John Myers Jr, Business Reporter

The government could be forced to hike interest rates on bonds if the Bruce Golding-led administration is to successfully raise funds on the international market to plug the gap in the budget - a move that could increase the country's external debt, according to financial analyst Jermaine Burrell.

Burrell, an investment research and sovereign risk analyst at Jamaica Money Market Brokers (JMMB) Limited, says investment-rated companies in the United States were offering higher yields on comparative 15-year and 20-year bond tenures than what is currently being offered on Government of Jamaica (GoJ) bonds, which would make it more difficult to attract investors.

"If you look at some of the GOJ bonds, particularly the 2022s and 2017s, there is a huge gap between what the United States 15-year offers compared to the Jamaican 22s in terms of yield," said he said.

There is also 'a huge gap' between the Jamaican 27s to the US's 20-year instrument, Burrell said at JMMB's quarterly Economix seminar held at the Hilton Hotel in New Kingston on March 19.

yield rates

For Jamaican bonds to be competitive and the Government to be successful in raising funds on the international market, the analyst suggested that the yield rates would have to be increased by more than 216 basis points.

But for every 100 basis points added, the interest on debt would increase by one per cent.

Jamaica's overall debt now stands at $990 billion. However, this figure would jump over the trillion dollar mark if the Government should increase yields on bonds, presenting further challenges for servicing the national debt.

For the $380.3 billion 2007/08 budget, $203.5 billion was for debt servicing alone and according to Finance Minister, Audley Shaw, the amount earmarked for debt servicing is expected to increase by $55 billion with the new budget.

In the meantime, Burrell is suggesting that the government increase capital expenditure to improve infrastructure and lessen the country's susceptibility to weather-related shocks on the economy.

"The primary aim of this is to get the physical infrastructure of the country back on track or to get it more resilient to the impact of shocks," he said.

"Improving the resilience to shocks means that economic activity in general might not slow down as badly during times of adverse weather related activities."

john.myers@gleanerjm.com

TAKEN FROM THE FINANCIAL GLEANER, FRIDAY, MARCH 28, 2008