JMMB Group –

Trinidad &

Tobago Presented by Keith P. Duncan

– Group CEO

JMMB Group

1

Reflections on our Macro-

Fiscal Journeys; Challenges,

Lessons, Imperatives and

Recommendations

KEITH DUNCAN

GROUP CEO – JMMB GROUP

& CO-CHAIR ECONOMIC PROGRAMME OVERSIGHT COMMITTEE (EPOC)

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What is EPOC? 3

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The Context for the PSBA

This new Economic programme builds on the foundation of the previous IMF

Even though a new IMF programme is in

place, this is “Jamaica's plan”.

Jamaica is still very vulnerable -our

debt to GDP ratio remains high.

We therefore must remain vigilant

around maintaining fiscal responsibility.

6

Objectives of the PSBA 1. Boosting growth employment and providing greater support for the poor

2. Continuing the reduction of public debt

3. Focus on reprioritizing the public sector, capital spending and enhancing the social safety net

4. Inflation targeting with a flexible, market-determined exchange rate

5. Further strengthening financial resilience

6. Continue the build of Net International Reserves

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Who are the Members of EPOC?

CEOs of Major

Domestic Creditors (MDCs)

Keith Duncan

(Co-Chair & Group

CEO, JMMB

Group)

Bank of Jamaica

Brian Wynter –

Co-chair & Governor,

Bank of Jamaica

Ministry of Finance

Joint Confederation of Trade Unions

Civil Society

Private Sector other

than the MDC’s

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EPOC Governance & Reporting 9

• Quarterly – Full committee

• Monthly technical sub-committeeMeeting Frequency

• Monthly & Quarterly reports using digital and traditional media

Reporting Frequency

• Regular and transparent reporting and updates to the public using different channels

Communication & Engagement

• Quantitative Performance Criteria (QPC) as well as the fiscal, monetary and financial sector structural benchmarks of the PBSA

Content of Reports

Keeping the end-state in mind:

Where do we want to be in 3 years?

A growing economy with growth in GDP of at least 2.7%

An increasingly fiscally responsible GOJ with Debt to GDP of 93.7% and maintained primary surplus of 7%

Greater levels of (non-borrowed) NIR of about US$2.87B <total NIR of US$3.6B> to help cushion the country from shocks

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Keeping the end-state in mind:

What is in it for Jamaicans?

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Growth Jobs Greater tax revenues

Greater fiscal

space

GOJ in a much better

position

To provide our people with a higher quality and

greater delivery of basic services such as Health and

Education

To bolster the social safety net

To Increase Capital Expenditure to improve the

Country’s Infrastructure

Improved

quality

of life

Jamaica’s long term targets-

2025/26

Debt: GDP 60%

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*Embedded in the Fiscal Responsibility Act 2012 (signed off by Houses of

Parliament)

What are we monitoring?

Fiscal Targets

Primary Balance

Indicative Targets

Tax revenues of the central

government

Monetary targets

Stock of non-borrowed net international

reserves

Inflation target

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Structural Benchmarks 14

New rates and bands for Property taxes

Established a Financial-Inclusion Council to implement the financial inclusion strategy

What are we monitoring? Cont’d15

Customs Administration

Debt Management

Financial Sector

Monetary Policy

Public Financial

Management

Social Safety Net

Tax Administration

Tax Policy

Extract: Programme Monitoring Report

for the April- June Quarter16

Selected IMF PSBA Quantitative

Performance Criteria (QPCs) and

Indicative Targets (ITs)

YTD Actual

(June 2017)

YTD Target

(June 2017)

YTD Actual

(July 2017)

Primary Balance of Central

Government (J$B) *

30.6 15.0 38.6

Tax Revenues (J$B) * 117.1 100.0 153.6

Non-Borrowed Reserves (US$M)

**

1,820 1,522 2,026

Inflation (%) *** 4.4 2.0-9.0 4.5

The 3 Oversight Bodies

EPOC EGC PSTOC

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The Historical Context- Jamaica

