Government of Jamaica Government of Jamaica Jamaicas Economic - PowerPoint PPT Presentation

Government of Jamaica Government of Jamaica Jamaica’s Economic Programme Investor Presentation January 14, 2010

Government of Jamaica Government of Jamaica Representatives  Rt. Hon. Bruce Golding Prime Minister –  Hon. Audley Shaw Minister of Finance and the Public Service –  Brian Wynter Governor - Bank of Jamaica –  Dr. Wesley Hughes Financial Secretary– Ministry of Finance and the Public Service –  Pamella McLaren Senior Director Debt Management – Ministry of Finance and the Public Service – 2

Government of Jamaica Government of Jamaica Agenda  Assessment and Challenges  Economic Programme  Multilateral Financial Support  The Transaction: Jamaica Debt Exchange (“JDX”) 3

Government of Jamaica Government of Jamaica Assessment and Challenges

Government of Jamaica Government of Jamaica Assessment and Challenges  Economic growth below potential  High sensitivity to global economic and financial market shocks  Debt/GDP ratio high and rising  Interest cost crowding out public investment & services  Excessive nominal and real local interest rates  Recurring fiscal slippage and rigid expenditures 5

Government of Jamaica Government of Jamaica Real GDP 4.0% 3.2% 3.0% 2.0% 1.2% GDP (% Real Growth) 1.0% 0.6% 0.0% -1.0% -1.6% -2.0% -3.0% -3.2% -4.0% 2005/06 2006/07 2007/08 2008/09 E2009/10 6

Government of Jamaica Government of Jamaica High Levels of Debt Debt / GDP Interest as % of Tax Revenues 70.0% 150% 65.1% 137% 140% 65.0% 130% Interest as % of Tax 124% 60.0% 122% 124% 123% Total Debt/GDP (%) 57.0% 120% 117% 120% 117% 114% 55.0% 110% 50.3% 50.3% 50.0% 47.6% 100% 45.0% 89% 87% 90% 40.0% 80% 2005/06 2006/07 2007/08 2008/09 E2009/10 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 E2009/10 7

Government of Jamaica Government of Jamaica Assessment & Challenges  Most market debt is held domestically – Total debt = J$1.3 trillion – Domestic Debt is  76.3% of all Interest Costs  100% of Domestic debt  Most volatile  Significant % of Global Bonds  J$ 288 billion (27% of GDP) maturing in 24 months Debt Portfolio Interest Expense Breakdown Multilateral Multilateral 3.1% 9.5% External 20.6% External 35.0% Domestic Domestic 76.3% 55.5% 8

Government of Jamaica Government of Jamaica Fiscal Performance 15.0% 9.9% 10.0% 7.5% 6.5% 6.2% 4.8% 5.0% % of GDP 0.0% -3.3% -5.0% -4.5% -4.6% -7.3% -10.0% -10.0% Central Gov't Balance Primary Balance -15.0% 2005/06 2006/07 2007/08 2008/09 E2009/10 9

Government of Jamaica Government of Jamaica Economic Programme

Government of Jamaica Government of Jamaica Programme Framework Fiscal Reform Economic Programme Multilateral Jamaica Debt Financial Support Exchange and Monitoring (JDX) 11

Government of Jamaica Government of Jamaica Economic Programme Objective Pillars – Reduce public debt ratio – Fiscal consolidation strategy – Fiscal discipline and – Comprehensive domestic debt accountability management – Raise real GDP growth rate – Reforms to strengthen the financial system 12

Government of Jamaica Government of Jamaica Fiscal Reform  The government is committed to reducing the overall public sector deficit 13.5% of GDP in 2009/10 to near balance in FY2013/14 –  Revenues: Increase in General Consumption Tax – Introduction of General Consumption Tax on Electricity – Income tax increase for persons earning above J$5 million and J$10 million – Increase of Fuel Tax –  Expenditures: Public wage and salary increase freeze through FY2011/12 – Non-debt recurrent expenditure will be reduced in real terms for FY2010/11 – Social safety net will be expanded – 13

Government of Jamaica Government of Jamaica Structural Reform  Efficiency Gains & Rationalizations A committee appointed by the Prime Minister to present recommendations in – September 2010 Publicly-owned commercial entities –  Divestitures/Closures/Mergers  Reduce head count  Tax Administration The government will continue the comprehensive reform of tax administration –  Fiscal Responsibility The government will pursue enactment of a Fiscal Responsibility Framework (FRF) to – ensure prudent fiscal management is achieved  Central Treasury Management System CTM will consolidate responsibility for treasury management in one agency and – establish a Treasury Single Account to enhance cash management 14

Government of Jamaica Government of Jamaica Monetary Policy & Financial System  Reduce Inflation  Flexible Exchange Rate The BoJ will continue to manage the monetary policy within the framework of a – managed floating exchange rate regime  Strengthen the financial system Financial System Support Fund (FSF) – More effective supervision of the financial conglomerates – More stringent capitalization requirements – 15

