Jamaica is one of seven governments that helped shape a new financial tool designed to keep the Caribbean Development Bank, CDB, lending through a major crisis.

The tool is called a Contingent Capital Facility.

Chevon Campbell tells us more.

Under it, governments sign a binding promise to put money into the bank, but only if it is hit by a rare and severe financial shock.

Until then, no cash changes hands.

But the credit rating agencies count the promise as capital, which means the bank can lend more today.

In a report published this month, Cantium and Ardhill Advisory, the consultants who designed the facility, stated that the work is complete.

The contracts have been drafted with input from the international law firm Linklaters and are now available to any development bank.

The report lists the Government of Jamaica as an official observer of the project, alongside Brazil, Canada, China, Germany, Italy and the United Kingdom.

Jamaica is the only Caribbean government in that group.

The authors say the facility is the cheapest source of capital for a development bank after cash paid in by shareholders.

They say it is designed to trigger only in a one-in-a-thousand-year scenario.

An earlier phase of the study warns that a major climate disaster could leave borrowing countries unable to repay the CDB, squeezing its lending at the very time they need it most.

The report says the next step is a first deal with a government willing to sign on.

The World Bank completed a similar arrangement with New Zealand late last year, worth US $50 million.

Meanwhile, while Jamaica helped design the facility, its credit rating means it cannot meaningfully fund it.

The rating agencies only give full value to promises from highly rated governments.

The report says S&P cuts the value of a promise from a BB-rated government by half.

Moody’s requires a rating of at least A2, and Fitch’s draft rules give full credit only to governments rated A or above.

Jamaica is currently rated BB by S&P, Ba3 by Moody’s and BB-minus by Fitch, all below investment grade.

That means the money is likely to come from stronger shareholders such as the UK and Canada.

The report does point to a possible route for lower-rated countries: having private insurers back their promise or putting up high-quality collateral.