The Jamaica Economy has grown on average 1.39% per year since 1980

One of the slowest growing developing countries

The Jamaican financial sector crisis of 1996 and subsequent GOJ intervention triggered massive debt levels

Since then the Debt to GDP has trended downward

Debt to GDP projected to be 108.5% in 2017/18 and 93.5% by 2019/20*

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*Fiscal Responsibility Law definition

The Historical Context- Jamaica

• Exchange of all GOJ domestically issued bonds for newly issued ones, with reduced coupons and extended maturities

Jamaica Debt

Exchange (JDX)-2010

National Debt

Exchange (NDX)-2013

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The Immediate Context - Jamaica

Jamaica has seen significant

improvement in macroeconomic

fundamentals

Notwithstanding these

achievements sustained growth and job creation remain elusive…

The PSBA aims to

sustain the

macroeconomic

stability, focusing

on growth and

job creation while

maintaining fiscal

responsibility

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What has worked for Jamaica?Vision and Ownership

•It’s Jamaica’s plan’s (not the IMF’s), we keep the end state in mind moving strategically towards a defined future

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What has worked for Jamaica?

Consistency and discipline

• Through prudent fiscal management across political administrations in both programmes (EFF & PBSA)

Defined Medium Term Economic Plan

• With defined targets, active monitoring and well structured governance framework

Supportive legislation

• Fiscal Responsibility Framework Legislation of 2012

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What has worked for Jamaica?

Targeted prudent debt levels

• Long term target of 60%

Structural &Economic reforms

Public Sector Transformation

Buy in from the public sector

• Wage freezes (≈2013-2016)

Liberalized FX- competitive rates

• Movement towards FX liberalized system (‘B-FXIT’)

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Setting the Context -Trinidad and

Tobago Economic growth averaged slightly over 8% per year between 2000 and 2007, vs average of 3.7 percent for the LAC and Caribbean

The economy contracted in 2014-15, before a sharper deterioration in 2016

Since the end of the commodities super cycle, the country has faced significant challenges in adjusting to a low energy prices environment.

Consequently, the collapse of energy prices resulted eventually in job losses and has had adverse effects on tax revenues

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Setting the Context -Trinidad and

Tobago

The terms of trade shock implied that the real effective exchange rate is increasingly overvalued

Amidst the economic turmoil and negative growth successive governments of Trinidad and Tobago have to be lauded for maintaining low Debt to GDP ratios.

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The risks of a non diversified economy is

evident and we have seen those risks play

out over the last 3- 4 years

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What has worked for Trinidad and

Tobago?

Historically strong economy

• High GDP per capita

• High levels of GDP

Educated populace

• Buoyed by free education

Strong International

Reserves

The Heritage and

Stabilization Fund

The creation of a National Tripartite Advisory Council

• Consisting of Labour, Business and Government

Low Interest Rate

Regime

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What are some of the Risks faced in

Trinidad and Tobago? Continuing fiscal deficits of GDP

Unstable debt trajectory

Unfavorable FX market

Medium tern macroeconomic plan not widely shared and without full stakeholder alignment

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What is the Outlook for Trinidad and

Tobago? Baseline Scenario

The fiscal deficit could rise to 12.5%- 13.5% of GDP over the medium term- this would cause an unsustainable debt buildup

The central government debt to GDP ratio rises to nearly 80 percent of GDP by 2021

2021 projections under the baseline scenario

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According to the IMF’s staff report <2016>, under the baseline:

What is the Outlook for Trinidad and

Tobago? Active Scenario

Non-energy revenue measures:

• increases in business levies

• narrowing of the VAT’s zero-rated

• Reintroduce property taxation

• fast-track a Gaming and Betting Control Act

• improved tax administration

• phasing out of fuel subsidies

• revenue increases and cuts to current expenditure

2021 projections under the Active scenario more aggressive

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According to the IMF’s staff report, under the Active Scenario:

Where is Trinidad and Tobago Now?

