(Jamaica Gleaner) The government and the World Bank will attempt to offer a bond to the Jamaican diaspora by Independence Day in order to tap into the US$5.4 billion (J$470 billion) annual savings of that group.
The development bond would optimally invest in education and health but also retire debt.
Government, however, should expect limited take-up of its first offer because the product would be initially unfamiliar to the market, cautioned Dr Dilip Ratha, World Bank lead economist with speciality in migration and remittances, in an interview with the Financial Gleaner Thursday.
“We should keep our expectations modest rather than go for a big target. Set a low bar…the Government should be thinking of building a bridge with the diaspora. Money is important but so is building a connection,” he said.
Diaspora bonds have previously been offered by Israel in the 1950s and India in the 1990s. Such bonds are typically used for developmental purposes.
Jamaica would need to act fast in order to catch that window of goodwill surrounding Jamaica’s 50th anniversary in August and its representation at the summer Olympics, said the World Bank economist.
“There is a tight timeline if Government wants to get the bond for Independence,” he said.
“It is still a work in progress,” said Ratha. “The World Bank’s role is to facilitate the issuance of the bond by providing technical advice for the markets in the US, Canada and UK. We are also willing to help prepare the consultations to understand the diaspora’s profile and also to advise on debt management.”
Jamaica receives close to US$2 billion in annual remittances from the diaspora which comprises expatriates and their descendants. Additionally, US$5.4 billion in annual savings are generated by this group, according to World Bank estimates, Ratha said.
Leveraging patriotism
Most of that money consists of cash and low-yielding deposits, he said. The diaspora bond can tap into that pool of resources by leveraging patriotism to offer a rate “greater than the yield on bank saving but lower than sovereign rates”.
“It would be a retail bond and not an institutional bond, which means it would be sold in small denominations to a large number of people and fully regulated in the US, Canada and UK. Institutional bonds cannot be marketed directly to the retail market, so increased regulatory compliance is the key distinction in offering diaspora bonds,” Rath said.
A Jamaica diaspora bond gained popularity with government officials, ambassadors and money-transfer services over the last four years, he said.
