adrian a. stokes · imf program: what should you know? •extended fund facility that runs to...

May 2013 | GOJ MEDIUM TERM ECONOMIC PROGRAM |

GOJ UPDATE

Adrian A. Stokes


IMF Program: What Should You Know?

• Extended Fund Facility that runs to 2016/17

• Program aims to eliminate fiscal deficit by 2016

and reduce Debt/GDP to 96% by 2020

Fiscal consolidation and debt reduction

Structural reforms to improve economic

competitiveness

Private/Public Partnerships

Strengthen social safety net


Projection: Primary Surplus

-0.50

0.50

1.50

2.50

3.50

4.50

5.50

6.50

7.50

2014 2015 2016 2017 2018 2019 2020


Projection: Fiscal Balance

-2.0

-1.5

-1.0

-0.5

0.0

0.5

2014 2015 2016 2017

SGJ

GOJ


Debt Trajectory

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

2014 2015 2016 2017 2018 2019 2020

98% in 2020

Debt > 100% in 2016


The Pain Gap

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

2008 Financial Crisis

Economic Output Trajectory


Excess Capacity

0.80

0.85

0.90

0.95

1.00

1.05

1.10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Economy will not return to 2007 level until fiscal Y/E 2016


Macro Outlook


Real Interest Rate

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13

Real Interest Rate on 180-day T-bill

Source: SJIL, STATIN, BOJ

Negative real returns persist amid rising inflation and

relatively low interest rates


Interest Rates & Inflation

• J$ Short Term Rates

o BOJ will remain accommodative for the

foreseeable future

o Economy still very weak

o Second round inflation pass through low

• J$ Long Term Rates ~expected future short rates

o Driven by solvency concerns: sustainability of

fiscal program

• Inflation: we expect inflation to range between 8%-

10% for the current fiscal


Monthly Exchange Rate Movement

0.05%

0.89%

0.65%

1.12%

0.14%

0.12%

1.29%

0.88%

1.18%

1.25%

3.15%

1.83%

0.47%

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

JAD/USD (% Change)

Source: BOJ, SIJL

Depreciation Appreciation

CYTD deprec : 6.54%

MTD : -0.29%


Real Exchange Rate

Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13

Dec 2006=100

Source: SIJL's Portfolio Advisory Group

Fair value Line


Credit Rating

Current FY 2013/14 FY 2014/15 FY 2015/16 FY 2016/17

Best B/Stable B/Stable BB+/Stable BB+/Stable

Modal CCC+/Stable CCC+/Stable B-/Stable B/Stable B/Stable

Worst CCC+/Negative CCC+/Negative CCC+/Negative CCC+/Negative


Structural Reform Measures

• Secured Transactions Framework to facilitate improved access to credit

• Insolvency Act

• Establish flexible work arrangements by the end of FY 2013/14

• Streamline the Business registration process through the use of a multi-purpose registration instrument

• M-Commerce

• Increase MSME-financing wholesaled through the DBJ

• Far Reaching Tax Reforms

• Labour Market Reform – flexible work arrangements by end of FY13/14


What You Need to Know

• Program is difficult but not crazy

• Important risks:

– Execution (Project management and political)

– Shocks (economic and weather)

• Government has more work to do on increasing

revenue and/or cutting expenditure

• Unemployment is likely to remain high over the life

of the program

• Far reaching structural reforms that will improve the

ease of doing business

adrian a. stokes · imf program: what should you know? •extended fund facility that runs to...

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