Category: Caribbean

Jamaican bond yields are shooting up at a moment when the government is facing large maturities and a challenging external borrowing environment, says JPMorgan. The government auctioned JMD800m in 3- and 6-month treasury bonds this week at average yields of 15.21% and 16.96%, respectively, or 40bp and 161bp higher than its September auction. The average yields were 16bp and 161bp higher than those offered on comparable Bank of Jamaica CDs suggesting expectations of higher interest rates in the near term, says the shop. That 3-month treasuries were oversubscribed by 150% while the 6-month bills were undersubscribed by 1% indicate clear investor preference for shorter-dated bills. Rising yields in the domestic debt market are worrying, as they come at a time when the government has to increasingly rely on the domestic market for its financing needs. Jamaica faces a February 2009 maturity of a EUR200m 10.5% bond, and is also hammering out some $600m in loans from the IDB, which could add up to as much as $1bn over 5 years.

S&P has cut Jamaica’s outlook from stable to negative, it says, as liquidity concerns complicate its debt obligations. “The country’s reliance on external funding for its sizeable fiscal and external deficits is becoming more problematic because of deteriorating global economic and financial conditions,” the agency says. The B rated sovereign successfully raised half of the external amortizations due this fiscal year, the agency notes, and enough to cover a bullet payment in February 2009 on its EUR200m 10.5% bond. It is also hammering out some $600m in loans over 3 years from the IDB, which could be as much as $1bn over 5 years. S&P notes that if Jamaica gets through this difficult period without significant loss of reserves, and the current account deficit adjusts in an orderly manner, the outlook could be revised back to stable. Jamaica sold $350m of 8.0% 2019 bonds in June.

Growth in the LatAm and Caribbean region will slow more than previously expected, according to the IMF’s latest World Economic Outlook, which cuts the global growth outlook to 3%. Regional GDP growth is projected to drop to 4.50% in 2008 from 5.50% in 2007, falling again to 3.25% in 2009. Argentina and Venezuela look set for the biggest fall, while Mexican and Brazilian growth are forecast to ease to 1.8% and 3.5%, respectively, in 2009. “The somewhat sharper deceleration in 2009 than envisaged in the July 2008 World Economic Outlook update reflects the weaker global outlook, softer commodity prices, and more difficult external financial conditions,” says the fund. “Growth in Brazil would come down below trend, and activity would remain sluggish in Mexico as exports and remittances are dampened by the US slowdown. Growth in Central America and the Caribbean is also expected to ease, reflecting the impact of slow U.S. growth on remittances, trade, and tourism, as well as high fuel costs,” it adds. The IMF notes that domestic demand has held up, but should be dampened as the global economy slows and monetary policy tightens to contain inflation. Headline inflation for the region as a whole rose to 8% in August, the highest in five years, although it is expected to moderate in the latter part of 2008 and 2009, helped by softening commodity prices, tighter monetary policy, and slowing demand growth, says the fund. “Inflation will remain at double-digit levels in a number of countries in the region, including Bolivia, Paraguay, Venezuela, and several Central American countries,” it adds.

Turbulence in the global economy may erode cushions that have been built up over the past few years in LatAm and the Caribbean, according to the IMF’s latest World Economic Outlook. “The region’s current account balance is expected to move to deficit in 2008 and 2009, after being in surplus since 2003, but the deficit will remain quite low,” says the fund. “Moreover, reserve levels are high, and flexible exchange rates provide room to maneuver in a number of countries,” it adds. The fund also notes that a combination of tighter conditions for dollar funding and a sustained drop in commodity prices could stretch macroeconomic policy frameworks. “A deeper downturn in global growth could trigger a sharp drop in commodity prices, while external financing conditions facing Latin America could continue to tighten. Such a scenario would slow growth in the region even more, and although inflation would moderate considerably, external positions could come under serious stress,” says the IMF. Policymakers need to be ready to adapt policies as needed to preserve macro stability and growth. Those with very strong fiscal positions may have some scope for a countercyclical fiscal response. “Flexible exchange rate management would provide resilience in the face of potentially volatile foreign exchange flows,” the fund adds.

IFC will provide a $60m financing package to Bahamas based vessel operator UABL, whose river barges transport iron ore and soy products in the Parana-Paraguay river area destined for markets in Europe and Asia. The loan will finance the company’s expansion, that will help connect Bolivia, Western Brazil and Paraguay with the Atlantic, the IFC says. “This investment will increase the options for river transportation over more than 2,200km of waterways, using a fuel-efficient method that will help mitigate climate change,” the IFC adds.

S&P has raised Trinidad and Tobago to A (stable) from A minus to reflect continued strengthening of fiscal and external accounts. Backed by a booming energy market, the economy has grown an average of 9.3% annually since 2003 and that is expected to grow about 7% in 2008. The stable outlook represents the needs to do further economic diversification, a key step to reducing vulnerabilities that the non-energy deficit continues to highlight, the agency states. “Improvements in transparency and governance, in particular among the public-sector enterprises, could further strengthen Trinidad and Tobago’s creditworthiness,” S&P says. “Slippages in the pace of restructuring government-owned entities or significant increases in an already-high level of fiscal spending could lead to an unfavorable rating action,” the agency warns.