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Government to access domestic bond market in FY2015/16

Published:Tuesday | July 28, 2015 | 12:35 PM

The government has signalled its intent to access the domestic bond market as part of its new medium-term debt-management strategy and borrowing plan for fiscal year 2015/16.

To strengthen its debt-management strategy and capacity, the efficiency of the Debt Management Branch in the Ministry of Finance and Planning will be strengthened by increased staffing of the middle office, skills training and effecting improvements to securities operations and domestic market development.

These actions will be taken with the help of technical assistance from the International Monetary Fund (IMF), funded by the Canadian Department of Foreign Affairs, Trade and Development, the government said in the updated memorandum of economic and financial policies.

borrowing plan

"The new medium-term debt-management strategy and 2015/16 borrowing plan aim to reduce the burden of servicing government debt, over time, and to ensure that the Government has access to several sources of financing, including the domestic bond market," it said.

It added that a debt-management business-continuity strategy and function will also be developed with IMF technical assistance. The business continuity function will be defined through back-office procedures.

Last month, the IMF said continued weakness in budget revenue could jeopardise the sustainability of the fiscal consolidation over a longer horizon.

"Vulnerabilities in the financial system are temporarily elevated due to the securities dealers sector transitioning to a new business model and the domestic government-bond market remaining frozen," it added.

economic update

In its Spring 2015 economic update on Jamaica, the World Bank noted that while the US$800-million sovereign bond issue in 2014 re-established access to international debt markets, the Government remained locked out from internal financing as the market for government paper continued to be frozen.

However, it said that as risk spreads continues to decline and the IMF programme progresses successfully, it is expected that the domestic bond market would become active again.

The bank said the depreciation in the value of the Jamaican dollar contributed to continuation of the freezing domestic-bond market.

However, it said that "as the exchange rate stabilises, the risk-adjusted differential will shift towards domestic assets."

When combined with the increase in business confidence, it will cause liquidity to be channeled towards domestic assets, possibly helping unlock the currently frozen domestic-bond market, the bank said.