Two banks under ECCB control

September 2, 2013 by

The eastern Caribbean is not having the best of times. Borrowings and the economic fallout flowing from the global economic crisis of 2008 have severely constrained economic activity in the region plus the member states of the ECCU share a currency that the individual countries have little control over.

In Anguilla, growth has virtually collapsed, falling from an average of 15.8 per cent between 2005 and 2007 to an average contraction of 5.5 per cent for the period 2008-2012, resulting in two local banks facing hard times with their non-performing loans escalating to levels beyond the guidelines set by the Eastern Caribbean Central Bank (ECCB) and in turn resulting in the banks not meeting their capital requirements.

According to a speech by the chief Minister of the island, “In recent times there has been great unease about the operations and performance of the two indigenous banks in Anguilla, the Caribbean Commercial Bank (Anguilla) Limited (CCB) and the National Bank of Anguilla Limited (NBA). This has given the government cause for concern. Part of this concern is due to the fact that they are the two largest financial institutions in the country, together accounting for 76.7 per cent of the total assets of the banking sector.”

ECCUlogo150x150The global economic and financial crisis have hit the country’s major sectors, tourism and construction and this has had a significant impact on the performance of loans to these sectors. The banks have been facing a number of challenges including poor earnings performance, declining asset quality, high levels of non-performing loans, weak corporate governance and the inability of their managements to reverse the situation.

The organs of the ECCB, the Monetary Council and the Ministerial Sub-committee on Banking, after due consideration and representations by the Government of Anguilla, which is a member of the Monetary Council and the Ministerial Sub-committee, have decided to invoke Part IIA, Article 5B of the ECCB Agreement Act 1983.

This step has not been taken lightly and extensive discussions have taken place with the Foreign and Commonwealth Office of the British Government and they too have concurred with this action.

The daily operations of the banks will be carried out by the current staff of the respective banks under the supervision and close monitoring of the ECCB with a change only in senior management and the Board. Under the guidance of the ECCB and the other institutions work will be undertaken to restore these banks to a state of normalcy.

The ECCU member governments have agreed that the three critical policy areas at this time are growth, financial stability and fiscal stability. The Chief Minister stated, “However, the efforts to attain financial and fiscal stability will not be successful unless there is some economic growth. We therefore intend to initiate discussions with the British Government on a public sector investment development programme for the long term sustainability of the Anguillan economy.”

He continued, “In terms of the private sector, as Chief Minister and Minister of Finance, I immediately recognised the fundamental weaknesses in Anguilla’s economy especially as it related to two the most important tourism projects, namely the Cap Juluca Resort Project and the Flags Luxury Properties Golf Course Resort Project both of which were mired in legal and financial difficulties and sought to get them stabilised so that they could generate the employment and economic activity expected of such large projects.”

Related posts | Mixed views from Eastern Carib States

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July surplus as Govt income jumps

September 1, 2013 by

The Peter Phillips lead Ministry of Finance delivered the highest revenue intake for the fiscal year to date with nearly $32 billion in intake bettering the original forecasted figure by $1.7 billion and also delivered the first surplus for the fiscal year.

The deficit for the month, projected at $1.7 billion ended at $330 million in surplus. Year to date, the deficit is $6 billion ahead of target at $5.7 billion flowing from $700 million better revenue intake and $5.4 billion less spending. Wages are down $1.3 billion, interest payments $1.5 billion and capital spend $1.7 billion.

For the month, tax on interest is up $830 million over projections, corporate taxes are up $500 million to $1.1 billion, PAYE underperformed by $550 million with inflows of $5 billion the same as in June, tax on dividends exceeded forecast for the first time this year coming in at $331 million versus $259 forecast. Telephone tax which underperformed in June, stepped up in July with a collection of $1 billion versus forecast of $459 million, only $64 million was collected in June against forecast of $474 million.

