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8/7/2019 April 5 Panel Slides complete
1/23
Fijis Second InternationalBond Issue
Presentation by
T. K. JayaramanSOE/FBE
8/7/2019 April 5 Panel Slides complete
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Factors for successful issue:US$ 250 million
S & Ps Grading: Positive : for InternationalReserves Level
International Reserves: March: F$1.3 billion
Equivalent to 4 months of imports of goods& services
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Favourable Factors (contd)
Good performance by non-sugar export
sectors
Good performance by Tourism: record
arrivals
Steady Inward Remittances
Confirmation of creditworthiness of Fiji
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Favourable Aspects
Bond issue: addition to reserves by US$ 250million
Addition to real resources of the country
Reserves stand now at F$ 1.8 billion Enables repayment of first bond: US$150
million plus interest
Low level of external debt (14% of GDP)
Low Debt-service obligations (1.2% of XGS)
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Not so favourable factors: forrise in Reserves
Reduction in imports: indicating fall ininvestment demand
Fall in traditional exports: sugar
Are inward Remittances always reliable? Tourism arrivals : more due to heavy
discounting
Reserves upvalued by 20% from 2009 level
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External Debt (Table A)
External Debt: 2006-2009
2006 2007 2008 2009 2010
External Debt (US$ Mill) 354 347 379 431 NA
Ext Debt (% of GDP) 11.9 10.6 10.7 14.2 NA
Ext Debt (% of XGS) 22.8 20.9 19.6 NA NA
Debt Service (US$ Mill) 13.8 26.5 23.8 25.7 NA
Debt Service (%of XGS) 0.9 1.6 1.2 NA NA
Intl Reserves (US$ Mill) 310 519 317 565 660
Equ.Months of Imports 2.0 2.5 2.1 4.0 4
Source: World Bank (2011) and RBF (2011)
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Unfavourable aspects
Interest rate: 9% : more than 7% of first bondissue
Fiji: ineligible for concessional loans being
ow m e ncome country However Alternate Sources at lower int.rate
IMF: Stand By Arrangement (SBA)
ADB: Countercyclical Support Facility(CSF)
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Unfavourable Aspects (contd)
ADBs 2009 : Countercyclical SupportFacility for fighting recession unutilized
Fixed Interest rate for ADB loan under CSF
or year matur ty per o s m ar to econBond of 5 years maturity) is 4.59% on March8th.
IMF SBA Interest rate is close to the same. Bond rate is 9% fixed
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Why harsh conditionalities?
IMF & ADB: No doubt Cheaper But with harsh conditionalities: why?
Weak economic performance: Due to poor
policy environment Reluctance to carry out reforms?
New hurdles: price controls
Interference with market forces?
Discouraging private sector initiatives?
Exchange Restrictions?
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TABLE B
Budget , Trade and Current Account Balances
2006 2007 2008 2009 2010
Growth Rate (%) 1.9 -0.5 -0.1 -2.5 0.1
Budget Bal (% of GDP) -3.4 -1.1 -0.1 -3.9 -3.6
Exports (Millon $) 729 787 944 625 690
Imports (million $) 1626 1629 2052 1296 1416
Trade Bal (mill) -897 -842 -1108 -671 -726
Trade Bal (% of GDP) -28.9 -24.7 -31.1 -23.1 -23.2
CA Bal (%) -18.7 -13.6 -17.9 -7.9 -7.1
Source : IMF (2011)
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TABLE C
Fiji: Debt and Expenditure
2006 2007 2008 2009 2010
Public Debt (% of GDP) 53.5 49.7 50.4 55.4 59.9
Cont Debt (% of GDP) 11 12 12 13 16
Total Debt (% of GDP) 64.5 61.7 62.2 68.4 75.9
Total Rev ( % of GDP) 25.6 25.3 25.6 24.8 25
Govt Exp (% of GDP) 29 27.4 25.5 29.4 28.5
Capital exp (% of GDP) 4 3.5 4.1 6.4 5.9
Recurrent Exp: Capital Exp 86 to 14 91 to 11 84 to 16 78 to 22 79 to 21
( Source : IMF 2011)
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IMF Conditionalities : Focus onreforms
Fiscal Tightening Closure of Non-viable Public Enterprises
Balancing Budget
Reducing Debt level Reducing recurring expenditure
Second Bond Issue has avoided them all
No Timeline for reforms
IMF and Govt both spared
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IMF Conditionalities : Focus onreforms (Contd)
Mercy is twice blest (Merchant of Venice) The quality of mercy is not strain'd,
It droppeth as the gentle rain from heaven
pon t e p ace eneat . t s tw ce estIt blesseth him that gives and him that takes.
Loan with conditionalities is twice cursed
IMF: cursed in Ireland & PIGS(Eurozone) Irish Govt: Cursed & Voted out of Power
Portugal: Also the cursed PM resigned
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IMF cursed in Ireland
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Irish government cursed
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Bond is not a Magic Wand!
Need for reforms have not vanished They are still very much there
Fiji escaped invasive procedures
Fiji needs self regulation & self control Dieting & reducing fat & cholesterol
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Reforms
March 24, 2011 Public Information Notice ofIMF on Art IV Mission to Fiji in 2010
Revenue measures be complemented by civil
serv ce pu c enterpr se re orm Fiscal sustainability needs public enterprise
& FNPF reform
Fiscal risk of supporting public enterprises:highlighted by FSC experience
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Reforms (Contd)
Finalize the FSC restructuring plan FSC be divested within the next three years
FNPF reforms should be completed in 2011
Exchange rate band of 23 percent aroundthe current rate
Need for well-designed land reform
Removal of price controls
Remove hurdles to private sector
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Reforms (Contd)
Diversify economic activity Restrain contingent liabilities : public
enterprise reforms
Impact of redundancies and higher tariffs:address through retraining programs andadditional targeted social assistance.
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Second Bond issue: A faitaccompli
So move ahead Draw timeline: Implement reforms facing the
nation
Evaluate the success of First Bond Issue In ADB/IMF loans: Project Completion
Reports & Independent Evaluation
In Fijis case, there is no compulsion So independent assessment of first bond
impact is needed
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Moving Ahead
What are the lessons learned from FirstBond?
Incorporate them in using proceeds of
econ on ssue Have a periodical and transparent review by
a Committee of Experts
Strengthen External Debt Recording MgmtSystem: record all debt obligations
Info on some countries loan assistance is
not reflected
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Moving Ahead (contd)
Repayment of Second Bond Obligationsshould be from Fijis own foreign exchangereserves
ot y anot er on ssue or Second Bond should put an end to all Bonds
Second Bond should be the Mother of all
Bonds
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THANK
THANK YOU
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