Restoring Debt Sustainability through Debt Restructuring JOINT COMMONWEALTH SECRETARIAT/CARADEM FORUM 2013 IBEROSTAR ROSEHALL, MONTEGO BAY JAMAICA Pamella McLaren
Outline Debt Sustainability Jamaica Debt Exchange - Debt Sustainability??? National Debt Exchange Appendix 2
Jamaica Fact Sheet Strategic Location at the Centre of Caribbean and Central America Prime Minister Most Hon. Portia Simpson-Miller Form of Government Parliamentary Democracy Judicial System English Common Law GDP US$14,880.4 mn (2012) GDP per Capita US$5,495.4 (2012) Population 2.7 mn (2010) Territory 10,991 km 2 FX Rate (EOP) J$99.55/US$1 (April 2013) Annual Inflation 9.1% (as of April 2013) 6 month T-Bill Rate 6.44% (avg. May 2013) Net Int l Reserves US$866.14 mn (May 2013) Political Overview Last General Election held December 2011 The People s National Party (PNP) A parliamentary term has a constitutional limit of 5 years The Ministry of Finance and Planning has two elected ministers, both members of the Cabinet Just completed upcoming Fiscal Year budget and May 1 st Obtained IMF Board Approval for a 4-year EFF 3
Debt-to-GDP Middle Income Countries
Debt Sustainability
Debt Sustainability defined as the ability of a country to meet its debt obligations without requiring debt relief or accumulating arrears SOLVENCY LIQUIDITY BURDEN Total Debt/Government Revenue Total Debt Service/Government Revenue Nominal Domestic Debt Stock/GDP External Debt/GDP Total Domestic Debt Service/Government Revenue External Debt Service/Exports of Goods and Services (Development Finance International)
Jamaica s Debt Profile Ratios (%) 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Public Debt/GDP 113.2 108.5 115.7 129.3 128.3 131.5 134.1 Interest/Budget 27.3 26.7 25.6 34.0 28.2 22.6 26.2 Debt Service /Revenue 117.6 110.2 112.5 119.3 83.2 77.3 92.6 Ext. Debt Service/XGS 9.3 12.9 14.2 12.1 11.5 14.7 15.2 Debt as of Mar. 2013 Multilateral 18% Other External Debt 7% Type of Debt as of Mar. 2013 Variablerate debt 33% Individuals 6% Retirement & Pension 5% Domestic Debt Holders National Insurance 3% Insurance 4% National Housing 2% Other 1% Broker Dealers 19% Global Bonds 20% Domestic Debt 55% Fixedrate debt 67% Non gov. Institutions 7% Building Societies 11% Government Institutions 12% Commercial Banks 15% Merchant Banks & Trust Co. 15% Source: Ministry of Finance and Planning
High Levels of Debt Debt-to-GDP ratio and Total Debt 160 140 120 100 80 60 40 20 0 FY 2002/03 FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 FY 2010/11 FY 2011/12 FY 2012/13 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Debt-to-GDP Total Debt(Left axis) Interest-to-Revenue and Expenditure 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Interest/Expenditure Interest/Revenue
Jamaica s -Debt Sustainability Debt-to-GDP 012/13 140% 2012/13 140% Debt-to-GDP Assumptions of liabilities from failed Government initiatives Anemic growth levels Excess real cost of debt Sustained large primary surpluses Debt restructuring More multilateral borrowing and less market borrowing 1990/91 50% Assumptions of contingent liabilities (banking system) Repeated natural disasters Accumulated deficit spending 2019/20 Below 100%