Government of Jamaica Government of Jamaica Macro Framework GDP Growth Inflation Range 15.00% 3.0% 2.00% 1.90% 1.90% 2.0% 13.0% Real GDP Growth (%) 12.50% 0.60% 1.0% 0.0% 11.0% 10.00% 9.5% -1.0% 8.0% 7.5% -2.0% 7.50% 7.0% 7.5% 7.0% -3.0% 6.5% -3.20% 6.0% -4.0% 5.00% E2009/10 F2010/11 F2011/12 F2012/13 F2013/14 E2009/10 F2010/11 F2011/12 F2012/13 F2013/14 BOP and Reserves 14.0% 3,000 $2,462 $2,420 $2,401 $1,973 $1,873 2,000 Reserves(US$ millions) 7.0% 1,000 as % of GDP 0.0% 0 -1,000 -5.1% -5.9% -7.0% -6.7% -2,000 Balance of Payments -8.8% -10.5% Gross Reserves (right axis) Net Reserves (right axis) -14.0% -3,000 16 E2009/10 F2010/11 F2011/12 F2012/13 F2013/14

Government of Jamaica Government of Jamaica Multilateral Financial Support

Government of Jamaica Government of Jamaica IMF Stand-by Program  Borrower: Bank of Jamaica  Amount: $1.25 billion  Tenor: 26 months  Quarterly Quantitative Targets Fiscal Targets Monetary Targets – Fiscal deficit Net International Reserves – – Public Sector overall deficit Net Domestic Assets – – Debt (direct and guaranteed)  Front Loaded Disbursement Schedule Disbursement Schedule $700 $638.0 $600 $500 US$ millions $400 $300 $196.3 $200 $98.1 $100 $49.1 $49.1 $49.1 $49.1 $49.1 $49.1 $0 Q1-'10 Q2-'10 Q3-'10 Q4-'10 Q1-'11 Q2-'11 Q3-'11 Q4-'11 Q1-12 18

Government of Jamaica Government of Jamaica Financial System Support Fund (FSF)  A New Repo / Liquidity Program  Available to financial institutions participating with 100% of their Old Bonds  Only the New Bonds are eligible collateral  0% hair cut  No mark to market  Also available to financial institutions not regulated by Bank of Jamaica  Funded by Ministry of Finance and administered by Bank of Jamaica 19

Government of Jamaica Government of Jamaica The Transaction: Jamaica Debt Exchange (“JDX”)

Government of Jamaica Government of Jamaica Objectives of the Transaction  Improve maturity profile  Achieve substantial, but balanced, cost savings  Control balance of fixed, variable, and USD instruments  Ensure banking system stability  Obtain substantially 100% participation rate  Simple offer for retail participation 21

Government of Jamaica Government of Jamaica Summary Term Sheet Expiration Date:  January 26, 2010 Settlement Date:  February 16, 2010  J$700 bn local law bonds (FR/VR/USD) Eligible bonds:  Marketable Bonds issued prior to December 31, 2009 and maturing after February 16, 2010  Par-for-par exchange offer Transaction Type:  Accrued interest paid in cash  24 new benchmark bonds New Bonds:  Fixed Rate bonds are non-call life  New J$ bonds priced in the range of 12-13% Pricing:  USD bonds priced near 7%  All exchanges will be from shorter dated bonds to longer dated bonds  Fixed Rate only to Fixed Rate Allocation Rules:  USD only to USD  Variable Rate to Variable Rate, Fixed Rate, or CPI-indexed Target  Substantially 100% participation:  Bonds maturing within two years and high coupon fixed rate bonds 22

Government of Jamaica Government of Jamaica Allocation Rules Old Notes New Notes Fixed Rates “FR” Coupons: 11.00 - 13.25% FR Tenors: 3mo - 30yr Structure: Not Callable Spread: T Bill + 1.0-1.50% VR Tenors: 1.5 - 22yr Variable Rate “VR” Limited Call Structure: Protection Coupon: CPI + 2.00 - 4.25% CPI Tenors: 12 - 20yr Structure: Not Callable Coupon: 6.75 - 7.25% USD USD Tenors: 3-6yr Structure: Not Callable 23

Government of Jamaica Government of Jamaica Allocation Rules  Each Old Bond is assigned to one or more New Bond Groups based on: Structure of old bond “FR/VR/USD” – Maturity –  Refer to Appendix 1 in the Information Memorandum  Example: the checked boxes below show the New Bonds (or Package) the holders of Old FR Bonds in each Group may choose Maturity Range of Old Short FR 30Y Group 3Y Fixed 4Y Fixed 6Y Fixed 9Y Fixed 14Y Fixed Notes Package* Fixed FR-A 2/17/2010 - 12/31/2010 x x x x x FR-B 12/31/2010 – 6/30/2011 x x x x FR-C 6/30/2011 – 12/31/2012 x x x FR-D 12/31/2012 – 12/31/2014 x x FR-E 12/31/2014 – 12/31/2017 x FR-14 12/31/2017 - 12/31/ 2024 x FR-30 After: 12/31/2024 x x 24