Durrant Pate/ Contributor

With Jamaica’s national budget being tabled last week for a $1.26 trillion expenditure programme for the 2025/2026 financial year with a budget gap of $158.4 billion, the government has given an inclination to how this gap will be financed, particularly through loans.

While it remains unknown whether there will be an additional tax package in the upcoming budget,  the Government of Jamaica (GOJ) Medium Term Debt Management Strategy for 2025/2026-2028/2029 points to the local bond market, where most of the budget gap funding will be sourced. The Holness government plans to focus primarily on domestic bond issues to finance most of the shortfall.

In doing this, the Andrew Holness administration aims to secure an average of 56% of the budget financing shortfall from the domestic market over the medium term. The Medium Term Debt Management Strategy, which was tabled along with the Estimates of Expenditure for 2025/2026 in parliament last Thursday indicates that the government intends to issue bonds across the short, medium and long-term segments of the yield curve, mainly at larger tenors in order to maintain or increase the portfolio’s average time-to-maturity.

Currently, this average is targeted at nine years or more. Of note is the fact the 158.4 billion budget shortfall is $92.9 billion less than the amount in the current 2023/2024 financial year.

Current interest savings

The government is already reaping the benefits of the interest rate cuts by the Bank of Jamaica, four in total since last year. This has resulted in interest savings for the period April 2024 to December 2024 in Jamaica’s debt servicing costs. 

This was due in part to the 175 basis points decline in the three-month weighted average treasury bill yield (WATBY) moving from 8.03% last year to 6.28% in December 2024.

There has been a slowing down in economic activity in the second quarter of the current 2024/2025 fiscal year, primarily due to the effects of Hurricane Beryl in July 2024. This is leading Jamaica to record a projected economic contraction of 0.7% for the current fiscal year, which closes next month.

The Medium Term Debt Management Strategy notes, notwithstanding debt to Gross Domestic Product (GDP), is expected to continue its downward trajectory led by a rebound in growth over the medium term. Debt to GDP is estimated to be 68.7 at the end of this fiscal year, a 4.6% point reduction relative to 2023/2024.

As such, Jamaica is on track to meet the legislated debt-to-GDP target of 60% or less at the end of the 2027/2028 fiscal year 

Reduction in the foreign currency risk exposure 

There has been a reduction in the foreign currency risk exposure, as a share of central government debt. Central government debt denominated in foreign currencies declined to 59.1 at the end December 2024, supported by the conversion of two Inter-American Development Bank foreign currency loans to local currency.

This was done as part of the government’s liability management programme, as well as the vibrant domestic market issuance.