JAMAICA could issue its first bond to its diaspora by August, say World Bank officials.

But bureaucratic red tape may hinder the move.

The idea behind selling bonds directly to the diaspora is centred on capturing some of the more-than-US$5 billion ($435 billion) — which is equivalent to approximately 40 per cent of Jamaica’s GDP — saved each year by persons of Jamaican descent living abroad.

It also involves marketing and selling the bonds to hundreds of thousands of individuals rather than a few large institutions, as is the case with global bonds issued by the Government.

On Wednesday, Dr Dilip Ratha, who manages the World Bank’s migration and remittance unit, said that the challenges faced in issuing the bond could be overcome in a matter of months.

“Strong regulations is a must,” said Ratha in reference to local management of the bond proceeds, while dismissing arguments that it is extremely difficult to meet the requirements of overseas regulators, such as the Securities and Commission (SEC) in the US.

“It’s not scary at all,” he said, at a conference held at the Mona School of Business (MSB) at the University of the West Indies (UWI) two days ago.

However, Ratha said that the Government’s decision-making process was the main issue holding back the issuance of a bond.

“The World Bank is not going to do it,” said Ratha, adding that it was up to the Government to do so.

Acting executive director of MSB, Professor Neville Ying, who is UWI’s point man on the diaspora bond, said that the team of economists are also having conversations with private sector entities along the lines of targeting the diaspora for venture capital.

“So it doesn’t have to be the Government,” he said.

Strong oversight of the use of bond proceeds becomes necessary in order to convince potential investors of its credibility, especially in the context of how the Government is perceived in its fiscal management. Those perceptions and what the diaspora would be willing to invest in — ranging from education to infrastructure development to debt service reduction — are yet to be determined.

World Bank senior economist in the migration and remittance unit, Sonia Plaza, believes that information can be acquired in a matter of months.

“The weakest data in Jamaica is on migration,” she said during a question and answer session. Later she confidently told Caribbean Business Report that a profile of the diaspora could be established in time for the Olympics.

Ying said that a national working group on migration development at the Planning Institute of Jamaica is already conducting the research on profiling the diaspora.

The month of August was a focal point of Wednesday’s discussion due to the attention Jamaica is expected to get from the performance of its team on the track, as well as the promotional push surrounding celebration of the country’s 50th anniversary.

That’s not to say the team hopes to capture a large chunk of the diaspora’s savings in one shot nor only go to the diaspora when funds are needed.

Ratha used the Development Corporation for Israel (DCI) as an example of how to nurture ties with the Jamaican diaspora.

For instance, offering multiple maturities and low subscription amounts, such as US$100, could be key in achieving the crucial goal of keeping the overseas community engaged.

Also central to the idea behind a diaspora bond is the longer maturities and the lower interest rates that are expected.

The bond would have to be set higher than the rates available to the diaspora overseas and competitive to rates available in Jamaica should they wish to take on the risk of currency conversion. However, the current rates of return in the US are barely above zero per cent, while GOJ benchmark notes offer around 10 per cent on Jamaican dollar paper. With the exchange rate spread and depreciation, it is conceivable that a four per cent yield, or possibly lower, could get considerable take-up.

During the Government’s last round into the international capital market in February last year it raised US$400 million at eight per cent — the lowest on record.