Uruguay: Macroeconomic Outlook and Financing Strategies for February 1 st, 2018

Transcription

1 Uruguay: Macroeconomic Outlook and Financing Strategies for 2018 February 1 st, 2018

2 Key Highlights of the Uruguayan Economy 1. Robust macroeconomic performance and better outlook for the region 2. Decelerating inflation and gradual fiscal consolidation underway 3. Resilient government debt profile and large and liquid buffers 4. Milestones in 2017: development of a nominal peso curve and 100% of the CG financial needs covered in local currency 5. Financing plans for 2018? 2

3 Plaza Independencia, Montevideo 1. The Uruguay economy: recovery and better outlook for the region 3

4 I. Uruguay is on track to complete its 15th year of uninterrupted economic growth Real GDP Growth (Annual Change, in %) GDP per Capita compared to LATAM (2017, in current USD) , Avg : 4.5% P 0 URU PAN CHILE ARG BRA MEX PERU COL PAR BOL Source: Central Bank of Uruguay for historical data; projections from Ministry of Economy and Finance Source: International Monetary Fund (WEO October 2017) 4

5 After enduring a regional downturn, Uruguay faces improving growth prospects of its neighbours Cumulative Real GDP Growth (Index, Base 100=2011) Real GDP Change in Argentina and Brazil during 2017 (Q1, Q2 and Q3 of 2017, respectively, over same period last year, in %) Uruguay Brazil Cumulative Difference 4,5 3,5 2, , Argentina 0, Q3-0,5 Q1 Q2 Q3 Q1 Q2 Q3 ARGENTINA BRAZIL Sources: Central Bank of Uruguay (BCU); Central Bank of Brazil (BCB); National Institute of Statistics and Censuses (INDEC) 5

6 Marked improvement of external accounts Current Account Balance of Uruguay (Last 12 months, in % of GDP) Terms of Trade for Goods compared to LATAM (Average 2011=100) Colombia Brazil Chile Peru Mexico Uruguay Q3 Argentina (*) Source: Central Bank of Uruguay Source: : International Monetary Fund. (*) Estimated for

7 Comfortable external liquidity position International Reserves in Uruguay Reserves Adequacy Measure in LATAM (International reserves to reserve to adequacy Metric %) In USD million in % of GDP (right axis) Adequacy range PER PAR URU BOL BRA COL CHL MEX ARG PAN Source: Central Bank of Uruguay Source: International Monetary Fund Note: The assessing reserve adequacy (ARA) metric for EM comprises four components reflecting potential balance of payment drains: (i) export income, (ii) broad money, (iii) short-term debt, and (iv) other liabilities. The weight for each component is based on the 10th percentile of observed outflows from EM during exchange market pressure episodes, distinguishing between fixed and flexible exchange rate regimes. 7

8 Uruguay remains a bastion of institutional stability in the region Ranking position in LATAM Democracy Index (The EIU 2017) 1 st 1 st Corruption Perception Index (Transparency International 2016) Rule of Law (World Justice Project 2017) 1 st 1 st Prosperity Index (Legatum Institute 2017) Political Stability and Absence of Violence/Terrorism (Worldwide Governance Indicators, WB 2016) 1 st 2 nd Press Freedom Index (Reporters Without Frontier 2017) Global Peace Index (Institute for Economics & Peace 2017) 3 rd 3 rd Economic Freedom Index (Heritage Foundation 2017) 8

9 Carrasco Montevideo Airport 2. Decelerating inflation and fiscal consolidation underway 9

10 II. Inflation has fallen significantly and is back within the target band Inflation (annual, in %) Tradable and Non-Tradable Inflation (annual, in %) Inflation Target Band 5 Non Tradable Sector Tradable Sector 2 Dec-14 Dec-15 Dec-16 Dec-17 2 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Source: National Bureau of Statistic & Central Bank of Uruguay 10

11 Policy priority is to shore-up public finances to meet the targeted overall deficit of 2.5% of GDP by 2019 Consolidated Public Sector Balance (in % of GDP) General Government Public Enterprises Central Bank Consolidated Fiscal Result Source: Ministry of Economy and Finance 11

12 Punta del Este, Uruguay 3. Resilient government debt profile and large and liquid buffers 12

13 Reduced FX exposure and roll-over risk Central Government Debt (in % of GDP, end-period) Currency and Maturity Composition of Debt (end-period) Gross Debt Net Debt 100 Debt in Foreign Currency (in % of total) Average time to maturity (in years) Q (*) 5 Source: Debt Management Unit, Ministry of Economy and Finance 13

14 Active pre-funding policy has build-up central government s liquidity reserves Financial Buffers and Debt Service Obligations (in USD billions, as of December 2017)(*) Credit Lines with Multilaterals Contingent Credit USD2.4bn Lines USD2.4bn Large liquidity buffers: Underpin the credit quality of the sovereign 2 1 Liquid Liquid Assets Assets USD1.7bn USD2.2bn Debt Service in 2018 Debt Service in next USD2.9bn 12M (**) USD2.2bn (1) Provide flexibility when deciding when and how to tap the market 0 (*) Preliminary data Column1 (**) Amortization plus interest payments Column2 Source: Debt Management Unit, Ministry of Economy and Finance 14