Jamaica_coat_of_arms_280X150Overall taxes on production and consumption delivered $10.9 billion just up on the budgeted amount of $19.4 billion in July. Tax on international trade was slightly better that forecast at $11 billion compared to $10.7 billion budgeted with most of the individual items doing better or close to budget.

July’s expenditure | Payment for wages was down to $7.55 billion versus forecast of $8 billion, interest payment was down from $8.2 billion budgeted to $7.7 billion. Other recurrent expenditure payments were lower than forecast at $7.6 billion actually paid against $8 billion forecast.

So far the government is well on the way to wiping out the deficit this fiscal year if they continue on the present track and don’t expand expenditure dramatically later in the year as the fiscal numbers improve.

Related posts | Government may wipe out deficit | Gov’t raking in taxes

Image courtesy of StuartMiles/FreeDigitalPhotos.net

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IMF predicts 1.5% growth for T&T

August 26, 2013 by

The staff of the IMF projects real gross domestic product (GDP) growth of some 1.5 percent for the economy of Trinidad and Tobago in 2013, with risks slightly to the downside, should development spending be under-executed.

The economy of Trinidad and Tobago is poised for a modest recovery in 2013 after disappointing growth in 2012 that was due largely to supply constraints, including maintenance operations in the energy sector and an industrial dispute in the non-energy sector. A release from the IMF staff who reviewed the economic data said headline inflation rose to 9.3 percent in 2012, but core inflation, which excludes food prices, remained moderate at 3.1 percent and has since fallen further to 2.2 percent in March 2013. Unemployment is low at about 5 percent, but underemployment remains significant. The external current account surplus fell slightly on increased dividend outflows, but remained high at 10 percent of GDP. Gross official reserves remained strong at US$9.2 billion at end-2012.

The central government realized a deficit of 1.1 percent of GDP in fiscal year 2011/12 (October–September), after near balance the previous year and was more than explained by a decline in energy revenues due to output shortfalls. Gross government debt increased by some 6 percentage points of GDP to a still-manageable 39 percent of GDP. Most of this increase relates to a one-off issuance of bonds relating to a failed insurance company (CLICO), about half of which is expected to be retired in 2013.

Despite accommodative monetary policy, private sector credit growth was modest. The Central Bank of Trinidad and Tobago (CBTT) cut its policy repo rate to 2.75 percent in September 2012. The CBTT continues to mop up considerable excess liquidity via voluntary term deposits by commercial banks and a recent TT$1 billion government bond. Commercial banks remain well capitalized, profitable and liquid and at the end-2012, non-performing loan (NPL) ratio fell to 5.4 percent.

T&T_CoatofArms-black280X150Executive Board Assessment | Executive Directors welcomed the signs of economic recovery fueled by growth of the non-energy sector. They agreed that the authorities’ macroeconomic policies are appropriately supporting the recovery in the near term given downside risks. Over the longer term, the policy priority should be to recast fiscal policy in the context of the country’s non-renewable resource endowment while pursuing structural reforms aimed at diversifying the economic base.

Directors commended the authorities’ adoption of a medium-term fiscal consolidation target. Specific measures should be identified, which would also improve the composition of public spending. This should include the phasing-out over time of poorly-targeted and unsustainable subsidies (notably on fuels) and transfers, while protecting the most vulnerable segments of society and priority social spending. Looking ahead, Directors recommended adoption of a longer-term strategy embodied in a fiscal framework to extend the benefits of current natural resource wealth to future generations. Increasing non-energy revenues and containing current expenditure to raise development spending over time will be important.

Directors underscored the need for structural reforms to facilitate economic diversification and improve competitiveness. In this context, they welcomed the authorities’ commitment to improve the business climate.

