For decades, Jamaica's economy has been sluggish. Today, the country faces even deeper fiscal uncertainty, with negative growth in 2008 and projected for 2009 and the global financial crisis seeming certain to impose further restrictions. Already, the economy's most lucrative sectors - tourism earnings, bauxite and remittances from abroad - are in decline or have ground to a halt.

In all, the economy faces serious long-term problems: decreased public revenues, high public wages, increased foreign competition, exchange rate instability, large-scale unemployment and underemployment, and weak access to international financial markets. The debt-to-GDP ratio stands at 128 per cent, meaning that Jamaica owes almost one-third more each year than it produces.

Debt burden

This debt burden - the fourth-highest per person in the world - is crushing, and together, debt servicing and civil servants' salaries comprise about 79 per cent of Jamaica's national budget. As the minister of finance and public service said during his opening presentation in the budget debate of 2008, the debt burden is "an albatross that hangs around the neck of the Jamaican economy".

There is a need for a national dialogue on the debt situation, with a view to finding workable strategies for its management so that there is more fiscal space for meeting urgent development needs of citizens.

With the fiscal year starting in April and the Government putting the finishing touches on the annual budget, the need is especially acute. Budgeting represents a delicate balancing act among competing needs and a concrete expression of national priorities. As Minister Shaw also said in the '08-'09 presentation, development must be at the heart of the budget debate: in Jamaica, nearly all spending for development priorities, including education, health and other critical public services, is crowded out by the national debt. Thus, if Jamaica is to put development at the heart of government interventions, addressing the debt issue will be imperative.

Threshold of debt service

Resolving Jamaica's debt crisis requires addressing some key questions: How much can the country afford to pay back on its debt without hurting its chances for growth and development? And what is the threshold of debt service that would allow the country enough fiscal space to sustain such economic and social development?

Jamaica already has passed the tipping point - the time to act is now. If the debt crisis continues, the development debate will not be focused on how to serve the people. Indeed, without a breakthrough in fiscal discipline, servicing the people will be more and more difficult - and thus, Jamaica's goal of progressing from middle-income country to First-World economic status by 2030 could be undermined. In addition to the Government exercising fiscal discipline, creditors, too, will need to do their share. In the main, these creditors are Jamaican financial institutions, which hold 53.85 per cent of J$1.165 trillion in government debt as at January 2009.

There is an existing opportunity for this dialogue to happen. Over the past few months the Government, trade unions and private sector have rekindled talks towards achieving a new social partnership based on discussions on a range of economic and social issues and on consensus on policy amid harsh economic circumstances.

The opportunity presented is for a 'Kingston Club' as opposed to the Paris Club, which is a group of public lenders from the world's richest countries, or the London Club, its equivalent among international private creditors. The Kingston Club could serve as the arena for comprehensive debt discussions between the Government and its domestic creditors, as an integral part of the social partnership, to create space for development spending.

Downgraded

Would a Kingston Club undercut the market's confidence in the Government's capacity to pay? (For it is an issue of capacity, not commitment, given Jamaica's durable record of debt repayment). To be sure, even without sending any sort of signal, the country already has been downgraded by global providers of national credit ratings and risk evaluation, such as Standard & Poor's and Moody's.

Instead of undermining confidence, a Kingston Club would build confidence, both at home and abroad. Such a move would simply indicate a credible debt management strategy with national consensus, that gives the Government room to make key investments that benefit the people and jumpstart the country's growth.

In this, Jamaica would be following two credible and convincing arguments of successful debtors worldwide: (1) They did not ask for debt write-offs or cancellation. They ask for a decent breathing space so that development can survive and grow; (2) They note that a healthy debtor is a good client in the long run - or, to put it bluntly, that a debtor can pick itself up if it is not squeezed to death.

A crucial first step as part of the Kingston Club initiative should be to analyse Jamaica's debt in the medium to long term, allowing a more realistic assessment of how much debt can be repaid while safeguarding the country's social and economic priorities. Once projections are made under different economic scenarios, a level of debt servicing can be defined that is suitable for years to come.

Additionally, public expenditure reviews in key social sectors could assess resources deployed against results obtained, guiding future budget allocations and policies. More broadly, a national or regional platform could advocate for better loan terms of debt relief for highly indebted middle-income countries such as Jamaica.

This is not about creating what is known in economics as a 'moral hazard', used to refer to the idea that someone will take more risks if he knows that he will be bailed out eventually. Both parties - the Government as the debtor and the financial institutions as creditors - would have responsibilities, which reduce the likelihood that either would not bear the full consequences of its actions.

The notion of moral hazard is not new: it was raised in the late 1980s, during the debt crisis in Latin America. In Africa, the issue was presented as part of debt relief initiative to assist highly indebted poor countries. But moral hazard notwithstanding, debt relief in Latin America and highly indebted poor countries was approved and has proved successful.

Moral issue

If there is any moral issue here, it is a moral imperative not to short-change Jamaicans - especially our children - by not addressing the debt issue as an impediment to national development.

If a dialogue begins between domestic creditors and the Government, Jamaica can lower debt servicing to allow the country to grow and build. The United Nations Development Programme stands ready to support such a forum where confidence-building measures on both sides could be introduced: creditors can know that Government will be fiscally responsible with the budget, so that any financial break it gets will not go to waste. Government can be assured that creditors will do their share to promote the national interest - securing their own interest in the long run. And, critical breathing space will be created, allowing everyone to win.

Minh H. Pham is the United Nations resident coordinator and United Nations Development Programme resident representative in Jamaica. Feedback may be sent to registry.jm@undp.org or columns@gleanerjm.com.