República Oriental del Uruguay Ministry of Economy and Financedeuda.mef.gub.uy/innovaportal/file/25662/1/institutional... · During the regional sell-off, the Central Bank (CB) sold

Institutional Investor Presentation

República Oriental del Uruguay

Ministry of Economy and Finance

October 2018

1

Congress, National Assembly

Strong Institutions and Social Cohesion

2

Uruguay remains a bastion of institutional stability

in a volatile region

1st 1st

Ranking position in LATAM

1st 1st

1st 2nd

2nd 2nd

Economic Freedom(Heritage Foundation, 2018)

Press Freedom(Reporters Without Frontier,

2018)

Lowest Corruption

Perception(Transparency International,

2017)

Full Democracy (*)(The Economist Intelligence

Unit, 2017)

Global Peace(Institute for Economics &

Peace, 2018)

Political Stability(Worldwide Governance

Indicators, 2017)

Prosperity(Legatum Institute, 2017)

Rule of Law(World Justice Project,

2017-2018)

3

(*) 18th place

worldwide as a Full

Democracy

Macroeconomic Stability

4

Uruguay has experienced over a decade and a half of

uninterrupted economic growth

Source: Central Bank of Uruguay

(Annual change, in %)

Real GDP Growth

0

2

4

6

8

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

2.5

Avg. 2005-2017: 4.3%

5

(*) Projected

Growth with equality: the best distributed income and

highest GDP per capita in the region

6

0

4,000

8,000

12,000

16,000

20,000

0.350.400.450.500.55

Argentina

Panama

GDP per capita and Gini Index

Increasing income distribution

Gro

win

gin

co

me

per

cap

ita

Gini Index: 0.391

Source: International Monetary Fund, World Economic Outlook Database, October 2018 for GDP per capita in nominal USD; Social Outlook of Latin America 2017 for Gini Index data

GDP per capita:

17,379 Uruguay

Ecuador

Peru

Bolivia

Chile

Costa Rica

MexicoBrazil

Paraguay

Colombia

Investment has been falling and

employment lags the cyclical recovery

(Last 12 months, in % of real GDP)

Gross Fixed Capital Investment


54.0

56.0

58.0

60.0

62.0

5.0

6.0

7.0

8.0

9.0

Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18

Employment Rate

Unemployment Rate

Source: National Bureau of Statistics

Labour market indicators

(Average of last 12 months, in %)

7

0

5

10

15

20

25

2011 2012 2013 2014 2015 2016 2017 2018Q2

The government has launched a set of policies to

boost investment and employment…

Promote investment and employment

Support small businesses

Facilitate tax compliance

• Changes to the Investment Promotion

Regime to boost investments with

positive externalities

• Additional tax benefits for promoted

investment projects executed in 2018

• Benefits for domestic farm equipment

production

• Extension of automatic tax credits for

SME investments

• Simplified Net Worth Tax for SMEs

• Simplified procedures for corporate

restructuring

• Improvements for tax-payers:

Reduced tax debt payments costs

More payment channels

Reinforcement of Tax Administration

rights

8

…and private investment is reacting to the stimulus

Number of projects presented Total investment presented

(Total for Jan-Aug each year, in USD million)

(*) Includes USD 412 million corresponding to three projects

submitted by UPM.

0

100

200

300

400

500

2015 2016 2017 2018

(Total for Jan-Aug each year)

219

398

0

400

800

1,200

1,600

2015 2016 2017 2018*

+82%

+257%

1,279

538

9

No restrictions on foreign investor activity in Uruguay

10

Reduced linkages with the Region

Carrasco Montevideo Airport

11

Decoupling in the midst of a regional downturn

Sources: Central Bank of Uruguay (BCU); Central Bank of Brazil (BCB); National Institute of Statistics and Censuses (INDEC, Argentina).

