Institutional Investor Presentation

Transcription

1 Institutional Investor Presentation República Oriental del Uruguay Ministry of Economy and Finance October 218 1

2 Congress, National Assembly Strong Institutions and Social Cohesion 2

3 Uruguay remains a bastion of institutional stability in a volatile region Ranking position in LATAM Political Stability (Worldwide Governance Indicators, 217) Rule of Law (World Justice Project, ) Prosperity (Legatum Institute, 217) 1 st 1 st 1 st 1 st 1 st 2 nd Lowest Corruption Perception (Transparency International, 217) Full Democracy (*) (The Economist Intelligence Unit, 217) Press Freedom (Reporters Without Frontier, 218) Global Peace (Institute for Economics & Peace, 218) 2 nd 2 nd Economic Freedom (Heritage Foundation, 218) (*) 18 th place worldwide as a Full Democracy 3

4 Macroeconomic Stability 4

5 Uruguay has experienced over a decade and a half of uninterrupted economic growth Real GDP Growth (Annual change, in %) Avg : 4.3% * (*) Projected Source: Central Bank of Uruguay 5

6 Growing income per capita Growth with equality: the best distributed income and highest GDP per capita in the region GDP per capita and Gini Index 2, GDP per capita: 17,379 Uruguay 16, Panama Chile Gini Index: , Costa Rica Argentina Brazil Mexico 8, Peru 4, Colombia Paraguay Ecuador Bolivia Increasing income distribution Source: International Monetary Fund, World Economic Outlook Database, October 218 for GDP per capita in nominal USD; Social Outlook of Latin America 217 for Gini Index data 6

7 Investment has been falling and employment lags the cyclical recovery Gross Fixed Capital Investment (Last 12 months, in % of real GDP) Labour market indicators (Average of last 12 months, in %) Employment Rate 62. Unemployment Rate Q Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Source: Central Bank of Uruguay Source: National Bureau of Statistics 7

8 The government has launched a set of policies to boost investment and employment Promote investment and employment Support small businesses Facilitate tax compliance Changes to the Investment Promotion Regime to boost investments with positive externalities Additional tax benefits for promoted investment projects executed in 218 Simplified Net Worth Tax for SMEs Simplified procedures for corporate restructuring Improvements for tax-payers: Benefits for domestic farm equipment production Extension of automatic tax credits for SME investments Reduced tax debt payments costs More payment channels Reinforcement of Tax Administration rights 8

9 and private investment is reacting to the stimulus Number of projects presented (Total for Jan-Aug each year) Total investment presented (Total for Jan-Aug each year, in USD million) 5 1,6 +82% ,2 +257% 1, * (*) Includes USD 412 million corresponding to three projects submitted by UPM. 9

10 No restrictions on foreign investor activity in Uruguay 1

11 Carrasco Montevideo Airport Reduced linkages with the Region 11

12 Decoupling in the midst of a regional downturn Cumulative Real GDP Growth (Index base 1=211) 218Q2 Real GDP Growth (YoY change, in %) % Uruguay Brazil % -3 1 Argentina % 218Q Uruguay Brazil Argentina Sources: Central Bank of Uruguay (BCU); Central Bank of Brazil (BCB); National Institute of Statistics and Censuses (INDEC, Argentina). 12

13 Reduced reliance on the region for export revenues and sources of FDI inflows Exports of Goods by Destination Foreign Direct Investment Inflows by Country of Origin 1/ (Last 12 months to August 218, as a share of total) (As a share of total, 217) 2/ Argentina 5% Argentina 2% Brazil 1% Brazil 16% United States 23% Others 54% United States 6% Others 5% China 19% Spain 24% 1/ Includes equity contributions and profits reinvestments and excludes loans with related companies. 2/ Only considers countries with positive inflows. Source: Central Bank of Uruguay Source: Uruguay XXI with data from the Central Bank of Uruguay 13

14 Argentina remains the main source of inbound tourism, yet the weight of other services has increased recently Tourist Arrivals and Receipts (Last 12 months) Exports of Services (Last 12 months, in USD millions) Foreign Visitors (in million) 5 Others Argentine Tourism exports Tourism Receipts (in USD billion) 2.5 6, Tourism Other 1/ 5, 4 2 4, 3 3, , 1 1, Q Q2 1/ Software, transport and logistics Source: Ministry of Tourism Source: Central Bank of Uruguay 14

15 In addition, financial linkages with non-residents through the banking sector have diminished Credit to Non-residents by Local Banking System (% of total credit, end-period) Deposits by Non-residents in Local Banking System (% of total deposits, end-period) * * (*) As of August Source: Central Bank of Uruguay 15

