Abstract Seven 2010

GLOBAL

DEVELOPMENT STUDIES

___________________________________________________________________________________________________________________

Volume Six Winter-Spring 2010 Numbers 1-2.

___________________________________________________________________________________________________________________

THEME: THE GLOBAL FINANCIAL AND ECONOMIC CRISIS: IMPLICATIONS FOR THE CARIBBEAN REGION

FISCAL POLICY RESPONSE TO THE GLOBAL FINANCIAL CRISIS: AN IMPACT ASSESSMENT OF

JAMAICA'S SUCCESSFUL DEBT EXCHANGE TRANSACTION ON PUBLIC SECTOR DEBT

SUSTAINABILITY

R. Brian Langrin

Financial Stability Department

Bank of Jamaica, Nethersole Place

P.O. Box 621

Kingston, Jamaica

Email: brian.langrin@boj.org.jm

Published Online: March 15, 2017

ABSTRACT

The objective of the article is to illustrate the risks to Jamaica’s public debt sustainability following the successful completion of the Jamaica debt exchange (JDX) in February 2010. The JDX was a prior action to the attainment of an IMF Standby Arrangement with Jamaica to address the country’s severe macroeconomic imbalances arising from the global economic crisis. Using stochastic simulations, probability distributions of Jamaica’s debt-to-GDP ratio are projected over the medium-term, post-debt exchange, taking account of the volatility of historical shocks to exchange rate, GDP growth rate and the real interest rate as well as their correlation. Although debt dynamics are projected to improve, the study finds that there is no automatic stabilizer effect associated with Jamaica’s historical confluence of real interest rate, exchange rate and real GDP shocks.