April 5 Panel Slides complete

8/7/2019 April 5 Panel Slides complete

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Fijis Second InternationalBond Issue

Presentation by

T. K. JayaramanSOE/FBE


2/23

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


3/23

Favourable Factors (contd)

Good performance by non-sugar export

sectors

Good performance by Tourism: record

arrivals

Steady Inward Remittances

Confirmation of creditworthiness of Fiji


4/23

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)


5/23

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?


10/23

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


15/23

Irish government cursed


16/23

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


19/23

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.


20/23

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


21/23

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

Documents

April 5 Panel Slides complete