15 Recent credit actions confirmed improved outlook Evolution of Uruguay`s Sovereign Credit Ratings Latest Credit Rating Actions A3/A-/A- Baa1/BBB+/BBB+ 01/2018. Affirmed Uruguay's rating at BBB(Low) with Stable Outlook. Baa2/BBB/BBB Baa3/BBB-/BBB- Investment Grade 09/2017. Affirmed Uruguay's rating at BBB- with Stable outlook. Ba1/BB+/BB+ Ba2/BB/BB 07/2017. Outlook raised to Stable from Negative and affirmed BBB rating. Ba3/BB /BB B1/B+/B+ 05/2017. Outlook improved to Stable from Negative and affirmed BBB rating. B2/B/B Moody's S&P Fitch 12/2016. Left the Positive Outlook unchanged and affirmed Uruguay s rating at BBB- Sources: Moody s, S&P,R&I, DBRS and Fitch 15

16 Government has reached a MoU with Finnish company UPM that sets the preconditions for the potential construction of a new pulp mill Would be largest private investment in history. Will lead to massive increase in transport infrastructure. In an economy of the size of Uruguay, this sort of investment, if it comes to pass, could have a material positive impact on GDP growth, employment and the balance of payments. 16

17 Montevideo Port 4. Milestones in debt management during

18 Landmark local currency global issuances during 2017 met large investor demand First-ever nominal fixed-rate peso issuance in global markets (June, 2017) 5-year maturity; USD 1.25 billion equivalent with a yield of 10% (coupon of 9.785%). Longest-ever nominal fixed-rate peso issuance (September, 2017) 10-year maturity; USD 1.1 billion equivalent with a yield of 8.625% (coupon of 8.5%). Global UYU 2022 Global UYU 2028 (in USD million equivalent) (in USD million equivalent) Exchange New Money 4.9 x Exchange New Money 4.0 x Allocation 5200 Demand Allocation 4100 Demand 18

19 Compression in local currency rates and shape of yield curves portend lower long-term inflation expectations Nominal and Real Local Currency 5Y Yield (Par value, in %) EM Currencies Performance vs USD (Spot change since June 1 st 2017, in %) real yield nominal yield breakeven inflation Chilean Peso Malaysian Ringgit South African Rand Depreciation against USD Appreciation against USD Chinese Renminbi 8 Colombian Peso Brazilian Real 6 4 Breakeven inflation compensation of 6.2% anual average over a 5- year horizon Peruvian Sol Indian Rupee Russian Ruble Mexican Peso Indonesian Rupiah 2 Uruguayan Peso Turkish Lira -0.1% Argentine Peso 0 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan Source: Bolsa Electronica de Valores del Uruguay (BEVSA) Source: Bloomberg 19

20 Despite significant compression, Uruguay s nominal yield remain relatively high among IG countries in EM Yield of 5-Year Local Currency Sovereign Bond (Nominal Fixed Rate) (mid-yield to maturity, in %) URUGUAY MEXICO INDIA RUSSIA INDONESIA COLOMBIA PHILLIPINES PERU HUNGARY 0.92 Source: Bloomberg 20

21 Landmarks during 2017 First-ever issuances in pesos at nominal fixed rate on a global scale Lowest nominal rate achieved for a non-indexed peso issuance Index inclusion (GBI-EM), deepening international financial integration Both local and international capital market funding was done entirely in LC 21

22 Cerro de los Caracoles, Uruguay 5. Financial program and funding plans for

23 Central government funding needs and sources Indicative Uses and Sources of Funds (in USD million) USES (*) 3,575 3,077 Interest Payments 1,558 1,682 Amortization 1,863 1,535 Primary Deficit SOURCES (*) 3,575 3,077 Multilateral Disbursements Total Bond Issuance (**) 3,045 2,700 Net Others Use of Assets (***) (*) Preliminary data (**) Includes domestic and external issuances (***) Positive value indicates a reduction in Central Government`s assets Source: Ministry of Economy and Finance. 23

24 Government is committed to maintaining strategic debt-management guidelines Balance the goal of reducing FX exposure and roll-over risk, while ensuring an efficient functioning of secondary markets in Uruguay`s bonds: Expand the sources of funding and improve financing terms Maintain the pre-financing policy Underpin sovereign credit profile 24

25 Intended debt management strategies for ) Continue developing the local currency bond markets: Extend duration and/or retap benchmarks in nominal peso yield curve Continue to target index-eligibility in primary issuances to enhance liquidity Promoting trading in secondary bond markets and dollar/peso hedging instruments Increasing share of peso debt through dollar/peso cross-currency swaps 2) Exploring the possibility of returning to the global dollar market: Deepest, more stable and efficient source of financing 25 Provides opportunities for extending duration

26 Concluding Remarks Robust macroeconomic performance and a solid reputation for having strong institutions, social stability and a predictable policy framework Policy priorities aimed at fiscal consolidation and keeping inflation pressures low Government has ample liquidity to manage disruptions in global financial conditions Continue developing local-currency bond markets and diversifying our funding markets and investor base 26

27 Uruguay: Macroeconomic Outlook and Financing Strategies for 2018 February 1 st, 2018