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COMMENTS: Financial analyst, Adrian Stokes

DESPITE THE feature of ballooning public debts shared by Greece and Jamaica, the Caribbean nation's establishment of a primary surplus puts it in a less disadvantageous position, a leading financial analyst has suggested.

With comparisons being made about Jamaica's position with Greece largely because of both countries' public debt burdens, a leading financial strategist has suggested that Jamaica is different from the European nation because, among other things, it runs a primary surplus.

Greece, on the other hand, runs a primary deficit, which means its revenues are not sufficient to cover housekeeping expenses even if it does not pay interest obligations, explained Dr Adrian Stokes, vice-president, strategic planning, projects and product development at Scotia Investments Jamaica Limited.

Stokes was responding to questions posed by The Gleaner in view of Greece's attempts to have Eurozone governments sign off on a long-awaited rescue package, saving it from a default on a bond payment on March 20.

Late Monday night, the leaders signed the €130-billion (US$170-billion) bailout deal so that Greece could move ahead with a related €100-billion (US$130-billion) debt relief arrangement with private investors.

An uncontrolled bankruptcy would likely force Greece to leave the 17-country currency union and return to its old currency, the drachma, further shaking its already beaten economy and creating uncertainty across Europe, The Associated Press reported.

Asked how Jamaica compared with what is happening in Greece at this time, Stokes said: "Jamaica is similar to Greece in a couple of ways," perhaps the most pronounced being a fairly high debt burden and an economy that is not very competitive.

DEBT COMPARISON

Greece's debt is currently at 160 per cent of gross domestic product, while Jamaica's stands at just over 130 per cent of economic output.

Stokes said, however, that Jamaica differs from Greece in a number of important ways.

"Jamaica has its own currency, which means it has a little more freedom than Greece when it comes to borrowing in its own currency," he said.

"Jamaica also runs a primary surplus, which is a necessary fiscal condition when you have a relatively high debt burden," he added, noting Greece's primary deficit.

Responding to the question of whether Jamaica has a credibility problem in terms of how it is currently handling its finances, the financial analyst suggested that the current trajectory was not sustainable.

"Everyone recognises that the country cannot continue on the current path. The country's revenue capacity cannot support the current government apparatus," he said.

As to whether Jamaica is, at this time, moving in the right direction as it relates to its objectives for borrowing, Stokes suggested that the current administration, through Finance and Public Service Minister Dr Peter Phillips, has said all the right things in terms of moving forward.

"Truth is, we have seen this move before where the correct vision is articulated but incongruent policy options are chosen. Let's hope this time will be different," he said.

Asked what are the biggest challenges facing Jamaica in reducing the public debt, Stokes said: "Jamaica faces an interesting policy conundrum. Theoretically, the Government should be pursuing an expansive fiscal policy to counter the economic slump."

He said, however, that the country faced a binding constraint on spending since the market - both private and/or multilateral - would not lend the amount of money to the country that would move the growth needle given the already high debt burden.

"Therefore, the Government will have to cut primary expenditure … in the near term. Cutting primary expenditure by itself will not be a sustainable way to reduce the debt burden; the economy has to grow. And so the biggest policy challenge will be achieving private sector-led growth while the Government is pulling back. This will be no simple task," he said.