Jamaica and the Global Financial Crisis
Outline Pre-Stand By Jamaica Jamaica Debt Exchange pre-condition to the IMF-SBA Post-Stand By Jamaica Key Issues 2
3 PRE-STAND BY JAMAICA
Persistent national savings gap 0 0.0-500 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09-5.0 US$m mn -1000-1500 -2000-2500 -10.0-15.0-20.0 % -3000-25.0 Current Account (L.H) Current AC/ GDP (R.H) 4
45 40 % 35 30 25 20 2003 2004 2005 2006 2007 2008 2009 Goods & Services Export (% GDP) 15.5 15 % 14.5 14 13.5 13 2004 2005 2006 2007 2008 2009 Remittances/GDP % 12 10 8 6 4 2 0 2003 2004 2005 2006 2007 2008 2009 FDI (% GDP)
Fall in economic activity in the developed world leads to decline in Tourist arrivals J$ '000 0 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Stopover Cruise and Armed Forces
Capital flows decline sharply, resulting in a decline in NIR and sharp depreciation in the exchange rate 100 2,500 80 2,000 US$ millions 60 40 20 1,500 1,000 500 J$ $/$US 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 NIR WASR
1200 1000 800 600 400 200 0 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
15.00 10.00 5.00 Government sector hit by slower growth in tax revenues in the face of waning demand 300,000.00 250,000.00 200,000.00 150,000.00 24.00 23.50 23.00 22.50 22.00 % o f G D P 2 0 0 0 / 0 1 2 0 0 1 / 0 2 2 0 0 2 / 0 3 2 0 0 3 / 0 4 2 0 0 4 / 0 5 2 0 0 5 / 0 6 2 0 0 6 / 0 7 2 0 0 7 / 0 8 2 0 0 8 / 0 9 2 0 0 9 / 1 0 J $m n % 0.00-5.00-10.00-15.00 100,000.00 50,000.00-2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Deficit Primary Balance Tax (L.H) Tax/ GDP (R.H) 21.50 21.00 20.50 20.00 19.50
High interest costs reflected high interest rates and high debt. Declining trend in Debt/GDP ratio reversed J $ m n 200,000.00 180,000.00 160,000.00 140,000.00 120,000.00 100,000.00 80,000.00 60,000.00 40,000.00 20,000.00-80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 % J$ m n 1,600,000.00 1,400,000.00 1,200,000.00 1,000,000.00 800,000.00 600,000.00 400,000.00 200,000.00-140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 % 2 0 0 0 /0 1 2 0 0 1 /0 2 2 0 0 2 /0 3 2 0 0 3 /0 4 2 0 0 4 /0 5 2 0 0 5 /0 6 2 0 0 6 /0 7 2 0 0 7 /0 8 2 0 0 8 /0 9 2 0 0 9 /1 0 2000/0 1 2001/0 2 2002/0 3 2003/0 4 2004/0 5 2005/0 6 2006/0 7 2007/0 8 2008/0 9 2009/1 0 Interest (L.H) Interest/ Tax Rev (R.H) Total Debt (L.H) Total Debt/ GDP (R.H)
Hit to Key Sectors, Mining and Tourism as well as decline in Remittance and credit, results in negative real growth 4.00 3.00 2.00 1.00 % 0.00-1.00-2.00-3.00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Real Growth
JAMAICA DEBT EXCHANGE Pre-condition to the IMF-SBA 12
Objectives Improve maturity profile Reduce Interest Expense by 30% Lower variable rate proportion of debt 13
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
Debt Post-JDX Domestic Debt Instruments Profile Pre-JDX Post-JDX Simple Average Age of Debt 6.5 8.0 Weighted Average Age of Debt 4.5 8.9 Variable Rate Portion 54% 48% Fixed Rate Portion 34% 38% US$ Portion 12% 11% CPI Indexed 0% 3% Source: Bank of Jamaica 15
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
POST-STAND STAND BY JAMAICA 2 nd Review 17
300.00 There has been improvement key variables Exports Airport Arrivals 250.00 200.00 US$ millions 150.00 100.00 50.00 - January February March 2008 2009 2010 Emerging US$ millions World 170.0 160.0 150.0 140.0 130.0 120.0 110.0 100.0 Net Remittances Advanced January February March April May June July August September October November December 18 2008 2009 2010
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 There has been improvement key variables 30 30.00 25 25.00 20 15 10 5 0 20.00 15.00 10.00 5.00 0.00 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-10 12-Mth Inflation (%) Percent Aug-10 Inflation Interest Rates 0-0.005-0.01-0.015-0.02-0.025-0.03 Per cent Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 90 89 88 87 86 85 84 90-day T-Bills 180-day T-Bills Weighted Average Selling Rate Real GDP Growth q1 q2 q3 q4 q1 21-Sep- 10-0.035 2009/10 2010/11-0.04-0.045 $J/$US
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-10 6.0 Debt upgrade 24 5.0 February 2010 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 4.0 3.0 2.0 1.0 - (1.0) Percentage Points 20
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) 6.5 2. Overall balance of public entities (floor) -3.0 3. Cumulative net increase in central government direct debt (ceiling) 30.9 4. Cumulative net increase in central government guaranteed debt (ceiling) 3.2 5. Central government accumulation of domestic expenditure arrears (ceiling) 0.0 6. Central government accumulation of tax refund arrears (ceiling) 0.0 7. Consolidated government accumulation of external arrears (ceiling) 0.0 Monetary targets 8. Cumulative change in net international reserves (floor) -310.2 9. Cummulative change in net domestic assets (ceiling) 31.3 SBA PC 2nd Review Status end Jun-10 21
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
Structural Benchmarks Financial Sector Reforms Unlawful Financial Organizations Risk Weighting on forex GOJ bonds Amendments to BOJ Act Capital Requirements for Securities Dealers
24 KEY ISSUES
But there are risks to the outlook Global economy is expected to continue growing 4.8 percent in 2010 and 4.2 percent in 2011. But downside risks have risen sharply Recent turbulence reflecting concerns about fiscal sustainability and policy responses 25
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
Other risks to the outlook Natural disaster (impact of recent rains) Volatility in commodity (oil) prices Inadequate buy-in Social Tensions 27
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 Thank you