(Index base 100=2011)

Cumulative Real GDP Growth

96

100

104

108

112

116

120

2011 2013 2015 2017

Argentina

Uruguay

Brazil

-1.7%

+0.6%

12

+19.6% 2.5

1.0

-4.2

-5

-4

-3

-2

-1

0

1

2

3

Uruguay Brazil Argentina

2018Q2 Real GDP Growth

(YoY change, in %)

2018Q2

Reduced reliance on the region for export revenues

and sources of FDI inflows

13

Exports of Goods by Destination

(Last 12 months to August 2018, as a share of total)


(As a share of total, 2017)2/

Foreign Direct Investment Inflows by Country of Origin1/

Source: Uruguay XXI with data from the Central Bank of Uruguay

Argentina5%

Brazil16%

United States

6%

China19%

Others54%

Argentina2%

Brazil1%

United States23%

Spain24%

Others50%

1/ Includes equity contributions and profits reinvestments and excludes loans with

related companies.2/ Only considers countries with positive inflows.

Argentina remains the main source of inbound tourism, yet

the weight of other services has increased recently

14

Source: Ministry of Tourism

Foreign Visitors

(in million)

Tourist Arrivals and Receipts

Tourism Receipts

(in USD billion)


Exports of Services

(Last 12 months, in USD millions)

1

1.5

2

2.5

0

1

2

3

4

5

2010 2012 2014 2016 2018Q2

Others Argentine Tourism exports

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2012 2014 2016 2018Q2

Tourism Other

1/ Software, transport and logistics

(Last 12 months)

1/

15

0

4

8

12

16

20

2001 2018*

Credit to Non-residents by Local Banking System

(% of total credit, end-period)

0

10

20

30

40

50

2001 2018*

Deposits by Non-residents in Local Banking System

(% of total deposits, end-period)


In addition, financial linkages with non-residents

through the banking sector have diminished

(*) As of August

16

0

100

200

300

400

500

600

700

800

Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18

(G-Spread in 10-Y dollar bonds, in bps)

Sovereign Risk

Source: Bloomberg

Sovereign credit spreads are indicative of the

ongoing differentiation

Argentina

Brazil

Mexico

Colombia

UruguayPeru

Cerro de los Caracoles, Uruguay

Fiscal Policy Outlook

17

Central Government deficit is gradually contained…

18

Central Government deficit (Last 12 months, in % of GDP)

3.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Aug-14 Aug-15 Aug-16 Aug-17 Aug-18

Total Deficit

Primary Deficit

0.3

Source: Ministry of Economy and Finance

19

… and policy priority is to shore-up overall public finances

Consolidated Public Sector deficit

(In % of GDP)

0

1

2

3

4

2010 2011 2012 2013 2014 2015 2016 2017 Aug-18* 2019 2020

Non-financial Public Sector

Central Bank

Consolidated Public Sector

1/

2.8

2.5

Projections

2.9

1.0


(*) Last 12 months

1/ Includes Public Enterprises

Tax collection and social security contributions have

moderated recently in real terms…

20

Social security contributions

(Real annual change, in %)

Tax revenues

(Real annual change, in %)

1.5

0

1

2

3

4

5

6

7

2013 2014 2015 2016 2017 Jan- Sep18

-0.2

-2

-1

0

1

2

3

4

5

6

7

8

2013 2014 2015 2016 2017 Jan-Aug 18


… while real expenditures are decelerating

21

Central Government – current primary expenditure

(Real annual growth, in %)

2.0

0

1

2

3

4

5

6

7

2013 2014 2015 2016 2017 Jan-Aug 2018


Growth in number of retirees and associated pension

expenditure has stabilized…

Total number of pensioners


22

0.2

-1

0

1

2

3

4

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Jan-J

ul 18


8.5

9.0

9.5

10.0

10.5

Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18

Pension expenditures

(Last 12 months, in % of GDP)

10.1

… and nominal wage deceleration will further reduce

pressures on indexed pension expenditures next year

Source: National Bureau of Statistics

Nominal Wages


7.8

6

8

10

12

14

2011 2012 2013 2014 2015 2016 2017 Jan-Sep 18

23

-0.5

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1984 1989 1994 1999 2004 2009 2014 2019

Recent Budget Review Law was prudent

24

Change in Fiscal Deficit on election years

(In % of GDP from previous year – Consolidated Public Sector)

Projected


Robust External Sector

Port of Montevideo

25

26

Improvement of external accounts

(Last 12 months, in % of GDP)

