Financing Development in Jamaica A Panoramic View:

Opportunities, Challenges and New

Paradigms

Jide Lewis, CFA, FRM

1

Official External Sources of Development Financing

Official Sources of External Financing (Annual Profile)

-3.1

-4.9

-3.4

1.3

-1.2

-4.6

-0.1

-0.7 -0.4

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

CY2012 CY2013 CY2014

Per

cen

t o

f G

DP

Government loan flows Government Bond flows Official Grant Flows

INFLOWS (-)

OUTFLOWS (+)

Three main sources of official external financing [Loans, Bond and Grants] have played an integral role in Jamaica’s development agenda.

Loan flows, with the exception of 2014, have represented to the largest source of official financing.

Bond flows has re-emerged as a main source of financing in 2014

Official Sources of External Financing (Quarterly Profile)

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.02012:Q2 2012:Q3 2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2

Per

Cen

t o

f G

DP

Govt. Portfolio Securities Govt. Loans Official Grant Flows

NET CAPITAL OUTFLOWS

CAPITAL INFLOWS

Bond flows, however, has exhibited much volatility in the aftermath of the global financial crisis. Loans flows and Grant flows from Multilateral Financial Institutions have been much more stable over the last two years.

Official Loan Flows by Multi-Lateral Financial Institution (MFIs)

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

20

08

:Q1

20

08

:Q3

20

09

:Q1

20

09

:Q3

20

10

:Q1

20

10

:Q3

20

11

:Q1

20

11

:Q3

20

12

:Q1

20

12

:Q3

20

13

:Q1

20

13

:Q3

20

14

:Q1

20

14

:Q3

% o

f G

DP

US$

Mill

ion

s

Other EU KFW

CDB OECF USAID

IDB IBRD Grants-to-GDP Ratio

Jamaica has partnered with a wide range of multi-lateral financial institutions since the height of the global financial crisis. Supporting liquidity when global capital markets where exhibiting low levels of liquidity.

These partners have included the IBRD, IDB and the CDB, among others.

Official Transfers\Grants

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

20

08

:Q1

20

08

:Q3

20

09

:Q1

20

09

:Q3

20

10

:Q1

20

10

:Q3

20

11

:Q1

20

11

:Q3

20

12

:Q1

20

12

:Q3

20

13

:Q1

20

13

:Q3

20

14

:Q1

20

14

:Q3

% o

f G

DP

US$

Mill

ion

s

Other EU KFW

CDB OECF USAID

IDB IBRD Grants-to-GDP Ratio

Though grant flows from MFIs have typically represented lower proportion relative to GDP. These flows have catalysed the developmental process via: a) Provision of Technical

Expertise b) Application of

International Benchmark standards

c) Accountability along key stages of project implementation from design to implementation.

Improving Access to Global Capital Markets…

Jamaica has increasingly focused on creating the necessary supporting policy and institutional environment to promote and enhance the effectiveness of development initiatives.

Global Bond Markets

0

2

4

6

8

10

12

14

No

v-0

8Fe

b-0

9M

ay-0

9A

ug-

09

No

v-0

9Fe

b-1

0M

ay-1

0A

ug-

10

No

v-1

0Fe

b-1

1M

ay-1

1A

ug-

11

No

v-1

1Fe

b-1

2M

ay-1

2A

ug-

12

No

v-1

2Fe

b-1

3M

ay-1

3A

ug-

13

No

v-1

3Fe

b-1

4M

ay-1

4A

ug-

14

No

v-1

4Fe

b-1

5

Pe

r ce

nt

(%)

EMBI GOJGB

0

100

200

300

400

500

600

No

v-0

8Fe

b-0

9M

ay-0

9A

ug-

09

No

v-0

9Fe

b-1

0M

ay-1

0A

ug-

10

No

v-1

0Fe

b-1

1M

ay-1

1A

ug-

11

No

v-1

1Fe

b-1

2M

ay-1

2A

ug-

12

No

v-1

2Fe

b-1

3M

ay-1

3A

ug-

13

No

v-1

3Fe

b-1

4M

ay-1

4A

ug-

14

No

v-1

4Fe

b-1

5

Bas

is P

oin

ts

GOJGB-EMBI Spread

These efforts have resulted in a notable narrowing of the spread between yields on GOJ Global Bonds and the Emerging Market Bond Index. Jamaica is one of twenty middle income countries (MIC) which has access to global capital markets.