16 Sovereign credit spreads are indicative of the ongoing differentiation Sovereign Risk (G-Spread in 1-Y dollar bonds, in bps) Argentina Brazil Mexico Colombia Uruguay Peru Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Source: Bloomberg 16

17 Cerro de los Caracoles, Uruguay Fiscal Policy Outlook 17

18 Central Government deficit is gradually contained Central Government deficit (Last 12 months, in % of GDP) Total Deficit Primary Deficit Aug-14 Aug-15 Aug-16 Aug-17 Aug Source: Ministry of Economy and Finance 18

19 and policy priority is to shore-up overall public finances Consolidated Public Sector deficit (In % of GDP) Non-financial Public Sector 1/ Central Bank 4 Consolidated Public Sector 3 1. Projections Aug-18* (*) Last 12 months 1/ Includes Public Enterprises Source: Ministry of Economy and Finance 19

20 Tax collection and social security contributions have moderated recently in real terms Tax revenues (Real annual change, in %) Social security contributions (Real annual change, in %) Jan- Sep Jan-Aug 18 Source: Ministry of Economy and Finance 2

21 while real expenditures are decelerating Central Government current primary expenditure (Real annual growth, in %) Jan-Aug 218 Source: Ministry of Economy and Finance 21

22 Jan-Jul 18 Growth in number of retirees and associated pension expenditure has stabilized Total number of pensioners (Annual change, in %) Pension expenditures (Last 12 months, in % of GDP) Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Source: Ministry of Economy and Finance 22

23 and nominal wage deceleration will further reduce pressures on indexed pension expenditures next year Nominal Wages (Annual change, in %) Jan-Sep 18 Source: National Bureau of Statistics 23

24 Recent Budget Review Law was prudent Change in Fiscal Deficit on election years (In % of GDP from previous year Consolidated Public Sector) Projected Source: Ministry of Economy and Finance 24

25 Port of Montevideo Robust External Sector 25

26 Improvement of external accounts Current Account Balance (Last 12 months, in % of GDP) Trade Balance in Goods & Services (Last 12 months, in USD million) 1.2 4, 3, , -3 1, Q Q2 Source: Central Bank of Uruguay 26

27 Solid external buffers Current Account Balance compared to LATAM (Last 12 months to 218Q2, in % of GDP) International Reserves compared to LATAM (As of June 218, in % of GDP) Uruguay Brazil Chile Peru Mex. Colombia Arg. Panama Uruguay Peru Brazil Colombia Mex. Chile Arg. Panama Source: Central Bank of Uruguay; Central Bank of Mexico and National Bureau of Statistics and Geography of Mexico; National Bureau of Statistics and Censuses (INDEC) of Argentina; Central Bank of Brazil; Central Bank of Colombia; Central Reserve Bank of Peru; Central Bank of Chile; National Bureau of Statistics and Censuses of Panama. 27

28 Nominal Exchange depreciation in line with other Emerging Markets Nominal Exchange Rate (pesos per USD; daily) Emerging Market Currencies vs USD (218 YTD change as of 1/3, in %) 34 Argentine Peso 33 Turkish Lira Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Indian Rupee Uruguayan Peso Russian Ruble Chilean Peso Brazilian Real Indonesian Rupiah Colombian Peso Peruvian Sol Singapore Dollar Mexican Peso Malaysian Ringgit 14.3 Depreciation against USD Source: Central Bank of Uruguay Source: Bloomberg 28

29 Central Banks has intervened on both sides of the FX market to smooth out undue volatility Central Bank FX Intervention (In USD million) Stock of Central Bank Bills (In USD million) FX Sales through CB Bills Repurchase #REF! FX Purchases Average Monthly Nominal Exchange Rate 1, 8, , , , , Jan-17 Aug-17 Mar-18 Oct-18 Sep-12 Mar-14 Sep-15 Mar-17 Sep-18 Source: Central Bank of Uruguay 29

30 During the regional sell-off, the Central Bank (CB) sold dollars in exchange for localcurrency CB bills, mostly tendered by Pension Funds (PF). This allowed PF to buy-up global nominal peso government bonds, allowing for an orderly unwinding of non-resident positions by increasing liquidity during financial stress Central Bank FX Intervention (In USD million) Yield of Nominal Peso (UYU) Bonds (In % ) FX Sales through CB Bills Repurchase FX Purchases Average Monthly Nominal Exchange Rate Maturing 228 Maturing CB Bills Repurchase implication 9 8 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Residents Holdings of UYU Bonds (In % of total outstanding) Dec-17 Mar-18 Jun-18 Sep Source: Central Bank of Uruguay Source: Bloomberg (upper); Ministry of Economy and Finance (below) Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 3