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IMF team passes Jamaica, BUT

August 22, 2013 by

The IMF team reviewing Jamaica’s compliance with the agreement tied down earlier this year, gave the authorities glowing marks for their achievements for the first quarter to the end of June, effectively giving their seal of approval but, “These staff level understandings are subject to approval by the IMF’s Management and Executive Board. Provided that performance remains strong, Board consideration of the first review of Jamaica’s IMF-supported program under the Extended Fund Facility could take place late September. Upon approval, SDR 19.97 million (about US$30 million) would be made available to Jamaica.

“Overall policy implementation thus far under the program has been strong and structural reforms are progressing” the IMF team stated. The team went on further to state that all quantitative performance targets and indicative targets for end-June were met, including the floor on social spending. For FY 2013/14, a budget that targets a central government primary surplus of 7.5 percent of GDP has been adopted and is now being implemented. The Government continues to implement its decision to strictly limit the granting of discretionary waivers. Several legislative amendments have been adopted to bolster tax administration, and the resources of the large tax-payers office have been increased. All other structural benchmarks to date have also been met in a timely manner. A conceptual framework for a fiscal rule that will help lock in the gains from fiscal consolidation over the longer term is expected to be ready by the end of this month.

“Key elements of the authorities’ updated program are:

  • The adoption of fundamental tax reform before the next fiscal year, designed to broaden the tax base, simplify the tax system, reduce tax rates, and reduce economic distortions and support growth. Tax reform is programmed to commence with an Omnibus Incentive Tax Act and a Charities Bill, to be tabled in parliament before end-September.
  • Steadfast implementation of the government’s strategy to increase growth by improving the business environment and pursuing strategic investments.
  • Further actions to make the financial sector more resilient, through enhanced supervision and monitoring, and with phased reforms of the securities dealers sector.
  • Strengthening the social protection framework, with enhanced efforts to move recipients from welfare to work, and the recent increase in PATH benefits.
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IMF loan payment for St Kitts

August 22, 2013 by

The Executive Board of the International Monetary Fund (IMF) completed the fifth and sixth reviews of St. Kitts and Nevis’ economic performance under a program supported by a 36-month Stand-by Arrangement (SBA) in July. The completion of the reviews allows the immediate disbursement of an amount equivalent to SDR 4.266 million (about US$6.45 million), bringing total disbursements under the arrangement to SDR 47.37 million (about US$71.58 million).

According to statement released by the fund, “The St. Kitts and Nevis authorities have continued the successful implementation of their Fund-supported program, in particular making progress toward achieving fiscal objectives and debt restructuring. Following a four-year contraction in economic activity, signs of an economic recovery are emerging. Sustained commitment to prudent macroeconomic policies and reforms will be necessary to address remaining risks and vulnerabilities and to support stronger and inclusive growth.

“The 2013 budget is aligned with the authorities’ dual objectives of redeploying resources towards growth-enhancing outlays and continuing fiscal consolidation through significant budgetary primary surpluses. To boost revenue, while steps are being taken to improve revenue administration, action will also be needed to broaden the tax base, in particular to streamline tax exemptions. Moreover, the fiscal performance of the Nevis Island Administration could usefully be bolstered and would benefit from improved communication between the twin-island federation

OneCaribbeanMedia_easternCarib150x150“The restructuring of public debt has continued, notably with establishing the legal framework for incremental debt/land swaps. To help buttress banks’ income, it is necessary to proceed with launching the land asset management company, according to best practices, and with land sales. Continued collaboration with the Eastern Caribbean Central Bank will be needed to monitor and address financial sector developments and implement reforms.

“Accelerating the pace of structural reforms is important to secure lasting gains in fiscal sustainability, neutralize pressures on current outlays, and promote stronger and inclusive growth. Priority should be given to pension and civil service reform and to streamline the social safety net. Implementing programs to upgrade education and training skills of job seekers to enhance their employment prospects will also be important.”

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T-bill rates mixed at auction

August 22, 2013 by

Interest on Treasury bills rose again in the latest auction held on 21 August 2013. On offer were two instruments seeking to raise $400,000 each for 91 Days and the other of 185 Days duration. Both instruments were oversubscribed.

