Doing Business with Jamaica: Strategies to Win in 2015 IADB and ConnectAmericas Webinar. Jamaica s Economic Outlook

Transcription

1 Doing Business with Jamaica: Strategies to Win in 2015 IADB and ConnectAmericas Webinar Jamaica s Economic Outlook Jason W. Morris, CFA, JP Vice President, Scotia Investments Jamaica Limited April 08, 2015

2 FINANCIAL HIGHLIGHTS Overview of IMF Program

3 Overview of IMF Program 4 Year IMF deal US$932.3M BOP support IADB & World Bank US$510M each for budgetary support Overall Program Part of US$2B total funding package

4 Major Objectives Sustainable debt reduction Improved competitiveness Improved social protection programs Fair burden sharing & policy credibility Structural reforms for growth & employment Fiscal adjustments & extensive fiscal Reforms

5 FINANCIAL HIGHLIGHTS IMF Targets and Budget Outlook

6 Living Within our Means Current cycle of 31 structural reforms spanning institutional fiscal reforms, tax reform, tax administration, the financial sector and growth enhancement Low deficit ~ 0.4% forecast for next year; surpluses < 1% following two years 4.0% 2.0% GOJ Central Government Budget Balance FY 2013/14: 1st balanced budget (0.1% of GDP ) in 18 years & Forecast 0.0% FY 95/96 FY 98/99 FY 01/02 FY 04/05 FY 07/08 FY 10/11 FY 13/14 FY 16/17-2.0% -4.0% -6.0% '13: NDX/IMF#2-8.0% -10.0% -12.0% Source: SIJL PAG, MoF '10: JDX / IMF#1

7 Throttling the Debt To reduce the high debt, a high primary balance (revenues less non-interest expenses) of 7.5% is required, otherwise default risk rises Potential sale of Petro Caribe debt could provide more fiscal room lower Debt/GDP lower primary balance more CAPEX spending Growth 160 Total Public Debt/GDP (%) '10: JDX Mar '13: 146.5% - recent peak '13: NDX & PDX 120 Global Crisis 110 Forecasted trajectory 100 FY 08/09 FY 10/11 FY 12/13 FY 14/15 FY 16/17 FY 18/19 Source: SIJL's PAG, MOF, IMF

8 Tax Revenue Performance Tax revenues (~90% of total revenues) are the key to the budget and IMF tests 2015/16 budget: 0.7% of GDP of new tax measures + large compliance component Challenging 2015/16 budget targets will require continued flawless execution

9 FINANCIAL HIGHLIGHTS Enhancing Growth

10 Growth Enhancing Reforms 2015/16 #1 in the Caribbean in World Bank s 2015 Ease of Doing Business Report Note: Growth enhancing reforms are part of current cycle of 31 structural reforms Improve the Business Climate Special Economic Zones Strategic Investments Logistics Hub Reducing Cost of Electricity Labor Market Reforms **Tax Reforms

11 Pipeline of Major Investment Projects Timely execution of strategic investments (PPP) will be key to growth enhancement Major Strategic Investments - Transformation from Domestic to External Demand: My Best Guesses Project Comments Size/Impact Status Energy:>460Mw Cut expensive energy costs > US$1B Gas/Coal Based ~380Mw: JPSCO, ALPART,JAMALCO ~US$700M WIP.2017 Renewables ~80Mw; from 6% to 11% of the grid ~US$200M WIP.2016 Chinese Power Plant Likely coal based for Transhpment Hub TBD N/A Integrated Resorts Hotels with Casino Gaming Licenses ~US$4-5B Casino Gaming 3 licenses in casino gaming act Hotels Min 2,000 hotel rooms each ~US$1.5B each WIP.2016?? Agro Parks Import Substitution & Exports ~US$300M Large Scale Farms 9 parks in operation; targeting 20K Hectares On Track Market Linkages Backward & forward linkages; value chain WIP Logistics Hub Major plank to enhance structural growth ~US$10-15B CHEC Logistics Park Logistics services ~US$1.5B Ph1.Q Port Facilities Dry dock, bunkering facilities TBD US$5B MOU?? Air Cargo Facility Long haul aircraft, maintenance, repairs TBD US$5B MOU?? Special Economic Zones Light manufact., assembly, distrib., techn. TBD WIP.2016? Infrastructure Development Develop Ports, Airports & Roads >US$1.5B Major Infra. Dev. Program Road Infrastructure US$350M On Track.2016 North South Highway Link Road Infrastructure US$610M On Track.2016 Kingston Container Terminal Privatization US$600M On Track.2015 Norman Manley Airport Privatization TBD WIP.2016?? Source: SIJL PAG, JIS, IDB,IMF

