Ja debt repayment not threatened by Ukraine crisis, says Clarke – Jamaica Observer

CLARKE…if we are to raise new funds within the year, then these will come in at a higher rate. (Photo: Garfield Robinson)

Minister Finance and Civil Service Minister Dr Nigel Clarke says there is no cause for alarm about the possible effects of the Ukraine crisis on Jamaica’s debt situation.

“We have made a number of provisions for the environment in which we find ourselves, and these provisions are guided by the contributions of the central bank,” Clarke told his fellow MPs during the opening session of the Standing Committee. House of Representatives Finance on Tuesday.

Clarke was responding to questions raised by opposition finance spokesman Julian Robinson about the possible impact of the European crisis on the country’s outstanding debt.

Robinson wanted to know if the Bank of Jamaica’s interest rate continued to rise, what arrangements had been made to deal with the additional burden of servicing the debt.

He pointed out that, based on the Government’s debt management strategy documents, a 1% increase in debt obligations would add an additional $6.5 billion to the total, both in debt servicing costs internal and external debt. Robinson was also interested in knowing what is in the budget as a buffer to ensure the country would still be able to manage debt service during the crisis.

Acknowledging that the language used in the documents could be a bit more specific, Clarke replied that the argument regarding the impact of a “1%” move in interest costs relates to the interest that is paid at all levels, in all categories of debt.

“But, remember, a lot of our debt is fixed price debt. So we have bonds that have been issued, and a coupon rate doesn’t change if interest rates go up. We have debt with multilateral institutions at fixed prices that do not change if interest rates rise,” Clarke explained.

“We have fixed price debt to Jamaicans, and that does not change if interest rates rise, and the maturity profile of our debt is such that we will not raise huge volumes of debt over the course of the year. next exercise. The issue of the impact of a 1% change. 100 of interest costs relates to the interest we pay at all levels.

“In terms of what is happening here domestically, when you look at the stock of variable debt that we have, we have already budgeted for an increase in interest rates on the stock of variable domestic debt which is still Keep in mind the relationship, these are market-determined rates, so our debt is priced at 90-day Treasury bill rates, which is a market-determined rate,” Clarke added. .

He also noted that when policy rates adjust, the market will adjust the 90-day Treasury rate. A provision has therefore been made for what would be the projected market adjustment of the 90-day Treasury rate.

According to Clarke, there is a provision in the budget for movement in the 90-day Treasury bill rate, but that is based on best estimates at the time it was established.

“If US policy rates are adjusted, then the vast majority of US-dominated Jamaican debt is fixed rate. However, if we need to raise new funds within the year, these will arrive at a higher rate. But keep in mind that the overall debt service is around $138 billion,” Clarke noted.

He said that with $138 billion, it would not have been unusual to make an adjustment over the course of a year on this provision, on the order of a 3% variation. 100 one way or the other.

“That’s to be expected. You’ll never be able to provide the exact amount you’re going to use,” he noted.

“I think with the layout we’ve made here, I don’t think there’s any cause for alarm that we might be far from the water,” Clarke said.

The finance minister added that the usual adjustments are likely to happen because things are market determined. However, he said that, in the grand scheme of things, later in the year there could be adjustments of $3 billion to $5 billion in debt repayments.

Tana T. Thorsen