Wed | Apr 24, 2019

Jamaica exploring diaspora bond to finance disaster recovery

Published:Friday | July 20, 2018 | 12:00 AM
Shorn Hector/Photographer Senator Aubyn Hill, executive director of the Economic Growth Council.

Jamaica exploring diaspora bond

to finance disaster recovery

The World Bank recommended in a new report released this week that the Jamaican Government explore the diaspora and catastrophe bond markets as a disaster risk financing strategy.

But it also suggests that any move in that direction should be preceded by a cost-benefit analysis of engaging in such a programme.

Referencing the more than US$2 billion in remittances that flow into Jamaica annually, the bank argued in the report, 'Advancing Disaster Risk Finance in Jamaica', that if the Jamaican Government can successfully harness remittance flows during times of disaster, by convincing the diaspora to redirect or increase remittance payments into public assistance, then diaspora bonds would represent a potential external instrument for borrowing.

Trust in patriotism

"These bonds provide an alternative to costly foreign borrowing. The success of using such bonds relies heavily on the 'patriotic discount' based on variables of trust in governance and the patriotism of the diaspora," the report stated.

The World Bank noted that Israel, since 1951, and India, since 1991, have been at the forefront of raising hard-currency financing from their diaspora. Israeli bonds have been sold globally, with sales approaching US$40 billion.

On the other hand, India has used issued bonds in periods of financial turmoil - offering 'India Development Bonds' in 1991 during a balance of payments crisis, and 'Resurgent India Bonds' in 1998.

Jamaica has for years been weighing the issuance of diaspora bonds, and in March this year, state media Jamaica Information Service, reported that work was ongoing on the development of a special bond being spearheaded by the Economic Growth Council (EGC) which could possibly be floated this year.

The bond will mainly target Jamaicans living in Canada, the United Kingdom and United States.

Executive director of the growth council, Senator Aubyn Hill, was quoted as saying work on the instrument entails studies to determine how the bond should and will be tailored; and putting together a prospectus to inform prospective bondholders on investment dividends.

He also said the discussions were sufficiently advanced that the bond could be floated in four months. That would have meant by this month.

Reached for comment on Wednesday, Hill redirected the Financial Gleaner to the Planning Institute of Jamaica, but that agency is yet to respond to queries about the status of the bond issue.

The diaspora bond is among several recommendations the World Bank made in the report for the government's formulation of a country-specific comprehensive disaster risk finance strategy. It said that on average, the government would need to cover losses of approximately US$121 million ($16 billion) annually to address its contingent liabilities related to hurricanes and floods.

Hurricane damage to public and private building infrastructure alone, the multilateral agency said, would amount to US$67 million ($9 billion) on average each year in the long run.

In addition to long-term impacts on economic and social development in Jamaica, disasters also increase Jamaica's sovereign debt as more funds are borrowed to finance unplanned post-disaster expenditures.

Financing for long-term reconstruction usually takes the form of official development assistance, largely loans, secured on an ad hoc basis after disaster strikes, further limiting fiscal space and exacerbating the country's public debt problems, said the report.

The national disaster fund is the main budget instrument for the government to finance public post-disaster expenditures - that fund was capitalised at US$2 million ($258 million) as of March 2015.

A Contingencies Fund capitalised at US$825,000 ($106 million) in 2014 can be disbursed for unforeseen expenditures like natural disasters, but as of September 2017 there have been no payments for weather-related events.

The Contingencies Fund has primarily been accessed for retroactive salary payments and pensions, the World Bank said.