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Appendix II

FISCAL RISK STATEMENT

The April 2016 FPP presented a detailed outline of the key fiscal risks being monitored by the

MOFPS/GOJ and the associated strategies for managing them. This report provides a brief

update on some of the risks identified.

Natural Disasters

The GOJ recognizes the country’s vulnerability to natural disasters and the potential financial and

economic pressures that could result. As such, for the 2016/17 policy year of the Caribbean

Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC) programme, the

government has renewed the policy coverage for Jamaica for Tropical Cyclone (TC), Earthquake

(EQ) and Excess Rainfall (XSR) at a premium cost of US$4.9mn.

Arrears

Tax Refund Arrears are being closely managed by the GOJ to ensure that the arrears decline as

programmed. The level of tax refund arrears is monitored under the EFF programme and this

quantitative target has been met under successive quarterly IMF reviews. During FY 2015/16, the

stock of tax refund arrears was reduced by $4.4bn and ended the fiscal year at $17.3bn. The stock

continues to be steadily reduced, declining to $14.8bn at end-July 2016, representing a $2.5bn

reduction since the start of the fiscal year.

Domestic Arrears represents a category of fiscal risk that includes amounts due to suppliers and

all recurrent and capital expenditure commitments. This category of arrears is closely managed

by the GOJ and is also monitored under the EFF programme. During FY 2015/16 the stock of

domestic arrears was reduced by $524.3mn to $21.0bn at end-March 2016. The GOJ has

continued to steadily reduce the stock of domestic arrears and at end-July 2016, a further

reduction of $128.7mn had been achieved.

Public Private Partnership (PPP)

The GOJ recognizes that PPP projects have the potential to impose significant fiscal risks if not

appropriately designed and financed. Therefore, the risks associated with PPP’s are actively

monitored by the GOJ. The following provides an update on the status of PPPs since the FPP was

published in April.

Kingston Container Terminal – a 30 year Concession Agreement (CA) was executed on

April 7, 2015 with Kingston Freeport Terminal Limited (KFTL) to finance, expand,

operate, maintain, and transfer the Kingston Container Terminal (KCT). The

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June 12, 2021


Page 192

Head No. 6500B

and Title: Ministry of Transport, Works and Housing

(Capital - Multilateral/Bilateral Programmes)

P R O P O S A L S

Activity/ Service & Object of Approved Provided Savings or Approved

Project Expenditure Estimates by Law Supplementary Under New

No. 2012/13 (Statutory) Estimates Expenditure Estimates

FUNCTION 09 - HOUSING

PROGRAMME 201 - HOUSING SCHEMES

SUB PROGRAMME 21 - CONSTRUCTION OF HOUSES AND

RELATED INFRASTRUCTURE

9356 Jamaica Economical Housing Project (GOJ/China EXIM Bank) 1,354,000.0 60,250.0 1,293,750.0 Revised requirement due to delayed project implementation

Reduction

30 Grants and Contributions 60,250.0

FUNCTION 18 - ROADS

PROGRAMME 005 - DISASTER MANAGEMENT

SUB PROGRAMME 09 - FLOOD DAMAGE

9334 Palisadoes Shoreline and Road Project 1,870,000.0 510,000.0 2,380,000.0 Additional requirement to facilitate the payment of Certificates

occasioned by accelerated works.

Additional

32 Land and Structures 510,000.0

9359 Tropical Storm Nicole - KMA Drainage Project (CDB) 1,200,000.0 200,000.0 1,000,000.0 Revised requirement due to implementation delays

Reduction

32 Land and Structures 200,000.0

PROGRAMME 225 - ARTERIAL ROADS

SUB PROGRAMME 20 - MAINTENANCE OF ROADS AND

STRUCTURES

9238 Transportation Infrastructure Rehabilitation Programme (IDB) 1,342,500.0 140,000.0 1,202,500.0 Revised requirement due to implementation delays