Current Account Balance

0.2

-4

-3

-2

-1

0

1

2013 2014 2015 2016 2017 2018Q2


0

1,000

2,000

3,000

4,000

2013 2014 2015 2016 2017 2018Q2

(Last 12 months, in USD million)

Trade Balance in Goods & Services

27

Solid external buffers

(Last 12 months to 2018Q2, in % of GDP)

Current Account Balance compared to LATAM

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

Uruguay Brazil Chile Peru Mex. Colombia Arg. Panama

Source: Central Bank of Uruguay; Central Bank of Mexico and National Bureau of Statistics and Geography of Mexico; National Bureau of Statistics and Censuses (INDEC) of Argentina; Central Bank of Brazil; Central Bank of Colombia; Central Reserve Bank of Peru; Central Bank of Chile; National Bureau of Statistics and Censuses of Panama.

0

5

10

15

20

25

30

35

Uruguay Peru Brazil Colombia Mex. Chile Arg. Panama

(As of June 2018, in % of GDP)

International Reserves compared to LATAM

(pesos per USD; daily)


Nominal Exchange depreciation in line

with other Emerging Markets

25

26

27

28

29

30

31

32

33

34

Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18

28

14.3

0 20 40 60 80 100 120

Malaysian Ringgit

Mexican Peso

Singapore Dollar

Peruvian Sol

Colombian Peso

Indonesian Rupiah

Brazilian Real

Chilean Peso

Russian Ruble

Uruguayan Peso

Indian Rupee

Turkish Lira

Argentine Peso

Depreciation against USD

(2018 YTD change as of 10/30, in %)

Emerging Market Currencies vs USD

Source: Bloomberg

Nominal Exchange Rate

29

Central Bank FX Intervention

(In USD million)


Stock of Central Bank Bills

(In USD million)

0

2,000

4,000

6,000

8,000

10,000

Sep-12 Mar-14 Sep-15 Mar-17 Sep-18

27

28

29

30

31

32

33

34

-800

-600

-400

-200

0

200

400

600

Jan-17 Aug-17 Mar-18 Oct-18

FX Sales through CB Bills Repurchase

#REF!

FX Purchases

Average Monthly Nominal Exchange Rate8,148

Central Banks has intervened on both sides of the FX market

to smooth out undue volatility

30

Source: Bloomberg (upper); Ministry of Economy and Finance (below)

(In % )

Yield of Nominal Peso (UYU) Bonds

Residents´ Holdings of UYU Bonds(In % of total outstanding)

8

9

10

11

12

13

Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18

0

5

10

15

20

25

Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18

24

26

28

30

32

34

-800

-600

-400

-200

0

200

400

600

Dec-17 Mar-18 Jun-18 Sep-18

FX Sales through CB Bills Repurchase

FX Purchases

Average Monthly Nominal Exchange Rate

Central Bank FX Intervention

(In USD million)


CB Bills

Repurchase

implication

Maturing

2028

Maturing

2022

During the regional sell-off, the Central Bank (CB) sold dollars in exchange for local-

currency CB bills, mostly tendered by Pension Funds (PF). This allowed

PF to buy-up global nominal peso government bonds, allowing for an orderly unwinding

of non-resident positions by increasing liquidity during financial stress

Inflation and Wage Developments

31

32

Inflation has hovered around the upper ceiling of inflation

target band

Source: National Bureau of Statistic & Central Bank of Uruguay

2

4

6

8

10

12

Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18

Headline inflation

Core inflation

Inflation Target Band

(Annual, in %)

Inflation

8,1

8.6

7.6

2

4

6

8

10

12

Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18

Non Tradable Sector

Tradable Sector

Tradable and Non-Tradable Inflation

(Annual, in %)

8,3

Deceleration in nominal wage growth reflects

wage-setting guidelines that reduced indexation

Year Laggard Intermediate Dynamic

2018 6.5 7.5 8.5

2019 6.0 7.0 8.0

2020 5.0 6.0 7.0

Economic sector`s situation:

Government`s guidelines for 2018 wage negotiations

(Annual increases in nominal wages, in %)

33

• As of September, 23 out of 170 arrangements

have been completed. Of these, 21 followed

Government´s Guidelines.

• Among these are the Construction and Health

Sector, that toghether account for 21.6% of

aggregate salaries.

