JAMAICA is becoming more exposed to sudden capital outflows as its growing reliance on international bond markets allows money to flow in quickly — but exit just as fast, reflecting a broader shift in how emerging markets are financed, the International Monetary Fund (IMF) has warned.

The warning comes from chapter 2 of the IMF’s April 2026 Global Financial Stability Report, which examines how that shift is reshaping risks for economies that depend on foreign investors to fund borrowing.

The report shows that investment flows into emerging markets have risen sharply since the global financial crisis, with cumulative inflows approaching US$4 trillion in 2025, driven largely by non-bank investors such as investment funds, pension funds and hedge funds. While this has expanded access to financing, the IMF cautioned that it has also increased exposure to sudden shifts in investor sentiment.

“Non-bank financial intermediaries can amplify the transmission of global financial shocks to emerging market economies,” the IMF said.

Jamaica is explicitly captured in the IMF’s data, appearing in its analysis of hedge fund exposure to emerging market securities — a segment identified as among the most sensitive to changes in global risk conditions.

That exposure is reflected in the country’s debt structure. Deposit-taking institutions — including commercial banks — held $101.3 billion in domestic currency government securities as of March 2025, accounting for just 13.22 per cent of the total, with the majority held by non-bank investors.

Authorities have also periodically tested investor appetite through international road shows, engaging institutional investors ahead of potential bond issuances and exposing the country more directly to shifts in global sentiment.

Externally, the shift is more pronounced. Jamaica’s public and publicly guaranteed external debt stood at approximately US$8.97 billion as of March 2025, with global bonds accounting for about US$4.8 billion — more than half — while multilateral lenders accounted for roughly US$3.6 billion. Exposure to commercial banks was effectively zero.

The IMF found that non-bank investors now account for roughly 80 per cent of portfolio debt investment in emerging markets, reflecting a fundamental change in who holds sovereign debt.

“Portfolio flows into these markets tend to be highly volatile, and their sensitivity to shifts in global financial conditions appears to have increased since the global financial crisis,” the IMF said.

Unlike traditional bank lending, these investors can adjust positions quickly. Hedge funds and investment funds tend to respond more sharply to changes in global risk, while passive funds and exchange-traded funds rank among the most sensitive.

The report points to episodes such as the 2013 “taper tantrum” — when investors pulled money out of emerging markets after signals that the United States would scale back stimulus — along with the COVID-19 shock and the post-pandemic tightening cycle, when funds sharply reduced exposure.

“During periods of global market stress, emerging markets that are more exposed to risk-sensitive investors face tighter financial conditions — including reduced debt issuance and wider spreads,” the IMF said.

For Jamaica, the implications are direct. When global conditions tighten, borrowing costs can rise, access to financing can narrow and pressure can build on the Jamaican dollar.

Jamaica has taken steps to reduce that risk. In November 2023, the Government issued its first J$-linked international bond — a US$300-million equivalent instrument that attracted 93.5 per cent international participation and was designed to reduce exposure to US dollar exchange rate movements.

The IMF recommends similar measures, including deepening local-currency bond markets and broadening the domestic investor base to reduce reliance on volatile external flows.

According to the Ministry of Finance’s fiscal policy paper, the Government is projecting to borrow $107.07 billion in domestic debt financing for the March 2027 fiscal year to bring the total balance to $1.15 trillion. This balance is expected to rise to $1.40 trillion by the 2030 fiscal year and represent 48 per cent of gross domestic product (GDP).

The higher domestic borrowing also occurs when the Government is pushing reforms to pension limits as the Government gets ready to borrow more to support the recovery efforts after Hurricane Melissa. The Government of Jamaica listed 16 benchmark investment notes or bonds worth $623 billion two weeks ago when the Government bond trading platform was launched. That project was done in collaboration between the Bank of Jamaica (BOJ) and Jamaica Stock Exchange (JSE).

External buffers provide some protection. Net international reserves stood at approximately US$6.9 billion at the end of March 2026, equivalent to just over 43 weeks of goods imports.

“Non-bank financial investors pull back less from countries with stronger institutions, ample reserve buffers, or lower fiscal risks when global risk increases,” the IMF said.