The average rates came out at 7.34, down from 7.995 percent for the 91 day at the July auction and is back at the level in June. This is a pretty sharp decline, as $771.75 million chased $400 million on offer. But investors who placed bids as high as 7.75 percent were able to get some of their bids filled. Full allotment took place at 7.74923 percent.

The 185 Days instrument came out at an average rate of 8.1255 percent, slightly up from the 182 days instrument issued in late July at 7.88 percent.  Investors, however, got rates ranging from 6.729 to 8.50 percent in full and partial allotment as high as 8.657 98 percent. A total of $400 million were on offer and bids amounting $768 million were tendered.

Related posts | T-bill rates move up again

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BOJ: Economy likely declined in Q2

August 21, 2013 by

Economic activity for the June 2013 quarter is estimated to have declined within the range of negative 0.8 percent to positive growth of 0.2 percent the central bank said in its latest report on the economy. This performance compares to average decline of 0.7 per cent for the four preceding quarters.

The weak performance of the economy continued to reflect low external and domestic demand. Low domestic demand reflected the impact of depressed real wages and high unemployment the central bank said. The data compares with a decline of 1.3 percent that the Statistical Institute of Jamaica said occurred in the March quarter and an estimated decline within the range of -1.2 per cent and -0.2 per cent by BOJ.

The preliminary out turn compares with the central bank’s forecast for the quarter of real GDP growth within the range of -0.5 per cent to 0.5 per cent for the June 2013 quarter.  This performance it then said should reflect expansions in Mining & Quarrying and Construction offset by contractions in Hotels & Restaurants and Agriculture, Forestry & Fishing.

BOJ600x250The central bank outlined the various areas of growth or contraction. For the review period, contractions are estimated for the tradable and non-tradable industries. The performance of tradable industries primarily reflected declines in Export Agriculture, Manufacturing and Hotels & Restaurants. Electricity & Water Supplies and Domestic Agriculture drove the contraction in the non-tradable industries.

Agriculture, Forestry & Fishing is assessed to have contracted further in the June 2013 quarter, relative to average quarterly decline of decline of 2.1 per cent for the preceding four quarters. The decline in the industry was largely associated with unfavourable weather conditions, weak global demand and the continued impact of the coffee rust disease. Specifically, the outturn for the review quarter reflected contractions of 5.7 per cent and 41.0 per cent in domestic and export crop production, respectively. This compares to an expansion of 12.7 per cent in domestic crop production and a decline of 20.4 per cent in export crop production in the June 2012 quarter. The estimated decline in export crop production largely reflected a contraction of 41.3 per cent in sugar cane milled relative to a decrease of 20.4 per cent in the corresponding quarter of 2012. The fallout in sugar cane milled reflected the earlier commencement of the crop year relative to the corresponding period in 2012.

For the review quarter, Hotels & Restaurants is estimated to have contracted marginally relative to growth of 4.7 per cent in the June 2012 quarter. Of note, the industry’s performance was reflective of estimated declines in both sub-industries. The fall in Hotels was inferred from declines of 0.2 per cent and 0.4 per cent in stop-over visitor arrivals and visitor expenditure, respectively, relative to the corresponding quarter in 2012.

With the exception of the March and December 2011 quarters, Electricity & Water Supply is assessed to have contracted since the March 2010 quarter. The performance of the industry in the June 2013 quarter reflected decreases of 2.3 per cent and 0.1 per cent in electricity consumption and water production, respectively. Lower electricity consumption was primarily influenced by disruptions in transmission due to technical losses and theft. Continued drought condition hampered water production during the review period.

Following five consecutive quarters of growth averaging 0.7 per cent, output for Finance & Insurance Services is estimated to have contracted in the June 2013 quarter. The downturn was largely institutions’ participation in the National Debt Exchange in February 2013.

