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

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 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

Representatives

Government of Jamaica Government of Jamaica

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Agenda

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

Government of Jamaica Government of Jamaica

Assessment and Challenges

Government of Jamaica Government of Jamaica

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 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

Assessment and Challenges

Government of Jamaica Government of Jamaica

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Real GDP

1.2% 3.2% 0.6%

• 1.6%
• 3.2%
• 4.0%
• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0%

2005/06 2006/07 2007/08 2008/09 E2009/10

GDP (% Real Growth)

Government of Jamaica Government of Jamaica

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87% 89% 117% 122% 124% 123% 120% 117% 114% 124% 137% 80% 90% 100% 110% 120% 130% 140% 150% 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 E2009/10 Total Debt/GDP (%)

High Levels of Debt

Interest as % of Tax Revenues Debt / GDP

57.0% 50.3% 47.6% 50.3% 65.1% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0% 70.0% 2005/06 2006/07 2007/08 2008/09 E2009/10

Interest as % of Tax

Government of Jamaica Government of Jamaica

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Domestic 55.5% Multilateral 9.5% External 35.0%

Assessment & Challenges

 Most market debt is held domestically

– Total debt = J$1.3 trillion

• 100% of Domestic debt
• Significant % of Global Bonds

Debt Portfolio Interest Expense Breakdown

– Domestic Debt is

• 76.3% of all Interest Costs
• Most volatile
• J$ 288 billion (27% of GDP) maturing

in 24 months

Multilateral 3.1% Domestic 76.3% External 20.6%

Government of Jamaica Government of Jamaica

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Fiscal Performance

• 3.3%
• 4.5%
• 4.6%
• 7.3%
• 10.0%

6.5% 4.8% 6.2% 9.9% 7.5%

• 15.0%
• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0%

2005/06 2006/07 2007/08 2008/09 E2009/10

% of GDP

Central Gov't Balance Primary Balance

Government of Jamaica Government of Jamaica

Economic Programme

Government of Jamaica Government of Jamaica

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Programme Framework

Economic Programme

Fiscal Reform Multilateral Financial Support and Monitoring Jamaica Debt Exchange (JDX)

Government of Jamaica Government of Jamaica

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Economic Programme

– Reduce public debt ratio – Fiscal discipline and accountability – Raise real GDP growth rate – Fiscal consolidation strategy – Comprehensive domestic debt management – Reforms to strengthen the financial system

Objective Pillars

Government of Jamaica Government of Jamaica

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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

Government of Jamaica Government of Jamaica

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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

Government of Jamaica Government of Jamaica

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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

Government of Jamaica Government of Jamaica

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• 3.20%

0.60% 1.90% 1.90% 2.00%

• 4.0%
• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% E2009/10 F2010/11 F2011/12 F2012/13 F2013/14 Real GDP Growth (%)

Macro Framework

GDP Growth Inflation Range BOP and Reserves

6.0% 6.5% 7.0% 7.5% 11.0% 7.0% 7.5% 8.0% 9.5% 13.0% 5.00% 7.50% 10.00% 12.50% 15.00% E2009/10 F2010/11 F2011/12 F2012/13 F2013/14

• 5.1%
• 5.9%
• 6.7%
• 8.8%
• 10.5%

$1,973 $2,420 $2,462 $2,401 $1,873

• 14.0%
• 7.0%

0.0% 7.0% 14.0% E2009/10 F2010/11 F2011/12 F2012/13 F2013/14 as % of GDP

• 3,000
• 2,000
• 1,000

1,000 2,000 3,000 Reserves(US$ millions) Balance of Payments Gross Reserves (right axis) Net Reserves (right axis)

Government of Jamaica Government of Jamaica

Multilateral Financial Support

Government of Jamaica Government of Jamaica

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IMF Stand-by Program

 Borrower: Bank of Jamaica  Amount: $1.25 billion  Tenor: 26 months  Quarterly Quantitative Targets

– Fiscal deficit – Public Sector overall deficit – Debt (direct and guaranteed)