10 Jamaica Debt Exchange - Debt Sustainability???
Factors Contributing to the JDX Increasing interest payments Bunching of maturities Excessive nominal and real local interest rates Nexus between debt, fiscal balance, interest rate and exchange rate Unsustainable debt position
Jamaica Debt Exchange Improve Maturity Profile Reduced by two-thirds the amount of domestic debt that would mature over the next 36 months Substantial Cost Savings Achieved interest savings of 3 percent of GDP in fiscal year 2010/11 Ensure Banking System Stability Obtain approximately 100% participation rate Minimize impairment of balance sheets Significantly reduce refinancing requirement during period of adjustment
0 30 60 90 120 150 180 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 J$ billions USD VR FR Pro-forma Impact of Exchange Offer 0 30 60 90 120 150 180 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 J$ billions USD VR FR Before Transaction After Transaction* 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 USD VR FR 0 30 60 90 120 150 180 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 J$ billions USD VR FR 0 30 60 90 120 150 180 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 J$ billions USD VR FR USD VR FR
2010/11 2011/12 2012/13 Reduced Financing requirement Interest as a % of GDP: 17.28% in 2009/10 Interest as a % of total expenditure: 45% in 2009/10 Unlocked multilateral support US$1.25 BN 10.95% in 2010/11 33% in 2010/11 Slow implementation of structural reforms Fiscal targets not met Interest as a % of Budget: 26% in 2012/13 22.7% in 2011/12
National Debt Exchange
Debt Reduction Strategy National Debt Exchange OBJECTIVES New Fiscal Targets Economic Reform Program Meet IMF Programme Prior Action Reduce Expenditures & Increase Revenue Extend Maturity Profile
NDX Highlights FRAN Par for par exchange New longerdated securities 99% Participation rate Lower Debtto-GDP Financial Sector Stability Improved Maturity Profile Terms Agreed with Creditors Prior to Launch 17
Maturity Impact of NDX Transaction Pre-Exchange Maturity Profile (in J$) 160 140 152 120 100 80 60 40 20-99 84 70 63 58 55 48 45 43 39 39 35 19 3 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35 '36 '37 '38 '39 '40 '41 '42 '43 '44 '45 '46 '47 '48 '49 '50 Post-Exchange Maturity Profile (in J$) 160 140 120 100 145 Substantially lower financing risk in window of IMF Programme 99 122 80 60 40 20-18 77 58 53 49 40 42 35 29 29 19 9 2 4 - - 3 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35 '36 '37 '38 '39 '40 '41 '42 '43 '44 '45 '46 '47 '48 '49 '50
Achievements of NDX Interest cash flows reduction Extension of portfolio average life by Approximately 5 years Inflow of $ 2.5 bn Multilateral Credit Achievements Reduced Debt Servicing from 54% to 43% of budget Expected Outcome Responsive economic policies Culmination of a deep domestic debt market Approximately 8.5% reduction in debt-to-gdp by 2020
The Way Forward Sustainable Debt Balanced budget 2016/17 Strong institutional framework Central Treasury Management Fiscal Responsibility Framework-Fiscal Rules Implementation of Tax Reform Active growth agenda Continued coordination with monetary policy
The Way Forward Sustainable Debt Prudent debt management Active Risk Management Modest government financing needs Development of domestic market Engagement of institutional investors Strong commitment to honouring debt obligations Continued access to multilateral credit
Appendix
Macroeconomic Overview Fiscal Indicators as a % of GDP 20% 15% 10% 5% 0% -5% 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14-10% -15% Fiscal Balance (Surplus + / Deficit -) Primary Balance Interest 6 Month T-bill Yields 25 20 15 10 5 0
% yield % yield Jamaica s Debt Profile External Debt Maturity as of Mar. 2013 Domestic Debt Maturity as of Mar. 2013 < 1 year 6% < 1 year 6% >10 years 32% >1-5 years 17% >1-5 years 38% >10 years 46% >5-1- years 24% >5-1- years 31% T-Bill Historical Rates 25.00 20.00 J$ Domestic Curve 14.00 13.00 12.00 15.00 10.00 5.00 Jan-09 Sep-09 May-10 Jan-11 Oct-11 Jun-12 Mar-13 3 mth 6 mth Source: Ministry of Finance and Planning 11.00 10.00 9.00 8.00 7.00-5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 Pre NDX FR Curve Post NDX FR Curve Years 2
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Selected Information Sources Ministry of Finance and Planning www.mof.gov.jm Bank of Jamaica www.boj.org.jm Planning Institute of Jamaica www.pioj.gov.jm Statistical Institute of Jamaica www.statinja.com 22