Other External Sources of Development Financing

Other Sources of External Financing (Annual Profile)

3.7 3.3

-0.7

-2.8

-5.2 -5.0

-12 -13.7

-15.0

-13.0

-11.0

-9.0

-7.0

-5.0

-3.0

-1.0

1.0

3.0

CY2012 CY2013 CY2014

Per

cen

t o

f G

DP

Non-FDI Private Capital Flows/GDP FDI inflows/GDP Remittance Flows/GDP

INFLOWS (-)

OUTFLOWS (+)

Three other sources of external financing have been Remittances, Foreign Direct Investment and Private Capital Flows.

Other Sources of External Financing for Development

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2012:Q4 2013:Q1 2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2 2014:Q3 2014:Q4

Per

Cen

t o

f G

DP

FDI Inflows/GDP Non-FDI Private Capital Flows/GDP Remittance Flows/GDP

CAPITAL OUTFLOWS

CAPITAL INFLOWS

While Foreign Direct Investment and Remittance inflows have been stable and robust, Private Capital Flows, though improving, have been very volatile.

Other External Sources of Development Financing: Remittances

Remittances: Who are the recipients? In terms of other sources of income - 40 per cent of

recipients were employed full-time

- 11 per cent were self-employed

- 25 per cent where unemployed

- 13 per cent were not seeking a job

75% of Recipients are women

Modal Age: 25 – 40

Household Size: 4

Education:

85% have at least Secondary-level education 25% have Tertiary-level education

USD 222 per Month

680,000 Persons

Usage of Remittances for Frequent Recipients

14 per cent

9 per cent

6 per cent

7 per cent

19 per cent

Electronic Retail Payment Solutions for which authorizations were requested related to proposals to provide the following services using cards and mobile wallets: i. Balance Enquiries; ii. Bill Payments; iii. Loyalty Programmes; v. Person-to-Business Transfers; vi. Person-to-Person Transfers; and vii. Mobile wallet services.

Other External Sources of Development Financing: Foreign

Direct Investment

4.8

5.7

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

5.8

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

CY2013 CY2014

To

tal F

DI a

s a

Per

cen

t o

f G

DP

US

$ M

illio

ns

Agricultural/Manufacturing/Distribution DivestmentInformation Tech/Communication InfrastructureInsurance Minerals & ChemicalsMining OtherRetained Earnings TourismTOTAL

Annual Foreign Direct Investment by Economic Sector

China is playing an increasingly important role particularly in the development of infrastructure in Jamaica. Tourism investments particularly from Spain has also buoyed FDI inflows. There have also been ongoing investments in the areas of telecommunications, mining and agriculture and distribution.

• Making it easier to start a business : Simplified preregistration

formalities (publication, notarization, inspection, other requirements) • Cut or simplified post registration procedures (tax registration, social

security registration, licensing)

• Ease of getting electricity Improved regulation of connection processes and costs

• Jamaica made getting electricity less expensive by reducing the cost of external connection works.

• Jamaica made starting a business easier by consolidating forms, but also made it more time-consuming as a result of delays in the implementation of the electronic interface with different agencies.

Making “Doing Business” in Jamaica Easier

Domestic Sources of Private Sector Development Financing

Domestic Sources of Financing (Annual Profile)

-5.0

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

CY2012 CY2013 CY2014

Per

cen

t o

f G

DP

Domestic Loan Flows/GDP

INFLOWS (-)

The pace of domestic financing of loans to businesses and households has slowed in 2014 relative to both 2012 and 2013.

Credit Reporting Activity

The Panoramic View

12.0

3.1

2.8

0.2

-1.3

2.8

-3.7

-5 0 5 10 15

Remittance Inflows

Official Loans

Foreign Direct Investment

Official Grant Flows

Govt Bond Flows

Domestic Loans

Private Capital Flows

Per cent of GDP

13.8

3.4

5.1

0.4

4.6

1.0

0.7

0 2 4 6 8 10 12 14 16

Remittance Inflows

Official Loans

Foreign Direct Investment

Official Grant Flows

Govt Bond Flows

Domestic Loans

Private Capital Flows

Per cent of GDP

2012 2014