Reduction

32 Land and Structures 140,000.0

9335 Road Improvement Programme 385,000.0 6,570.0 378,430.0 Revised requirement due to implementation delays

Reduction

25 Purchases of Other Goods and Services 6,570.0

9380 Support for Decentralised Road Maintenance Programme 34,474.0 10,000.0 24,474.0 Revised requirement due to implementation delays

Reduction

25 Purchases of Other Goods and Services 10,000.0

FIRST SUPPLEMENTARY ESTIMATES 2012/2013

$000

Remarks & Object Classification

6500B - 192

...
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Page 107

Ministry of Finance and the Public Service Fiscal Policy Paper 2021 Part 1 | Page 107

percentage points. The Government has embarked on a risk layering approach to financing risks from natural disasters. This involves establishing adequate funds and reserves to retain the cost of high frequency, low severity events such as floods or heavy rainfall, and transferring risks related to low frequency, high severity events such as major hurricanes and earthquakes through insurance facilities. The GOJ maintains a National Disaster Fund (NDF) capitalized at $512.0 million as at end-December 2020, and may also utilize funds held in a Contingencies Fund which, as at end-December 2020 is valued at $4,504.2 million. The Government may also access US$285.0 million from a Contingent Line of Credit in the event that the country is affected by a disaster of a specified magnitude. In June 2020, the Government renewed an insurance policy with the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF-SPC). The policy, if triggered provides pay- outs in the event of Tropical Cyclone (TC), Earthquake (EQ) and Excess Rainfall (XSR). In December 2020, the GOJ received a payment of US$3.5 million ($500.0 million) in respect of the CCRIF-SPC XSR policy. The pay-out was related to intense rainfall associated with Tropical Storms Zeta and Eta which affected the island in October and November 2020, respectively as well as a period of rainfall immediately prior to the storms. An assessment conducted by the World Bank Group estimated emergency losses resulting from disasters of varying severities. Financing gaps were estimated for each level of severity, taking into account financing instruments available to the GOJ (see Figure VII (m)). Results show that current financing instruments are sufficient for disasters of medium and low severities. However, for a high severity event, there is a financing gap of US$159.8 million. To address such gaps, the Government, in partnership with the World Bank has been developing a catastrophe bond for issuance in the international capital markets (ICM). A catastrophe bond acts as a form of insurance, whereby the government will pay “premiums” in exchange for a pay-out in the event of a disaster. The bond was scheduled for issuance in April 2020, but was delayed due to the onset of the pandemic. The Government will continue to monitor the international financial environment in order to determine a suitable time for issuance, as well as other available financing instruments.

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Page 18

INSTITUTIONAL PROJECTS AND PROGRAMMES (Statement Showing the Works to which Institutional Loans and Grants are Applied)

$000

Service

STATEMENT IV

Revised Estimates 2015-16

Estimates 2016-2017Heads of Estimates

GOJ External Total(Activity No.

Support to the National HIV/AIDS Response in Jamaica (formerly New Funding Mechanism)

42000B (9481)

117,121.00 90,374.00 533,625.00 623,999.00 Strengthening of Health Systems in Jamaica 42000B (9484)

5,000.00 26,040.00 26,040.00 Institutional Strengthening to Improve National Surveillance, Prevention and Control of infectious disease

42000B (9476)

20,000.00 6,855.00 6,855.00 Total Health 1,158,653.00 149,956.00 1,369,774.00 1,519,730.00 Housing Jamaica Economical Housing Project (GOJ/China EXIM Bank)

65000B (9356) 1,282,000.00 Total Housing 1,282,000.00 0.00 0.00 0.00 Transport and Communication Transportation Infrastructure Rehabilitation Programme (IDB)

65000B (9238) 448,878.00 2,588.00 2,588.00

Road Improvement Programme 65000B (9335) 4,593.00 0.00 Palisadoes Shoreline and Road Project 65000B (9334) 11,618.00 8,000.00 8,000.00 Road Rehabilitation Project II (Kuwait Fund for Arab Economic Development)

