Peter Espeut | Nigel’s parting gift

You have to admit that Nigel Clarke is a bright fellah!

In the months before a general election, governments (read “parties in power”) would love to have billions of dollars of cash in hand to spend to woo voters without printing money (which would increase inflation) or drive up the national debt (which would throw off the debt-to-GDP ratio and make the IMF, the IDB and the World Bank very unhappy).

The Hon Nigel Clarke, outgoing minister of finance and the public service – has been able to make some US$480 million (about J$74.4 billion) available to the government to spend NOW without that sum appearing on the books as government debt.

Brilliant!

There is debt, of course, but it is not (formally) held by the Government of Jamaica.

The source of my information is the website of NCB Capital Markets Ltd. ( https://www.ncbcapitalmarkets.com/research/latestnews). They name their source as the Ministry of Finance.

First, a company called Kingston Airport Revenue Finance Ltd (KingAir) is registered. It is described as “a special purpose vehicle held in trust in the Cayman Islands, whose actions are limited to the terms of its debt, and which dissolves after it repays its debt”.

I do not know who the shareholders (owners) of this company are, but it seems that it is not the Government of Jamaica (GoJ), otherwise the debt would be to the government’s account. It would be nice to know, for to those shareholders will flow the considerable profits from this transaction. Whoever they are their money is safe in the Cayman Islands.

Yet “The Government of Jamaica announced that it secured US$480Mn in its first structured securitisation transaction in the international capital markets”. KingAir issued “a US$480 million, 12-year bond in the international capital markets” which was oversubscribed by “over five times the US$440 million initially sought. The offer was upsized to US$480 million in response to this robust demand. The notes will bear a fixed coupon of 6.75 per cent for 12 years”.

CONTRACTED

The Norman Manley International Airport (NMIA) in the middle of the Palisadoes strip in Kingston is fully owned by the GoJ, but since October 2019 its management has been contracted to Grupo Aeroportuario del Pacífico, a Mexican company which also operates the Sangster International Airport in Montego Bay. Grupo Aeroportuario del Pacífico operates a portfolio of 14 airports, including some of the biggest tourism destination airports in the wider region, including Los Cabos and Puerto Vallarta in Mexico. Jamaica’s income from the lease of the Norman Manley International Airport to Grupo Aeroportuario del Pacífico is secure, barring some horrendous natural disaster or the outbreak of a world war.

How is this company – Kingston Airport Revenue Finance Ltd. (KingAir) – capitalised? The language used is very carefully chosen. “The GOJ granted Kingston Airport Revenue Finance Ltd. its rights to 52.33 per cent of the revenue generated by the Norman Manley International Airport (the KingAir RevShare) in exchange for the US$480 million that was raised through the bond issue”.

For the next 12 years (until 2036 AD), KingAir will receive more than half of the revenue the government expects to obtain from its lease of NMIA, and in exchange, the government will get US$480 million NOW to spend. I am almost certain we will find that the amount KingAir will receive over the next 12 years is more than the US$480 million the GoJ will receive NOW. KingAir must gather its margin. There is a cost to the taxpayer for receiving future revenue NOW.

Is this a loan by the government to KingAir? It seems not, otherwise it would appear as such on the government’s books.

Is it a gift?

REALISE FUTURE REVENUES

It certainly is a mechanism for the Government to realise future revenues in the present for spending NOW.

I do not know how much KingAir will receive from the GoJ over the next 12 years, but I am sure that the company will come out far ahead on the deal. When the debt is finally liquidated in 2036, the shareholders of KingAir – whoever they are – should be very happy.

Opinion polls and the results of the February local government elections indicate that the Jamaica Labour Party may not form the government after the next general election. What this KingAir arrangement does is allow the present government to spend some of the next government’s income. In fact, the present government will be able to spend NOW some of the income of the next three political administrations (it is reasonable to expect at least three general elections over the next 12 years).

The Ministry of Finance tells us that this KingAir arrangement is “its FIRST [my emphasis] structured securitisation transaction in the international capital markets” , so we can expect other such arrangements, where we forward sell our future income at a discount in exchange for money to spend NOW.

Everyone who obtains a loan NOW on next month’s pay cheque knows the belt-tightening that has to happen over the next few months until the debt is repaid. The government is foregoing future revenue to come in over the next 12 years, to spend NOW on matters it considers urgent or expedient.

Is this wise?

What will be the impact on the budget over the next two decades as we adjust to spending tomorrow’s income today?

In the meantime, on what will this Holness administration spend the J$74.4 billion?

I am sure the Holness administration is grateful to Nigel for this parting gift.

Peter Espeut is a sociologist and development scientist. Send feedback to columns@gleanerjm.com