31 Inflation and Wage Developments 31

32 Inflation has hovered around the upper ceiling of inflation target band Inflation (Annual, in %) Tradable and Non-Tradable Inflation (Annual, in %) 12 Headline inflation 12 Non Tradable Sector Core inflation Tradable Sector ,3 8, Inflation Target Band Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 2 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Source: National Bureau of Statistic & Central Bank of Uruguay 32

33 Deceleration in nominal wage growth reflects wage-setting guidelines that reduced indexation Government`s guidelines for 218 wage negotiations (Annual increases in nominal wages, in %) Economic sector`s situation: As of September, 23 out of 17 arrangements have been completed. Of these, 21 followed Government s Guidelines. Year Laggard Intermediate Dynamic Among these are the Construction and Health Sector, that toghether account for 21.6% of aggregate salaries Regarding their clasification, 17% were clasified as Dynamic, 7% as Intermiediate and 13% as part of the Laggard sector. Source: Ministry of Economy and Finance and Ministry of Labour and Social Security 33

34 Solid Financial Sector 34

35 Over and above, the financial system as a whole enjoys excellent health Non-Performing Loans and Degree of Provisioning (Local and Foreign currency, in %) Solvency Profile (Number of times of the minimum regulatory capital) 8 Delinquency Degree of provisioning Jun-17 Sep-17 Dec-17 Mar-18 Jun Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Return on Equity (Last 12 months, in % ) Source: Central Bank of Uruguay Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 35

36 Solís Theatre Structure of Government Debt and Precautionary Pre-Funding 36

37 Proactive debt management reduced FX exposure which mitigates higher volatility risks Central Government (CG) Debt (In % of GDP, end-period) Currency and Maturity Composition of CG Debt (End-period) 8 Gross Debt Net Debt 1 Debt in Foreign Currency (in % of total) Average time to maturity (in years) Q Q3 6 Source: Debt Management Unit, Ministry of Economy and Finance 37

38 Pre-funding policy of Government limits roll-over and FX risks Government`s Financial Buffers and Debt Service Obligations 1/ (In USD million, as of September 218) 5, 4, 3, Foreign Currency Credit Lines with Multilaterals Debt Service Next 12 Months 1/ Foreign Currency 2, 1, Liquid Assets Local Currency Local Currency Column1 Column2 1/ Debt Service includes amortization plus interest payments Source: Debt Management Unit, Ministry of Economy and Finance 38

39 Central Government`s flow of funds Uses and Sources of Funds (In USD million) 218(*) 219(*) FINANCING NEEDS 3,352 3,12 Interest Payments 1,64 1,647 Amortization (a) 1,658 1,58 Primary Deficit (b) FUNDING SOURCES 3,352 3,143 Multilateral Disbursements Total Bond Issuance 2,7 2,95 Foreign market 1,75 Domestic market 95 Net Others Use of Assets (c) (*) Preliminary (a) Includes repurchases and early bond redemptions for USD 217 million in 218. (b) Negative value indicates a primary surplus of the Central Government. (c) Positive indicates a reduction in Central Government reserves. Source: Ministry of Economy and Finance 39

40 Montevideo Port Transformational infrastructure and energy policies underpin medium-term outlook 4

41 Uruguay is going green, diversifying its energy mix towards renewable sources and reducing fiscal risks Installed Capacity in MW (According to generation source) Electricity Generation Matrix 217 (By generation source, in % of total) 5, 2 2 4, 18 3, 2, , Thermal Hydro Eolic Biomass Solar Thermal Hydro Eolic Biomass Solar Source: Ministry of Industry, Energy and Mining 41

42 Increasing investment as the PPP program matures Executed PPP investment and pipeline of projects (In USD million) Roads and Highways Education Central Railway Source: PPP Unit, Ministry of Economy and Finance 42

43 Central Railway Project poised to start early km of railways between the port of Montevideo and the city of Paso de los Toros (located in the centre of the country). Planned investment: USD 825 million Employment to more than 1, people. Transportation of 4.5 million tons per year. 43

44 Investment and infrastructure plans are key to establish foundations for long term economic growth Second UPM pulp mill will imply: Largest investment in Uruguay s history Estimated to lead to a permanent GDP increase of 2% Nov. 217 April 218 April 218 October 218 Source: UPM official webpage 44