Markets are rewarding Jamaica after years of painful adjustments turned an emerging markets “basket case” into a standout, said a senior government official.
(Bloomberg) — Markets are rewarding Jamaica after years of painful adjustments turned an emerging markets “basket case” into a standout, said a senior government official.
The island of 2.8 million people recently posted one of its lowest unemployment rates in history, has slashed its debt levels by nearly half and recorded economic growth in the first half of 2.9%. This month, it won a rare sovereign credit upgrade from S&P Global Ratings.
“We had to go through very tough and bitter doses of medicine, fiscal medicine, to get our house back in order,” said Minister of Industry, Investment and Commerce Aubyn Hill in an interview in New York. Now “everything seems to be going well and it’s not because we do believe in providence, but it’s also because of a great deal of good and serious management.”
That is being reflected in global markets, where bonds from high-yield rated Jamaica — which was upped to BB- by S&P — trade more like investment-grade BBB debt, according to its spreads over US Treasuries. Its notes due in 2039 fetch the highest premium among emerging-market bonds, according to a Bloomberg index.
It marks a significant turnaround for a country that defaulted on local debt a decade ago and was later forced to take on an International Monetary Fund program. Back then, its debt-to-GDP ratio was nearly 150%. That’s come down to around 77% and the government is committed to lowering it to 60%, Hill said.
“We want to be in that position where the market is looking for new paper from Jamaica with anticipation,” Hill said. “It’s a very good place to be. We’ve worked hard at it.”
Prime Minister Andrew Holness, who took office in 2016, named Hill — a Harvard-educated former banker — to his cabinet after winning reelection in 2020.
Katrina Butt, a senior economist at AllianceBernstein, said the nation has one of the best fiscal outlooks among all emerging markets, as it has run a primary fiscal surplus for the last several years. There’s limited upside for the bonds as they already “trade very rich” and are a favorite among local, buy-and-hold investors, she said.
“The sound macro economic backdrop and strong policy track record from authorities” have also contributed to the tight spreads, according to Thomas Jackson, analyst at Oppenheimer & Co.
“We don’t anticipate a notable shift in terms of bond performance moving forward as spreads still remain quite tight even relative to its now higher credit rating,” he added.
As Jamaica weans itself off of producing sugar — which was once one of its largest exports — it has pushed forward on tourism and the tech fronts, Hill said. It’s adding some 20,000 new hotel rooms over the next five years and education is second only to spending on finance in its budget. The island also sees promise in US and Canadian nearshoring efforts.
While the US is by far Jamaica’s largest trading partner, the country has also been a conduit for China’s push into the region. Jamaica is the Caribbean’s biggest beneficiary of Chinese investment at $3.16 billion, according to the US House Foreign Affairs Committee.
Hill said those loans came at a time “when, frankly, the United Sates was busy doing other stuff.”
The last of those loans dates back to about 2017 and China holds around 4% of the nation’s total debt stock. At the time they were used to build industrial parks, highways and finance economic development projects. Now, what the island wants is investments, according to Hill.
“We’re not looking for loans,” he said. “We are at a place where we have moved our balance sheet to a position where it can stand on its own.”
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