Governor Rambarran: Small economies should tap into diaspora bonds

As the region searches for non-traditional methods of financing to survive, Central Bank Governor Jwala Rambarran is recommending the use of diaspora bonds, an innovative system that targets investors who have emigrated to other countries, as well as the relatives of those emigrants.

Rambarran made the suggestion yesterday at the opening of a two-day workshop on Countercyclical Loans for the Management of Exogenous Shocks in Small Vulnerable Economies and Non-Traditional Sources of Development Finance. The event was hosted jointly by the Commonwealth Secretariat, United Nations Development Programme and the Central Bank.

The workshop is focusing on the feasibility of counter cyclical loan instruments from the International Monetary Fund and World Bank, as well as new sources of revenue, including new regional financing mechanisms for small vulnerable economies.

Rambarran said it has been a challenge for small vulnerable economies to find new financing arrangements to survive external shocks, including the compression of aid flows, dismantling of preferential trade arrangements and interventions related to anti-money laundering efforts.

He said the combined effects of these multiple shocks have led to a dramatic and fundamental shift in the composition of external financing flows to the Caribbean. Also, remittances for many regional countries have become an important and promising source of non-traditional external financing. The Caribbean, he said, is among the larger recipient of remittances in proportion to its gross domestic product.

“In effect, the Caribbean has created its very own large, highly educated diaspora pool that represents a potential alternative source of long-term funding.” Rambarran said the population of the Caribbean diaspora is estimated to be around 3.5 million people, or more than one-fifth of the region’s population. A preliminary estimate places the annual savings of the diaspora at more than 15 per cent of the region’s GDP, he added.

“But despite this impressive potential market, regional governments are yet to adopt innovative financing solutions, such as diaspora bonds, to tap into the wealth of its diaspora.” Notwithstanding that, Rambarran said, there is no “silver-bullet solution” to the deep-rooted financing challenges small, vulnerable economies face.

Caribbean debt
Another major factor that impacts on the region’s challenging financial situation is the Caribbean’s debt. “Heavy public debt, external current account deficits and slowing capital flows are placing undue pressure on the region’s international reserves and predominantly fixed exchange rate regime,” Rambarran said.

Faced with declining aid resources, many Caribbean governments have resorted to more expensive commercial borrowing to bridge their funding gaps. That, coupled with their inability to generate high enough primary fiscal surpluses for debt servicing, contributed to a large public debt overhang. He said four Caribbean countries are projected to hold exceptionally high public debt in 2013:
• Jamaica - 140 per cent
• St Kitts and Nevis - 139 per cent
• Grenada - 109 per cent
• Antigua and Barduda - 93 per cent