15 de octubre de 2014 / 14:23 / en 3 años

Jamaica IMF progress spurs tightest spread compression across EM

* Jamaica's bonds have returned 20.2% this year

* Sovereign to shun public markets until 2017

* With balanced budget, focus shifts to growth

By Davide Scigliuzzo

WASHINGTON/NEW YORK, Oct 15 (IFR) - Jamaican bonds are proving to be one of EM's top performers this year as markets grow more confident that the country's economy is finally turning the corner.

A 177bp rally in the sovereign's bond spreads so far this year marks the largest compression of any EM country in JP Morgan's Emerging Markets Bond Index as investors cheer the island's progress in meeting targets set by the International Monetary Fund.

From a total return perspective, Jamaica's international bonds have gained 20.2% year to date, trailing only Belize and Honduras, which posted gains of 24.1% and 22.4% respectively.

The index, on the other hand, has returned 7.8%, with its average spread widening by 23bp.

"There was a lot of skepticism at the beginning of the year that Jamaica would stick to the timing of the IMF program," said Carl Ross, sovereign analyst at Boston-based asset manager GMO.

"But they are on track. Oil prices are falling and the economy is showing small signs of growth, so on balance it's been a very good year."

LAST CHANCE

The country went through a debt restructuring in early 2013 - its second in just three years - but excluded external bonds from the transaction.

In July, Jamaica took advantage of record low dollar rates and improving investor perceptions of the sovereign to raise US$800m through a bond that pays 7.625%, the country's lowest ever coupon.

That was essentially international accounts' last chance to gain exposure to the improving credit story, at least until 2017.

"We are anticipating that going forward to 2016/17 our basic financing will be covered by multilateral support and bilateral support," Jamaica's Minister of Finance and Planning Peter Phillips told IFR in an interview over the weekend.

"What we are concerned about is not to disrupt the reduction of our stock of debt as built into the (IMF) program and we are pretty rigid about that," said Phillips.

Officials do not rule out the possibility of market transactions to retire expensive debt or to smooth out the country's debt profile, but any such moves would be opportunistic and dependent on market conditions.

"With the fiscal accounts in balance or small deficits going forward, what we are discussing is really refinancing," Bank of Jamaica Governor Brian Wynter said during the interview. "The debt management strategy is around that. It will be well planned but also opportunistic where appropriate."

MISSING INGREDIENT

The government plans to cut the island's debt-to-GDP ratio, currently at around 140% according to IMF data, to 97%-98% by 2020 and to 60% by 2025, with potential for even greater improvements if growth picks up steam.

"That of course is predicated on a very modest growth outlay," said Phillips. "Where we are putting our energies now is to try to augment the rate of growth in the economy as a whole and hopefully we can improve on those dynamics."

A recent drought is expected to take its toll on the country's economic performance during the quarter ending in September and the government is now projecting GDP growth of between 1% and 2% for the fiscal year 2014/15.

The rate is expected to increase to between 2.5% and 3% in the following fiscal year, as a number of infrastructure projects get underway.

"They are not out of the woods, but so far it looks like they are doing everything they can to help themselves," said Ross. "The missing ingredient is growth. If they keep controlling the budget as they have done for the past year or two, their debt-to-GDP ratio could come down rapidly."

Privately-funded projects, such as a US$1bn-US$1.5bn port privatization, and casino and resort developments worth US$700m, could push growth even beyond those projections, said Phillips.

Reporting by Davide Scigliuzzo; Editing by Paul Kilby

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