Mining & Quarrying is estimated to have recorded growth in contrast to the contraction of 9.7 per cent in the June 2012 quarter. The improvement in the industry was primarily reflective of increased capacity utilization of 40.6 per cent in the alumina industry relative to 37.4 per cent in the June 2012 quarter. This improvement reflected normalization at one alumina plant that had encountered technical difficulties in the corresponding period of 2012. Against this background, total alumina production increased by 8.6 per cent. However, due to maintenance activity at the bauxite plant, crude bauxite production declined by 4.4 per cent. In this context, total bauxite production grew by 2.2 per cent during the period.

For the June 2013 quarter, marginal growth is assessed within Construction compared to a contraction of 4.2 per cent in the preceding June quarter. The performance of the industry mainly reflected the impact of infrastructural development programmes and hotel projects such as Highway 2000, Riu Palace Jamaica and Memories White Sand Resort.

Related posts | Economy probably contracted 2.5% in Q2 | Mining & Agriculture dent GDP badly | BOJ: Little or no growth to June | BOJ estimates GDP decline in Q1

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BOJ confirms IC Insider FX report

August 21, 2013 by

Jamaica’s central bank purchased US$193.6 million (net) from the market in the context of tight Jamaica Dollar liquidity during the June quarter putting the Net International Reserves at end of June to US$1.003 billion, US$119 million above the outturn for end of March 2013. The increase is in line with what IC Insider surmised in our post “What’s BOJ up to in FX & money market?” that it was the central bank driving the exchange rate movement. The Bank’s gross reserves at end-June 2013 amounted to US$1.88 billion, representing 12.9 weeks of projected goods and services imports.

The central bank in its latest release on the economy stated that “given periodic episodes of demand pressures, the Bank offered two USD indexed bonds and nine VR instruments as part of its liquidity management programme. These actions would have also constrained the pace of adjustment of the exchange rate”.

BankofJamaicaBOJThe Bank estimates that there was a decline of US$72.4 million in Net Private Capital (NPC) flows during the quarter. NPC flows declined in the context of heightened concerns regarding the near-term outlook for the exchange rate. This reduction was, however, constrained by tight Jamaica Dollar liquidity which limited the ability of investors and merchants to hedge against further movements in the exchange rate. In this regard, the net open foreign currency position of authorized dealers (AD) is estimated to have declined by US$207.3 million during the quarter. Most of the reduction in AD positions occurred in June. These developments contributed to an increase of 10 per cent in average per diem purchases to US$28.8 million relative to the March 2013 quarter. Concurrently, average per diem sales increased by 25.1 per cent to US$32.3 million, the BOJ statement concluded.

Related posts | What’s BOJ up to in FX & money market? | BOJ offers 3 new CDs | BOJ raises rates to attract money

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Government may wipe out deficit

August 21, 2013 by

Jamaica could wipe out its fiscal deficit for the 2013/14 fiscal year if measures announced by the Government achieve the targets set. A primary surplus, the target that has been set, will translate to a surplus before interest cost of around $100 billion. The Minister of Finance spoke of a potential $17 billion savings from the swap out of old loans into loans with lower interest rates that would reduce interest cost to around $100-120 billion.

According to the Minister of Finance, the first debt exchange in 2009 saw the average coupon on outstanding domestic debt decline by an average of 650 basis points to 12.5 per cent. The JDX resulted in $700 billion domestic debt refinanced from an average of 18 per cent to 12 per cent; 25 new benchmark securities replaced 350 illiquid bonds; and 99.2 per cent participation — the highest on record world-wide.

The estimated annual interest cost savings for the Government was projected at $41 billion. In fact the government saved vastly more in the first full year as interest rates fell sharply afterwards.

The new debt exchange earlier in February of this year (JDX2) along with the tax package should see interest rates across the system fall as more funds are taken out of the economy with limited need to borrow new funds. This won’t happen immediately but over the course of the year. This will mean lower borrowing cost but also lower withholding taxes for government. The wiping out or virtual wiping out of the fiscal deficit will mean government will be borrowing no new funds from the local economy and could well repay some to the system.

