Finance Minister Audley Shaw yesterday disclosed that the previous Government’s PetroCaribe debt buyback will cost the country US$110 million (J$13.4 billion) annually from a six per cent increase in interest rate on the new agreement.
In addition, Shaw told the Private Sector Organisation of Jamaica (PSOJ) President’s Forum at the Jamaica Pegasus hotel that, after taking office, the new Administration found that the estimated J$9.5 billion that should have been set aside from the forward purchase of oil had been included in the consolidated fund.
The new Government had said it would reallocate that J$9.5 billion to fund its election promise to abolish income tax for individuals earning up to $1.5 million annually.
After his address, Shaw told journalists that the Government would now have to find the money elsewhere to fund the income tax proposal, and said he would speak further to that in the upcoming budget debate.
“The [PetroCaribe] Fund is now quite compromised in the fact that, while the buyback of the PetroCaribe debt was so celebrated, and we must acknowledge that it did bring the national debt down to a point… let’s not forget that in order to buy back that debt we had to now enter a new debt instrument of US$1.5 billion — not at one per cent interest rate as we were paying before, but at a seven per cent interest rate,” the minister stated.
“And the consequence of that now is that the PetroCaribe Development Fund is now being called upon to appropriate US$110 million from that point to the servicing of that US$1.5 billion,” Shaw continued.
Last July, then Minister of Finance Dr Peter Phillips signed off on an agreement to purchase US$3.2 billion in debt owed to State-owned Venezuelan oil company Petróleos de Venezuela SA (PDVSA) through the PetroCaribe Development Fund at US$0.46 on the dollar, or a discount of 54 per cent, with the remaining funds allocated for what the prospectus describes as general budgetary financing.
The purchase was made from US$2 billion raised by the then Government through the issuance of two Eurobonds on the international capital market.
Economists, along with the PSOJ, were in support of the move, while Phillips emphasised that the transaction would lower the country’s debt-to-GDP ratio by approximately 10 per cent, or a J$164 billion reduction in nominal public debt stock, from J$2,147 billion to J$1,983 billion.
Phillips also confirmed that, as a result of purchasing the debt, the PetroCaribe Development Fund was now obliged to pay the central government, instead of PDVSA Petróleo SA, for the full amount of the debt, while advising that the debt buyback would not require higher taxes.
Yesterday, Minister Shaw, while emphasising that the new Government’s economic policy is based on the fundamental premise that it is possible to continue the International Monetary Fund (IMF)-approved economic reform programme while accelerating economic growth, noted that there were some immediate challenges in assessing a number of options to mitigate the fiscal impact on the reform programme.
“Many of our agencies have come to rely on the PetroCaribe Development Fund as a source for creating development support for special projects and so on… but for those who think that the fund is now available for all kinds of projects, it’s not there anymore,” he stated.
“US$110 million per year is now the first charge on that fund, so we might have to change the name from the PetroCaribe Development Fund to the PetroCaribe Debt Servicing Fund. All that glitters is not always gold,” he continued.
Despite the setbacks, Shaw said that the Government remains committed to enacting the 10-point plan it presented in the run-up to the February 25 General Election. Chief among this is the income tax proposal, maintenance of the tax benefit on the junior stock exchange, and the continuation of the IMF tax reform programme.
I am not okay with politicians making assumptions. Mr. Shaw, no excuses; here is the fallacy with the JLP’s argument, they are lamenting that the PNP used the collected gas taxes incorrectly and here they are trying to do the same. Isn’t that hypocritical? Said funds were not collected to provide tax breaks for some Jamaicans.
The ones really need to wake up and see what’s really going on here. What will the present government say when better tax compliance and their proposed tax amnesty does not work? Those who assume make @$$3$ out of themselves.
Mr Audley conman Shaw knew that the IMF instructed the PNP to use that fund elsewhere. Afterall, he was the Chairman of the Oversight Committee which is responsible for watching how the government spends money. Labourite a the biggest raas conman party there is. Unnuh bawl bout unnuh want a change. See the change deh! Anyone who voted for or supported JLP in this election have short memory, and after this debacle, JLP nah go win another election till a next 20 summ’n years when ppl figet bout this time again. Remember how Seaga f**k up the country and Jamaicans never believe in JLP for decades, a same ting ago happen now watch.
@ Pro I would hope you wish the best for Jamaica no matter which party inna power but alas it seems u all about your party. This a sad state of affairs.
I wish for the best for my country but what saddens me most of all is the fact that many Jamaicans are illiterate and those who are barely literate, won’t even read and understand what’s going on. Many Jamaicans don’t know that Audley Shaw already knew what was going on before he came in power because he’s the Chariman of the Committee which oversees government spending. PNP cannot just jump and do whatever they want without JLP knowing about it. The money was redirected as instructed by the IMF and he knew that, him just a play fool now so him can point the finger and say, “PNP thief the money so unnuh nah badda get the tax break”, so him can get the illiterate ppl who nuh understand the running of a country on his side.
This is not a good look at all.
Mi nuh know wah gwan wid di politics tings still but Mi still read…. Mi learn Nuff so far.
The man lie so till. It even on the Ministry of Finance website from September 29, 2015, say that’s what the Government were mandated to do – by law (ie put tax in Consolidated Fund) and by IMF. Peter Phillips even said it in press conference when they proposed the increase in gas tax. So none of the 3As – Audley, Aubyn and Andrew never see that?