P r e s s   R e l e a s e s  &  S p e e c h e s

home | board of directors | executive management | about  FINSAC | asset  management  | banking | insurance | regulatory framework | annual reports |
 press releases and speeches | useful linkscontacting us search site


The Gleaner - March 2, 2001

 

FINSAC bail-out to cost $13.4 billion

AT the first open sitting of the House Finance Committee this week, the Minister of Finance, Dr. Omar Davies, announced that he will be putting forward a budget totalling $185 billion of which $13.4 billion will be set aside to address the Financial Sector Adjustment Company's (FINSAC) debts.

This is the first time that the Government has put a quantitative figure on just how much money it intends on putting up to meet FINSAC's obligations.

Only two weeks ago the Minister of Finance placed the FINSAC debt at $90 billion but in Parliament this week he said that FINSAC's liabilities of $112.8 billion would be brought on to the budget right up to fiscal year 2004/2005. The cost of servicing the FINSAC debt during the next fiscal year is estimated at $13.4 billion declining to $9.6 billion in 2004/05.

As far as the budget is concerned, for the next few fiscal years the FINSAC debt will undoubtedly prove an albatross around the Government's neck.

Addressing the vexing question of FINSAC liabilities, Dr. Davies said: "With the assumption of all FINSAC liabilities effective April 1, 2001, the stock of domestic debt is projected to increase to an estimated 84 per cent of GDP.

For the fiscal year 2001/02, interest cost as a percentage of tax revenue is projected at 58.0 per cent and 49.3 per cent of recurrent expenditure. This level of debt and consequential debt servicing needs have implications for desirable growth in critical non-debt expenditure, particularly in social and physical infrastructures. The cost of servicing this debt therefore limits the flexibility of the budget."

Dr. Davies pointed out that the Government could not sit by and allow the financial sector to collapse. He said if this was allowed to happen, it would have been the small savers with deposits in these institutions, insurance policyholders and workers whose pensions were invested with these institutions who would have suffered most.

He said that the Government concluded that there was a significant cost associated with the intervention, but having intervened, found the cost to be greater than estimated largely because of the high level of non-performing loans with inadequate or in some cases, no security.

Dr. Davies drew attention to the impact of servicing the debt on the budget in an environment in which the growth in revenues is not keeping pace with the growth in expenditure.

"If this is not prudently managed, the fiscal accounts will be thrown into chaos, the gains of stabilisation reversed and the prospects for growth jeopardised. Therefore the major objective of the 2001/02 budget and the medium term must be the containment of growth in the domestic debt and a substantial reduction in debt servicing," said Dr. Davies.

During the current financial year, the budget faced a number of challenges. Revenues fell below expectations by approximately 5 per cent, due largely to an expansion in the informal economy.

Then interest rates declined at a slower-than-programmed pace. This was essentially due to the dynamics of the foreign exchange market and rising interest rates in external capital markets.

Dr. Davies said, "These had to be dealt with by the containment of expenditure in order that borrowing requirements could be contained. This of course, had implications for expenditure on certain critical programmes and projects. This will be carried forward into the medium term."

We value your feedback and comments.
Looking for something in particular? Search Our Website.

Back To Homepage

home | board of directors | executive management | about  FINSAC | asset  management  | banking | insurance | regulatory framework | annual reports |
 press releases and speeches | useful linkscontacting us search site

Technical Problems, Comments, Questions? E-mail Webmaster