 Front Loaded Disbursement Schedule

Disbursement Schedule

$98.1 $49.1 $49.1 $196.3 $49.1 $49.1 $49.1 $49.1 $638.0 $0 $100 $200 $300 $400 $500 $600 $700 Q1-'10 Q2-'10 Q3-'10 Q4-'10 Q1-'11 Q2-'11 Q3-'11 Q4-'11 Q1-12 US$ millions

– Net International Reserves – Net Domestic Assets

Fiscal Targets Monetary Targets

Government of Jamaica Government of Jamaica

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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

Government of Jamaica Government of Jamaica

The Transaction: Jamaica Debt Exchange (“JDX”)

Government of Jamaica Government of Jamaica

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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

Government of Jamaica Government of Jamaica

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Summary Term Sheet

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

Government of Jamaica Government of Jamaica

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Allocation Rules

Variable Rate “VR” Fixed Rates “FR” USD FR VR

CPI

USD

Not Callable Structure: 3mo - 30yr Tenors: 11.00 - 13.25% Coupons: Limited Call Protection Structure: 1.5 - 22yr Tenors: T Bill + 1.0-1.50% Spread: Not Callable Structure: 12 - 20yr Tenors: CPI + 2.00 - 4.25% Coupon: Not Callable Structure: 3-6yr Tenors: 6.75 - 7.25% Coupon:

Old Notes New Notes

Government of Jamaica Government of Jamaica

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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

After: 12/31/2024 12/31/2017 - 12/31/ 2024 12/31/2014 – 12/31/2017 12/31/2012 – 12/31/2014 6/30/2011 – 12/31/2012 12/31/2010 – 6/30/2011 2/17/2010 - 12/31/2010 Maturity Range of Old Notes FR-30 FR-14 FR-E FR-D FR-C FR-B FR-A Group x x 14Y Fixed Short FR Package* 3Y Fixed 4Y Fixed 6Y Fixed 9Y Fixed 30Y Fixed x x x x x x x x x x x x x x x x

Government of Jamaica Government of Jamaica

25 $100 $0 $40 $80 $120 2023 2024 2025

Reallocation Rules

$50bn cap

Reallocation Option Exercised Hypothetical Elections

 The government may exercise its reallocations in the amortization profile if it exceeds the $50bn cap  Example above: 14Y FR can be split into 3 bonds with the same coupons

– 30% New Fixed Rate 13.0Y – 40% New Fixed Rate 14.0Y – 30% New Fixed Rate 15.0Y

$30 $40 $30 $0 $40 $80 $120 2023 2024 2025

Government of Jamaica Government of Jamaica

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Submitting an Offer

 Eligible Investors: Jamaican Residents  Valid Submission: Submission Form + Note Certificate  Submission Form: Selection of New Bonds + Other Info

1 – 10 Certificates 10+ Certificates

 Use Physical Offer Submission Form  Deliver to Bank of Jamaica  Use Electronic Offer Submission Form  Deliver to Ministry of Finance

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Delivering Certificates

 Required for all submissions  Appended to submission form for Physical Submissions  Delivered in ordered stack for Electronic Submissions Special Situations:  Lost Certificate: Submit Indemnity Form  Late Certificate Delivery: Submit Deferred Delivery Form

Government of Jamaica Government of Jamaica

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Retail Offers

 Available to smaller holders of physical certificates

– J$5 million or less per certificate – J$25 million or less aggregate holdings

 Simple and predictable - no complex allocation rules  Three year maturity with same type as Old Note

– J$ Fixed Rate – J$ Variable Rate – USD Fixed Rate

 Retail offers delivered to Bank of Jamaica  Certificates must be delivered; no exception forms  Small holders also have option to submit regular submissions

Government of Jamaica Government of Jamaica

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Transaction Processing Timeline

Final Day to update

• utstanding Transfer

Forms and backlog

• Cancellation of Old Bonds
• Credit for New Bonds
• Receipt and confirmation
• Authentication of old Notes
• Prepare for issue of Notes
• Prepare for Accrued Payment