Measures under the active scenario are already being implemented; it is critical for the impact to be seen and felt

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Comparative

deep dive: Trinidad and Tobago &

Jamaica

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Comparative Overview:

Some Reflections

Despite having many similarities as nations, Trinidad and Tobago

has continued to outperform Jamaica regarding economic

growth up until recent years

Irrespective of the short fall in growth

Trinidad and Tobago has not faced the

issue of indebtedness that has Jamaica

over the years

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Growth 37

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

Pe

rce

nt

Economic Growth

Economic Growth-JA

Economic Growth -TT

(Baseline)

Economic Growth -TT

(active)

Budget Deficit/Surplus 38

-140,000.00

-120,000.00

-100,000.00

-80,000.00

-60,000.00

-40,000.00

-20,000.00

0.00

20,000.00

$TT

Mn

/$JM

n

Fiscal

Suplus/deficit

J$Mn

Fiscal Balance

(TT$Mn)

Debt to GDP39

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

%o

f G

DP

Total Debt/GDP

Total

Debt/GDP-JA

Total Debt

/GDP-TT

(baseline)

Total Debt

/GDP-TT

(Active)

0

2000

4000

6000

8000

10000

12000

14000

De

c-0

0

Ju

n-0

1

De

c-0

1

Ju

n-0

2

De

c-0

2

Ju

n-0

3

De

c-0

3

Ju

n-0

4

De

c-0

4

Ju

n-0

5

De

c-0

5

Ju

n-0

6

De

c-0

6

Ju

n-0

7

De

c-0

7

Ju

n-0

8

De

c-0

8

Ju

n-0

9

De

c-0

9

Ju

n-1

0

De

c-1

0

Ju

n-1

1

De

c-1

1

Ju

n-1

2

De

c-1

2

Ju

n-1

3

De

c-1

3

Ju

n-1

4

De

c-1

4

Ju

n-1

5

De

c-1

5

Ju

n-1

6

De

c-1

6

Ju

n-1

7

De

c-1

7

Ju

n-1

8

De

c-1

8

Ju

n-1

9

De

c-1

9

Ju

n-2

0

De

c-2

0

Ju

n-2

1

De

c-2

1

Ju

n-2

2

De

c-2

2

Net International Reserves

NIR-JA NIR-TT (baseline) NIR-TT(active)

Net International Reserves 40

Current Account Balance41

-10

-8

-6

-4

-2

0

2

4

6

8

10

2013 2014 2015 2016 2017 2018 2019 2020 2021

% o

f G

DP

CAB-JA

CAB-TT (Baseline)

CAB-TT (Active)

Recommendations

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#1 Establish Non-Parisian

Oversight Committees

approved by both

parties

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#2A decision must be

made around FX policy

and strategies

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#3Create a more business-

friendly environment

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#4Create a medium-term Macro

Economic Framework/Plan

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#5Diversify the economy, leveraging

the Heritage Stabilization Fund

(HSF)

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Focus on the

Heritage and

Stabilization

Fund:

Opportunities for

Diversification

Government of Trinidad and Tobago established The Heritage and Stabilization Fund (HSF) in March 2007 by an Act of Parliament.

The Heritage and Stabilization fund steps in the right direction. This fund presents Trinidad and Tobago with a unique opportunity to make investments in other areas

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Extract from: Review of the Heritage and Stabilisation Fund (HSF) by the

Governor-Central Bank of Trinidad and Tobago

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#6Strategic Investments are required

to build out a diversified economy.

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The National Tripartite

Council of 2016 can be utilized as an oversight

vehicle

The country’s economic

reform plan must be

inclusive and be owned and understood by all the people.

The plan must transcend

political parties and

governments.

T&T can create credible,

sustainable and DIVERSIFIED macro fiscal stability and

inclusive economic

growth

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Thank You!

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