Pressure will be eased off the Jamaican dollar and people should not be surprised if there is some revaluation of the dollar. The JDX2 debt exchange will not have the same impact as the first one on the business sector. For one, interest rates were in the mid-teens to mid-twenties when the first one was implemented. JDX2 is expected to save $17 million less than the $41 million estimated back in 2009 and is worth far less in real terms as inflation has made the savings worth about 50 percent or so less. Banks are less dependent on government paper for income as they have aggressively expanded their loan portfolio.

The tax package is a poor commentary on the government’s views on increased production and productivity. To add taxes on businesses that our main trading partners don’t have to bear is a direct hit on the country’s competitiveness. Increasing cost on production is clearly not the way to go but that is exactly what’s been done.

All in all, the main objectives of cutting the fiscal deficit quickly are right but many of the methods being implemented are the wrong medicine.

Related posts | Fiscal deficit target exceeded again | Gov’t raking in taxes | GOJ: Deficit cut

Image courtesy of StuartMiles/FreeDigitalPhotos.net

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Economy probably contracted 2.5% in Q2

August 20, 2013 by

Data out of Jamaica Public Service Company (JPS) suggest the economy probably contracted by as much as 2.5 percent in the June quarter compared to the same period last year. According to JPS in its June 2013 quarterly report, the amount of electricity sales net of energy costs fell by 16 percent compared with the same quarter last year. Over the same time the exchange rate for the Jamaican dollar fell by 13.6 percent. JPS reports their accounts in US dollars but bill in Jamaica dollars with the main energy cost tied directly to US dollars.

The consumption of electricity is not a fool proof determinant of Gross Domestic Product (GDP) performance but since electricity is used in generating most economic activity, it’s a good guide of what may be happening in the wider economy. Earlier this year, STATIN reported the GDP data that showed a decline of 1.3 percent in the first quarter.

JPS reported in its June quarter profit statement a decline in revenues of 8.5 percent and gross income fared even worse with a 16 percent fall, compared to the similar period in 2012. By contrast, the year-to-date revenues are down a little under 8 percent and gross profit off just 6 percent. The gross profit would be a better indicator than gross revenues as the latter removes the impact of price movement of fuel on the computation.

power-lines150x150pxJPS grossed US$267 million in the June quarter versus $291.5 million in June 2012 and US$536 million compared to $581.7 million in the six months to June 2012. Gross profit came out at US$62 million for the June quarter this year, while the gross profit in 2012 was US$73.8 for the June quarter and for the six months to June US$130 million and US$137.9 for the six months to June 2012.

Expenses | JPS was able to cut operating expenses by US$6.7 million in the quarter and just over US$8 million for the six month period compared to 2012. No doubt the change in the value of the Jamaican dollar versus the US dollar reduced much of the local input cost when converted to US dollars. But the cost of money went up US$2.3 million to nearly US$15 million for the June quarter and nearly US$9 million to reach US$32.6 million for the six months.

Profit | JPS ended up with profit of only US$1.1 million in the latest quarter and only US$315,000 for the six month period. In 2012, profit for the quarter was US$5.887 million and year to date US$7 million. The problem is that these returns are well off the rate of return that JPS is allowed to make under their licensing regime, which is about a 16 percent return on equity.

The poor profit performance has impacted the finances of the company. While equity is at US$445 million, debt is running closely behind at US$379 million. Cash collection is an issue with receivables equalling the full quarter’s revenues when it should not exceed 45 to 60 days. But cash, which was at US$26.5 million at the end of 2012, is now only US$4.3 million at the end of June — what would be called a fast evaporation of funds.

Related posts | Mining & Agriculture dent GDP badly | BOJ: Little or no growth to June | BOJ estimates GDP decline in Q1

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