January 14, 2010

Launch Date

January 26, 2010

Expiration Date

February 16, 2010

Settlement Date

Certificate Submission Registration & Certificate Delivery

Government of Jamaica Government of Jamaica

Transaction Impact

Government of Jamaica Government of Jamaica

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30 60 90 120 150 180 2 1 2 1 1 2 1 2 2 1 3 2 1 4 2 1 5 2 1 6 2 1 7 2 1 8 2 1 9 2 2 2 2 1 2 2 2 2 2 3 2 2 4 2 2 5 2 2 6 2 2 7 2 2 8 2 2 9 2 3 2 3 1 2 3 2 2 3 3 2 3 4 2 3 5 2 3 6 2 3 7 2 3 8 2 3 9 J$ billions

USD VR FR

Pro-forma Impact of Exchange Offer

*Assuming all holders elect shortest available

• ption of same

instrument type

30 60 90 120 150 180 2 1 2 1 1 2 1 2 2 1 3 2 1 4 2 1 5 2 1 6 2 1 7 2 1 8 2 1 9 2 2 2 2 1 2 2 2 2 2 3 2 2 4 2 2 5 2 2 6 2 2 7 2 2 8 2 2 9 2 3 2 3 1 2 3 2 2 3 3 2 3 4 2 3 5 2 3 6 2 3 7 2 3 8 2 3 9 2 4 J$ billions

USD VR FR

Before Transaction After Transaction*

USD VR FR USD VR FR

Government of Jamaica Government of Jamaica

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New Benchmark Securities

Current Debt Portfolio Proforma Debt Portfolio

Government of Jamaica Government of Jamaica

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Debt Dynamics at a Fork in the Road

Jamaica (B+) Turkey (B-) Brazil (B+) Uruguay Pakistan (B) Ukraine (B) Median for Bs Belize (B+) Turkey (B-) Jamaica (B+) Pakistan (B) Brazil (B+) Uruguay Median for Bs Belize (B+) Ukraine (B)

Source: IMF, excludes IMF debt

100 110 120 130 140 150 160 2004/05 2005/06 2006/07 2007/08 2008/09 E2009/10 F2010/11 F2011/12 F2012/13 F2013/14

Total Debt/GDP (%)

Active Passive Historical

Government of Jamaica Government of Jamaica

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Key Benefits of the Jamaica Debt Exchange

1) Enables the Economic Programme 2) Unlocks substantial multilateral support 3) New Bonds with call protection – provides upside 4) Enhanced liquidity of New Benchmark Notes – pricing efficiency and transparency 5) Reduced borrowing requirements and refinancing risk 6) Access to Financial System Support Fund (FSF) with preferential terms 7) First issuance of CPI-indexed bonds provides real return 8) USD bonds payable in USD rather than indexed local currency 9) New Variable Rate Notes with more frequent resets

Government of Jamaica Government of Jamaica

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Transaction Information Ministry of Finance and the Public Service

www.mof.gov.jm

• Information Memorandum
• Investor Presentation
• Press Releases
• Certificate submission forms and instructions
• Electronic submission spreadsheet
• Q&A

Bank of Jamaica

www.boj.org.jm

Government of Jamaica Government of Jamaica

Questions & Answers

Government of Jamaica Government of Jamaica

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New Benchmark Bonds

12.875% 14 Year Maturity Yield 3 Month 11.00% 6 Month 11.25% 1 Year 11.75% 2 Year 12.00% 3 Year 12.25% 4 Year 12.50% 6 Year 12.625% 9 Year 12.75% 30 Year 13.25% Maturity Real Rate 12 Year 2% step to 4.00% 20 Year 2% step to 4.25% 11.75% 11.75% 11.75% 11.75% 11.75% 11.75% 11.75% 11.75% 11.75% Initial Fix Maturity* Margin Index / Pay Initial Fix Period 1.5 Year 1.0% 1 Month 3 Month 2.5 Year 1.0% 1 Month 3 Month 3.5 Year 1.0% 1 Month 3 Month 5 Year 1.25% 3 Month 6 Month 7 Year 1.375% 3 Month 6 Month 8 Year 1.375% 3 Month 6 Month 10 Year 1.50% 3 Month 1 Year 16 Year 1.50% 3 Month 1 Year 22 Year 1.50% 3 Month 1 Year Maturity Yield 3 Year 6.75% 4 Year 7.00% 6 Year 7.25%

Fixed Rate Variable Rate USD CPI

* Variable bonds are callable after certain dates

Fixed Rate, USD, and CPI bonds are not callable