• Regarding their clasification, 17% were

clasified as Dynamic, 70% as Intermiediate and

13% as part of the Laggard sector.

Source: Ministry of Economy and Finance and Ministry of Labour and Social Security

Solid Financial Sector

34

Over and above, the financial system as a whole enjoys

excellent health

35

0

2

4

6

8

Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Delinquency Degree of provisioning

6.5

3.6

Non-Performing Loans and Degree of Provisioning (Local and Foreign currency, in %)

Solvency Profile(Number of times of the minimum regulatory capital)

1.88


1.5

1.6

1.7

1.8

1.9

Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

0

5

10

15

20

25

Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

Return on Equity

(Last 12 months, in % )

19.6

Structure of Government Debt and Precautionary Pre-Funding

36

Solís Theatre

55

14.6

6

9

12

15

0

20

40

60

80

100

2005 2007 2009 2011 2013 2015 2017 2018Q3

Debt in Foreign Currency (in % of total)

Average time to maturity (in years)

41.7

47.0

0

20

40

60

80

2005 2007 2009 2011 2013 2015 2017 2018Q3

Gross Debt

Net Debt

Central Government (CG) Debt

(In % of GDP, end-period)

Source: Debt Management Unit, Ministry of Economy and Finance

Currency and Maturity Composition of CG Debt

(End-period)

Proactive debt management reduced FX exposure

which mitigates higher volatility risks

37

Pre-funding policy of Government limits roll-over

and FX risks

38

Source: Debt Management Unit, Ministry of Economy and Finance

(In USD million, as of September 2018)

Government`s Financial Buffers and Debt Service Obligations 1/

1/ Debt Service includes amortization plus interest payments

0

1,000

2,000

3,000

4,000

5,000

Column1 Column2

Foreign Currency

Local Currency

Debt Service Next

12 Months 1/

Foreign Currency

Local CurrencyLiquid

Assets

Credit Lines

with

Multilaterals

2018(*) 2019(*)

FINANCING NEEDS 3,352 3,012

Interest Payments 1,640 1,647

Amortization (a) 1,658 1,580

Primary Deficit (b) 54 -215

FUNDING SOURCES 3,352 3,143

Multilateral Disbursements 360 350

Total Bond Issuance 2,700 2,950

Foreign market 1,750

Domestic market 950

Net Others 165 180

Use of Assets (c) 127 -467

(*) Preliminary(a) Includes repurchases and early bond redemptions for USD 217 million in 2018.(b) Negative value indicates a primary surplus of the Central Government.

(c) Positive indicates a reduction in Central Government reserves.

39

(In USD million)

Uses and Sources of Funds

Central Government`s flow of funds


.

.

Transformational infrastructure and energy

policies underpin medium-term outlook

40

Montevideo Port

0

1,000

2,000

3,000

4,000

5,000

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Thermal Hydro Eolic Biomass Solar

41

Source: Ministry of Industry, Energy and Mining

Installed Capacity in MW

(According to generation source)

Uruguay is going green, diversifying its energy mix

towards renewable sources and reducing fiscal risks

2

52

26

18

2

Thermal Hydro Eolic Biomass Solar

Electricity Generation Matrix 2017

(By generation source, in % of total)

Increasing investment as the PPP program matures

42

0

100

200

300

400

500

600

700

2018 2019 2020

Roads and Highways

Education

Central Railway

Executed PPP investment and pipeline of projects

(In USD million)

Source: PPP Unit, Ministry of Economy and Finance

Central Railway Project poised to start early 2019

• 273 km of railways between the port

of Montevideo and the city of Paso de

los Toros (located in the centre of the

country).

• Planned investment: USD 825 million

• Employment to more than 1,000

people.

• Transportation of 4.5 million tons per

year.

43

Investment and infrastructure plans are key to establish

foundations for long term economic growth

Second UPM pulp mill will imply:

Largest investment in Uruguay´s history

Estimated to lead to a permanent GDP increase of 2%

44

Nov. 2017 – April 2018

April 2018 – October 2018

Source: UPM official webpage

Documents

República Oriental del Uruguay Ministry of Economy and Financedeuda.mef.gub.uy/innovaportal/file/25662/1/institutional... · During the regional sell-off, the Central Bank (CB) sold