12 FINANCIAL HIGHLIGHTS Jamaican Outlook: Macro Environment Employment & Inflation

13 Thousands Employment Trends Unemployment rate higher than desired at 14.2% in October quarter year over year employment change of +76,500 Glass is half full: improving jobs but unemployment rate too high 100 Cumulative 4 Quarter Employment Change ('000) 50 - (50) (100) '08: Global Credit Crunch Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct' 14 cumulative: +76,500 Note: Oct 2014 vs 2013: +14,000 (150) (200) Source: SJIL's PAG, STATIN, PIOJ Apr '10: Trough -ve 183,000

14 Point-to-Point Inflation Plunges to Lowest In Decades There is low inflation globally, and Jamaica is no exception 4.5% in February 2015, lowest in over forty years. 5.0% to 7.0% likely for % 26% 24% 22% 20% 18% 16% 14% 12% 10% July 2008: 26.5% headline Feb '10: JDX / IMF #1 Inflation May '13: NDX / IMF#2 February 2015: 4.5% headline 8% Aug 2009: 6% 6.1% August 2012: 5.4% headline 4% Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 PTP Headline PTP Core (ex agri & fuel) Source: SIJL's PAG, STATIN, BOJ

15 FINANCIAL HIGHLIGHTS Jamaican Outlook: Macro Environment FX & Balance of Payments

16 12 Month JMD.USD Trends Current cycle of JMD/USD depreciation peaked way back in October month rate of depreciation now 5% in March 2015, and set to remain low barring any shocks Post Liberalization JMD/USD 12 Month Depreciation 30.0% 25.0% 20.0% Peak: 22.9% 2002/03 Fiscal Crisis Peak: 24.7% 2008/09 Fiscal Crisis & Global Credit Crunch Peak: 15.2% Oct % IMF #2 10.0% NDX, PDX 4.5% 5.0% Appreciation Jan'11 JDX, IMF#1 Mar. 30, 2015: 5.0%! 0.0% 01/03/ /03/ /03/ /03/ /03/ /03/ /03/ % Post FINSAC Era Debt Swap Era -10.0% Source: SIJL's PAG, BOJ

17 Real JMD.USD Exchange Rate Over valuation of the real exchange rate has declined substantially Thus nominal depreciation pressures should be subdued relative to last 18 months Actual Oct '08: Global credit crunch 2nd highest over valuation J$/US$ REER: Dec 1996=1 May '12: Highest overvaluation since index inception Dec May '13: IMF#2 Feb.'15: 6.2% Feb '10: IMF #1 Overvalued Undervalued 0.95 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Source: SIJL PAG, BOJ, STATIN

18 Shrinkage of C/A Deficit to Continue Key: the real exchange rate => C/A as the Primary Balance =>Debt!!! Improving Remittances (15% of GDP) and NIR Low oil prices could help push 2015 C/A deficit to lowest since 2000 calendar year Current Account Bal./GDP (%) -2.0% -6.0% -4.0% -10.0% -9.3% -7.1% -9.2% -7.6% lowest deficit since ' % -18.0% -15.9% -14.7% -12.9% Lowest FDI flows in a decade Could be lowest since % -20.4% E 2015F '08 global credit crunch: highest deficit in post Lib era

19 FDI Flows Continue Recovery FDI flows have recovered to ~US$700M+ in 2014 Highest since global credit crunch and triple the 2011 lows Foregin Direct Investment (US$M)) 1, Crisis 1,300 1, CL Financial's US$700M+ Lascelles transaction FDI's recovering Lowest in a decade: US$220M 6 Year high: US$700M* Source: SIJL PAG, ECLAC

20 Remittances Soaring to New Heights Record remittance inflows: US$2.19B in twelve months to December 2014 Remittances approximately 15.3% of GDP Month Remittance Inflows (USD millions) Sept 2008: PRe crisis record US$2.09B 2000 Dec 2014: Record US$2.19B! Oct 2009: global credit crunch - lowest since July Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Source: BOJ, SIJL's PAG

