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    Maxens A
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    This document discusses debt sustainability issues in the Caribbean region. It finds that debt levels increased sharply since 1998 in most countries as they pursued expansionary fiscal policies. Countries like St. Kitts and Nevis, Dominica, and Grenada face serious debt problems with levels over 100% of GDP. While tax revenue varies, countries must maintain consistent expenditure to keep their economies afloat. Countries like Ecuador and South Africa have addressed debt issues by issuing domestic bonds, refinancing with low yield debt, repurchasing debt, and benefiting from trade relationships. The document recommends Caribbean countries balance internal and external debt and improve primary surpluses through measures like public enterprise efficiency gains to reduce debt costs and improve credit ratings.

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    Debt Sustainability in the Caribbean

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    This document discusses debt sustainability issues in the Caribbean region. It finds that debt levels increased sharply since 1998 in most countries as they pursued expansionary fiscal policies. Countries like St. Kitts and Nevis, Dominica, and Grenada face serious debt problems with levels over 100% of GDP. While tax revenue varies, countries must maintain consistent expenditure to keep their economies afloat. Countries like Ecuador and South Africa have addressed debt issues by issuing domestic bonds, refinancing with low yield debt, repurchasing debt, and benefiting from trade relationships. The document recommends Caribbean countries balance internal and external debt and improve primary surpluses through measures like public enterprise efficiency gains to reduce debt costs and improve credit ratings.

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    8 views15 pages

    Debt Sustainability in The Caribbean

    Uploaded by

    Maxens A
    This document discusses debt sustainability issues in the Caribbean region. It finds that debt levels increased sharply since 1998 in most countries as they pursued expansionary fiscal policies. Countries like St. Kitts and Nevis, Dominica, and Grenada face serious debt problems with levels over 100% of GDP. While tax revenue varies, countries must maintain consistent expenditure to keep their economies afloat. Countries like Ecuador and South Africa have addressed debt issues by issuing domestic bonds, refinancing with low yield debt, repurchasing debt, and benefiting from trade relationships. The document recommends Caribbean countries balance internal and external debt and improve primary surpluses through measures like public enterprise efficiency gains to reduce debt costs and improve credit ratings.

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    of 15

    Debt Sustainability

    in the Caribbean

    What Has Been Done, and


    Where Can We Go From There?
    Regional Trends
     Debt increased sharply in the region
    since 1998 as most countries took an
    expansionary fiscal stance.
    Who has a Debt
    Problem?
     St. Kitts and Nevis
    173% of GDP

     Dominica
    107% of GDP

     Grenada
    109% of GDP
    The Sustainability
    Threat
     While tax revenue in developing
    countries may vary widely over time…
     Expenditure must be relatively

    consistent in order to maintain the


    economy afloat in the short-term.
    What has been Done
    Elsewhere?
    Ecuador South Africa
    • Issued Domestic Bonds when
    currency became stronger
    • Refinanced with low yield debt
    • Repurchased debt
    • Benefited from Eurorand trade
    • Increased debt liquidity
    • Lowered borrowing requirements
    Debt Restructuring

     Debt renegotiation  Debt can be paid


    carries the risk that early
    it may not address
    the underlying fiscal  Debt can be
    problem. refinanced by
    issuing low yield,
     Can adversely longer term, and/or
    affect credibility. domestic currency
    obligations.
    Debt Restructuring
    Refinance

     Debt can be gradually repaid early,


    using newly issued debt as a funding
    source. This funding can be:

     In a more advantageous currency


     Low-yield
     Longer term
     Domestic
    Primary Surplus
    Improvement
     Can be achieved by:

     Revenue increases
     Public-sector efficiency increases

     Sustainable public expenditure

    decreases
    Primary Surplus
    Improvement
    Advantages: Limitations:

     Can alter the relationship


     Sustainability constraints
    between export can vary given the creditor
    situation.
    performance and fiscal
    stance, improving debt
     The needed surplus level
    may change, causing debt
    sustainability to increase rather than
     Can boost credibility, decrease
    improving debt  Surplus improvements may
    sustainability not be sustainable due to
    demand changes or the
    domestic political situation.
    External debt
     Can be helped by lower inflation
    Comparison
    St Kitts and Nevis:
     Maintained a fixed exchange rate
    regime during the study period
     Has a debt of 173% of GDP in 2005
    Comparison
    Jamaica:
     Debt service costs have hovered around 15 percent of GDP,
    while Primary Surpluses have been around 10 % of GDP (IMF,
    2006)

     Since 1999, the majority of public debt has been domestic,


    having the benefit of being denominated in Jamaican Dollars
    rather than foreign currency

     Has a debt of nearly 140% of GDP in 2006


    Policy
    Recommendations
    Internal and External debt  Jamaica improved its public
    should be balanced: debt distribution between
    Internal and External public
     External debt carries with it debt in the wake of its 2001
    the threat of a currency financial crisis.
    shock
     Internal debt is more 200
    expensive, but can be more 150 Total Public Debt / GDP %
    easily renegotiated
    100
     External debt should be External Debt / GDP %
    positioned such that it is in 50
    the most advantageous Domestic Debt / GDP %
    0
    currency possible.
    Policy
    Recommendations
    Primary surplus should be This should be achieved by:
    improved
     Making public enterprises
     This will improve credit more efficient in a
    ratings, thereby making
    both domestic and foreign sustainable way, possibly
    debt cheaper. through PPPs, sub-
     Primary Surplus may not be contracting, or
    large enough to shrink the municipalization
    debt, as in the case of  Active Debt Management
    Jamaica  Improving exports through
     Debt sustainability can be diversification.
    measured in terms of the
    relation between Fiscal
    Stance and Export
    Performance Ratio
    Policy
    Recommendations
    Active Debt Management  Some debts can be
    Policies should be
    employed to cut the paid early
    expense of servicing the
    debt
     ..

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