Can Diaspora Bonds be Used in the Caribbean?
Oct 2015
Many independent countries in the Caribbean have large stocks of migrantsabroad who send remittances to relatives in the homeland. Most Caribbean
migrants reside in four principal host or remittance-sending countries: the United States, Canada, the United Kingdom, and The Netherlands. Remittances constitute more than 5 percent of GDP in most countries and exceed 10 percent in the case of Guyana, Haiti, and Jamaica. The transfers help to smooth consumption patterns, alleviate poverty, increase the supply of investable funds, and improve balance of payments. Many developing countries and most Caribbean states are fiscally constrained and have limited access to private international capital markets. Given substantial remittance inflows worldwide (US$413 billion in 2014 compared with US$135 billion in foreign aid in the same year), the governments of remittance-receiving countries wonder how some of its migrants' savings could be tapped to bridge financing gaps. One means would be for governments to issue a diaspora bond with a submarket rate of return that targets patriotic migrants who want to help their home country grow and prosper. This paper defines diaspora bonds, discusses their performance in the post-World War II era, and reviews the critical steps and conditions for successful issuance and subscription. The characteristics of selected Caribbean states are then analyzed to determine suitability for possibly using this financial instrument.