IN a piece released on Thursday, JP Morgan’s Caribbean analyst Neeraj Arora observed that Jamaica’s central government fiscal deficit for the first nine months (April-December) of the current fiscal year 2010/2011 of J$56 billion was equivalent to 4.8 per cent of estimated full year 2010 gross domestic product (GDP), and therefore outperformed the budgeted fiscal deficit target of J$64 billion (5.5 per cent of GDP).

This was mostly due to expenditure restraint, as government revenues and grants of J$224 billion were slightly lower (2 per cent) than budget, offset by 4 per cent lower total expenditures of J$280 billion, split largely between lower capital (14 per cent less than budget) and lower than expected (7 per cent) interest payments.

The primary surplus of J$32 billion (2.7 per cent of GDP) for the period was slightly more than the J$30 billion (2.6 per cent of GDP) target.

Arora notes that under the International Monetary Fund (IMF) Stand-By Arrangement (SBA), the primary surplus target was set at 4.9 per cent of GDP for the current fiscal year (including one time costs related to the divestment of Air Jamaica) and the overall fiscal deficit target was 6.5 per cent of GDP.

Arora concludes, “The latest data suggest that Jamaica has met its primary fiscal target set under the fourth review of the IMF SBA (based on end December 2010 targets) due at the end of February, which should result in a US$200 million disbursement (the second largest of the SBA) ahead of the US$400 million maturity of the Global 2011 bond in May. “

JP Morgan’s positive analysis of our critical fiscal numbers is important, as it comes at a time when the Jamaican government is considering proposals from the major international investment banks as to whether to issue a new international bond to replace the one coming due in May.

Excluding the yield of just under 6.5 per cent on the tax free 2022’s as an outlier, Oppenheimer estimates that yields on Jamaican Eurobonds currently range between a yield to maturity of 6.25 per cent (based on the offer price) on the 2015 Eurobond to 8.3 per cent on the 2036 Eurobond (with the longer 2039 surprisingly yielding about 8 per cent). Encouragingly for Jamaica, the yield on the Eurobond maturing in 2017 of 7.1 per cent is actually below the comparable “restructured” US-denominated domestic debt of 7.25 per cent maturing in 2016, suggesting that the international capital market agrees with the local market pricing chosen by Citibank one year ago.

Reliable sources suggest that a reopening of one or more of the Jamaican Eurobonds may occur within the next two weeks. If this is the strategy to be followed, then to meet Minister Shaw’s target of paying a coupon of no more than seven to eight per cent, the most likely bonds to reopen would be the 2019 and the 2039, both of which were issued with a coupon of eight per cent. This would allow one or more of the bonds to become part of the EMBI (Emerging Market Bond Index), taking advantage of passive follow through demand by international institutional investors bench-marked to this index.