US$m mn

Transcription

1 Jamaica and the Global Financial Crisis

2 Outline Pre-Stand By Jamaica Jamaica Debt Exchange pre-condition to the IMF-SBA Post-Stand By Jamaica Key Issues 2

3 3 PRE-STAND BY JAMAICA

4 Persistent national savings gap / / / / / / / / / US$m mn % Current Account (L.H) Current AC/ GDP (R.H) 4

5 45 40 % Goods & Services Export (% GDP) % Remittances/GDP % FDI (% GDP)

6 Fall in economic activity in the developed world leads to decline in Tourist arrivals J$ ' ,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , , Stopover Cruise and Armed Forces

7 Capital flows decline sharply, resulting in a decline in NIR and sharp depreciation in the exchange rate 100 2, ,000 US$ millions ,500 1, J$ $/$US NIR WASR

8 US: dominant trading partner US$ Millions Canada France Germany Iceland Netherlands Norway Russian United Kingdom United States of America Sum of 2008 Sum of 2009

9 Government sector hit by slower growth in tax revenues in the face of waning demand 300, , , , % o f G D P / / / / / / / / / / 1 0 J $m n % , , / / / / / / / / / /10 Deficit Primary Balance Tax (L.H) Tax/ GDP (R.H)

10 High interest costs reflected high interest rates and high debt. Declining trend in Debt/GDP ratio reversed J $ m n 200, , , , , , , , , , % J$ m n 1,600, ,400, ,200, ,000, , , , , % / / / / / / / / / / / / / / / / / / / /1 0 Interest (L.H) Interest/ Tax Rev (R.H) Total Debt (L.H) Total Debt/ GDP (R.H)

11 Hit to Key Sectors, Mining and Tourism as well as decline in Remittance and credit, results in negative real growth % / / / / / / / / / /10 Real Growth

12 JAMAICA DEBT EXCHANGE Pre-condition to the IMF-SBA 12

13 Objectives Improve maturity profile Reduce Interest Expense by 30% Lower variable rate proportion of debt 13

14 Allocation Rules Exchange shorter dated debt for longer dated debt Fixed rate debt can only be exchanged for fixed rate debt. USD debt can only be exchanged for USD debt 14

15 Debt Post-JDX Domestic Debt Instruments Profile Pre-JDX Post-JDX Simple Average Age of Debt Weighted Average Age of Debt Variable Rate Portion 54% 48% Fixed Rate Portion 34% 38% US$ Portion 12% 11% CPI Indexed 0% 3% Source: Bank of Jamaica 15

16 Challenges Financial Sector Post-JDX Lower interest earning Increasing credit risk (NPL) Appreciation of the Jamaican dollar However, institutions showing resilience Capital adequacy ratios remain sound Remain profitable despite lower earnings No use of Financial Sector Stability Fund 16

17 POST-STAND STAND BY JAMAICA 2 nd Review 17

18 There has been improvement key variables Exports Airport Arrivals US$ millions January February March Emerging US$ millions World Net Remittances Advanced January February March April May June July August September October November December

19 There has been improvement key variables Monthly Infaltion (%) Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May Mth Inflation (%) Percent Aug-10 Inflation Interest Rates Per cent Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun day T-Bills 180-day T-Bills Weighted Average Selling Rate Real GDP Growth q1 q2 q3 q4 q1 21-Sep / / $J/$US

20 Jamaica Global Bond EMBI+ Spread have declined since JDX, indicating investor confidence has improved Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 World Apr-09 May-09 Debt Downgrade News Events Lehman Bros. Files for Bankruptcy JA GLOBAL-EMBI SPREAD Jun-09 Jul-09 Emerging Advanced Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar Debt upgrade February 2010 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep (1.0) Percentage Points 20

21 All Quantitative Performance Criteria (PC) met Program Monitoring: Quantitative Performance Criteria (PC) under Jamaica's SBA (in J$ billions) Fiscal targets 1. Primary balance of the central administration (floor) Overall balance of public entities (floor) Cumulative net increase in central government direct debt (ceiling) Cumulative net increase in central government guaranteed debt (ceiling) Central government accumulation of domestic expenditure arrears (ceiling) Central government accumulation of tax refund arrears (ceiling) Consolidated government accumulation of external arrears (ceiling) 0.0 Monetary targets 8. Cumulative change in net international reserves (floor) Cummulative change in net domestic assets (ceiling) 31.3 SBA PC 2nd Review Status end Jun-10 21

22 Structural Benchmarks Fiscal Reforms Central Treasury Management System Fiscal Responsibility Framework Public sector rationalization plan Tax incentives Tax and customs administration Divestment of public enterprises

23 Structural Benchmarks Financial Sector Reforms Unlawful Financial Organizations Risk Weighting on forex GOJ bonds Amendments to BOJ Act Capital Requirements for Securities Dealers

24 24 KEY ISSUES

25 But there are risks to the outlook Global economy is expected to continue growing 4.8 percent in 2010 and 4.2 percent in But downside risks have risen sharply Recent turbulence reflecting concerns about fiscal sustainability and policy responses 25

26 Risks to the outlook Given... Limited scope for fiscal stimulus If private demand fails to pick up Could lead to A worsening unemployment situation Feedback on bank balance sheets 26

27 Other risks to the outlook Natural disaster (impact of recent rains) Volatility in commodity (oil) prices Inadequate buy-in Social Tensions 27

28 Stakeholders: Stay the course, build for the long haul Government Improve Tax administration Improve Debt Management operations (middle office) Public sector rationalization Central Treasury Management System Implement Fiscal Responsibility Framework Regulators (BOJ and FSC) Stable exchange rate, Low inflation and cost of credit Contingency planning/crisis preparedness Establish Central Securities Depository to improve market efficiency Effective supervision Adequate capital and liquidity buffers Private Sector Foster productivity growth; increase competitiveness Advocacy (push for reforms) Build confidence 28

29 29 Thank you