Jamaica raises US$2 billion to buy back PetroCaribe debt
KINGSTON, Jamaica - On July 23, 2015, Jamaica raised US$2 billion on the international capital market – the highest amount it has ever raised during a single transaction window – at the lowest rates it has ever been able to access from that market. A third of that money, US$650 million, has a term of 30 years while the remaining $1.35 billion has final maturity in 2028, 13 years.
Among the primary reasons Jamaica approached the international capital markets to raise money was to buy back some of its outstanding debt, thereby reducing the total debt stock.
Last week, the government of Jamaica completed a transaction with the government of Venezuela to buy a portion of the debt owed under the PetroCaribe energy cooperation agreement, using a portion of the proceeds from the most recent capital market issuance. The arrangement with Venezuela allowed the government of Jamaica, based on the net present value of the debt outstanding at December 2014, to purchase the PetroCaribe debt for US$1.5 billion.
When all factors of both transactions are taken into account, Jamaica will spend less money for debt service of over US$250 million (principal and interest repayments combined), in spite of the difference in interest rates between the funds raised on the international capital markets and those paid under the PetroCaribe agreement. These savings relate only to the direct relationship between the bond issuance and the PetroCaribe transaction.
This transaction is expected to reduce Jamaica’s debt to GDP ratio by approximately 10 percent, which is a significant reduction in this key economic indicator. Further reducing the country’s debt to GDP will not only solidify its success under the economic reform programme but should improve the country’s standing with the international rating agencies and make Jamaica even more attractive to both local and international investors.
The primary reason for the country needing to undertake the economic reform programme was to arrest the unsustainable level of debt the country had built up, and to create the conditions for sustained economic growth at progressively higher rates than previously experienced. The programme set the target of reducing the debt to gross domestic product (GDP) to 96 percent in 2020 and to 60 percent in 2025.
In March 2013, just prior to securing an agreement with the IMF, the public debt stood at approximately 145 percent of GDP, including the obligations under the PetroCaribe agreement with Venezuela. This was an untenable position, as it meant that the country was spending most of its limited resources to repay debt. This situation was further compounded by the fact that both the local and international capital markets were virtually closed to Jamaica or were only accessible at very high rates of interest, and Jamaica did not have access to significant multilateral support.