaica, is due to excessive fiscal deficits.
The fiscal deficit measures the difference between total revenue and grants and the amount of money governments spend on programmes, wages, interest charges and capital programmes.
Jamaica’s fiscal deficit, which ran at five per cent of Gross Domestic Product (GDP), was $37 billion last year, although the target was $22 billion. The target for this year is $32 billion or five per cent of GDP.
The IDB, however, supported the view that the bulk of Jamaica’s debt and those of many other Latin American countries, are due to banking sector crises, exchange rate fluctuations, lack of fiscal transparency, negligence and off-budget expenses.
The multilateral agency which was established in 1959, also posited that the levels of debt in Latin America and the Caribbean are not systematically different from the rest of the developed or developing world. The agency, however, stated that the composition is much different because it is concentrated in US dollar securities and short-term local currency instruments.
Turning to the impact of government spending on debt levels in the region, the IDB asserted that the levels of government expenditures in the region are currently below international norms. On average, public expenditure account for about 31.8 per cent of Gross Domestic Product (GDP) in Latin America and the Caribbean. The agency, however, stressed this would fall to just 20.4 per cent if Brazil and Argentina are excluded.
Moreno and his team at the Washington-based agency, however, argued that these international comparisons are skewed by the inclusion of developed countries, which significantly ramped up government spending between 1960 and 1980. Deepening the analysis, the IDB said that a comparison of the debt levels of Latin America and developed countries at a similar stage of development gives very different results.
The average share of consolidated government expenditure of developed countries during the 1930’s was approximately 22 per cent, the same average for Latin American and Caribbean in 2000. The study also stated that contrary to conventional wisdom, Latin America and the Caribbean countries spend 6.2 per cent more of their budgets on the social services, such as health and education, than other regions of the developing world.
The agency further argued that because total government expenditure in Latin America and the Caribbean is below international norms, total social spending is one per cent lower than in other regions of the developing world. However, in comparison to developed countries when they had similar GDPs, Latin America and the Caribbean is currently spending more on the provision of basic social services.
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