65000B (9313) 54,642.00 47,332.00 101,974.00

Rural Road Rehabilitation Project II (OPEC) 65000B (9311) 357,100.00 259,690.00 570,310.00 830,000.00

Major Infrastructure for Development Programme (MIDP)

65000B (9421) 3,596,488.00 1,287,397.00 5,690,222.00 6,977,619.00

0.00 Total Transport and Communication 4,418,677.00 1,609,729.00 6,310,452.00 7,920,181.00 Water and Sewerage Tropical Storm Nicole - KMA Drainage Project (CDB)

65000B (9359) 1,000.00

Support to Update the Jamaica Water Resoures Development Master Plan

67000B (9491) 5,310.00 4,840.00 13,616.00 18,456.00

Hermitage Dam Rehabilitation Study 67000B 7,747.00 30,988.00 38,735.00

School Sanitation Project 15000B (9451) Total Water and Sewerage 6,310.00 12,587.00 44,604.00 57,191.00 Mining and Energy Developing an Energy Services Company (ESCO) Industry in Jamaica

40000B (9376) 23,145.00 2,148.00 2,148.00

Enhancing the ICT Regulatory Environment 56000B (9431) 5,017.00 0.00

Energy Efficiency and Conservation Loan Programme

56000B (9372) 379,832.00 0.00

Energy Security and Efficiency Enhancement Project

56000B (9353) 362,040.00 2,700.00 357,004.00 359,704.00

17

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June 12, 2021


Page 31

Medium-Term Debt Management Strategy FY2020/21-FY2023/24 22 | P a g e

The nominal value of variable-rate debt as well as its share in total debt is also expected to

decrease over the medium-term by approximately $187,486.2 million or 31.5 percent and

9.5 percentage points, respectively (see Figure 16). Figure 17 highlights the concomitant

reduction in the portfolio’s sensitivity to changes in benchmark interest rates for the domestic

and external portfolios over the medium-term. The steeper reduction in the domestic portfolio’s

sensitivity to interest-rate changes is driven by relatively large redemptions of variable-rate notes

in the domestic market scheduled over the next two fiscal years.

Figure 16: Change in Variable-Rate Debt over the Medium-Term

Notes: Figure shows variable-rate debt in millions of JMD on the left axis and share of variable-rate debt in total debt on the right axis. Source: Ministry of Finance and the Public Service

Figure 17: Sensitivity to Interest Rate Changes over the Medium-Term

Notes: Simulation assumes a 500 basis point shock in baseline benchmark interest rates in each year. Figure shows nominal interest costs on the right axis, and interest cost as a share of GDP on the left axis. Source: Ministry of Finance and the Public Service

4.3 Natural Disaster Shock Simulation

Like most small-island developing states (SIDS), Jamaica is highly susceptible to the vagaries of

natural disasters, particularly hydrogeological events such as tropical cyclones and floods. Given

the increased frequency and severity of these events, the fiscal and broader economic effects can

be significant and necessitates the mainstreaming of disaster risk assessments in the public policy

landscape.

The effect of a natural disaster shock was simulated to assess the potential impact on key

portfolio indicators and the debt trajectory over the medium-term. The shock scenario is based on

a set of plausible assumptions regarding the potential economic and fiscal impact of a 1 in

100-year storm on the Jamaican economy. Figure 18 compares the simulated effects of the shock

to that of major weather events in Jamaica over the last three decades. The model results project

an economic cost of roughly US$4,352.0 million, or 28.0 percent of GDP in FY2021/22,

comparable to Hurricane Gilbert in 1988 when considered as a share of GDP.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

VR Debt (Millions JMD)

Share of VR Debt in Total Debt

-

5,000.00

10,000.00

15,000.00

20,000.00

0.00%

0.20%

0.40%

0.60%

0.80%

Nominal Interest Cost (External) Nominal Interest Cost (Domestic) Interest Cost as a Share of GDP (External) Interest Cost as a Share of GDP (Domestic)

...
June 12, 2021


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