21 NIR Buffer to Improve if GOJ Taps Market NIR ahead of IMF targets, providing buffer to pay foreign currency bills Should remain buoyant near term if GOJ taps market within next month or two 2,800 Net International Reserves (US$M) 2,600 2,400 2,200 April 11: Record High US$2.6B Sep. '14: US$2.2B 2,000 1,800 '08 Credt Crunch US$800M financing 1,600 1,400 1,200 '10" IMF#1, JDX IMF#2 Feb. '15: US$1.9B 1, '13: NDX, PDX Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Source: SIJL PAG, BOJ

22 FINANCIAL HIGHLIGHTS Jamaican Outlook: Macro Environment Interest Rates, Credit and GDP

23 Interest Rate Trends US$800 million bond last year has eased local liquidity pressures as GOJ has lower JMD borrowing needs Rates to continue downward trajectory as NDX debt matures given fiscal discipline 11% 10% 9% 8% Mar ' 10: JDX Local JMD Interest Rates Mar '14: Highest in 3.5 years Feb 13: NDX Jul '14: US$800 bond issuance 7% 6% Tight liquidity conditions Feb '13: Record lows 5% Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Source: SIJL PAG, BOJ 180-day T-Bill 30-day OMO 90-day T-Bill Improving liquidity

24 Weak Credit Growth Likely to Improve 12 month growth slowed to 5.5% pace: weak demand + low liquidity Rebounding business and consumer confidence + improving JMD liquidity to drive credit growth in % YoY Change in Commercial Banks Loan and Advances to the Private Sector 35% 30% 25% '08: Global credit crunch. Credit growth slows on weak demand + low liquidity 20% 15% 10% May '13: NDX & IMF#2?? 5% 0% Q1 2010: JDX & IMF #1 Dec 14: 5.5% -5% Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Source: SIJL's PAG, BOJ

25 (%) Positive but Slow GDP Recovery Expect 1.5% to 2.5% growth in 2015, 2% to 3% 2016 Recovery in Agriculture, Mining & Construction + expansion in Hotels & Restaurants likely major drivers for Real GDP YOY Quarterly Growth (%) 2?? '08 Credit Crunch -2 Q4'14: -0.4% due mainly to Agriculture contracting by 12.8% -3 Note for Q4'14: -4 Hotels & Restuarants: +5.6% '09 Trough -ve 4.5% Mining & Quarying: -2.1% -5 Manufacturing: -1.7% Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Source: STATIN, SIJL PAG

26 FINANCIAL HIGHLIGHTS Jamaican Outlook: Macro Environment Credit Ratings

27 Credit Rating: Upgrades on the Horizon Credit risk has shrunk due to correction of twin deficits: BOP & Fiscal On track to be upgraded within the next few months as economic risks recede PetroCaribe debt sale could result in further shrinking of spreads

28 Appendix: Jamaica Economic Scorecard Indicator May 13 Mar 15 Trend Comments IMF Program Start Pass In progress. 7 consecutive passes so far Fiscal Deficit/GDP* -4.1% -0.4% Deficit of 0.2% for 2015/16 forecasted Primary Balance* 5.4% 7.6% Challenging but achievable target for 2015 Quarterly Real GDP* -1.2% -0.4% Recovery in Agri., mining, constr. & hotels Credit Growth* 19.1% 5.5% Consumer & business confidence to push credit in 15 Unemployment* 14.5% 14.2% Positive trend in jobs growth but unemployment rate to remain in double digits 6 Month T-Bill* 6.44% 6.99% Improving liquidity to push rates lower 12 Mth JMD/USD* 12.9% 5.0% Better FDI, Remittances, NIR, low CPI to slow FX depr. Net Intl Reserves US$1.0B US$1.9B Tapping of international capital markets to keep reserves buoyant FDI flows* US$490M US$700M Triple the US$220M in 2011 as recovery continues Inflation* 9.2% 4.5% Lowest in four decades on plunging oil. 5% to 7.0% for 2015 Strategic Projects ~US$15B identified In progress Trending Positive: Stable: Work in Progress: Energy, Industrial Park including Logistics Hub, Integrated Gaming Resorts, Agro Parks, BPO

29 FINANCIAL HIGHLIGHTS Thank You!