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Jamaica’s first trillion-dollar budget tabled; debt service obligations reduced   Published: 16 March 2023

 

  • Finance Minister Dr. Nigel Clarke has indicated that the Jamaican government plans to spend more than a trillion dollars over the 2023/2024 fiscal year on the central government.
  • Funds for the 2023/24 Budget are allocated across the main expenditure categories. These comprise non-debt recurrent expenditure of $657.2Bn, capital expenditure of $74.4Bn, and debt servicing of $280.6Bn. Central Government revenue and grant inflows are estimated at $897.6Bn.
  • When compared to the proposed allocation for the 2022/2023 fiscal year, government expenditures for non-debt recurrent expenditure and capital expenditure have increased by $52.7Bn (+8.7%) and $10.3Bn (+14.3%), respectively. However, expenditure for debt servicing decreased by $26.9Bn (- 8.7%) given the fall in the country’s stock of debt.
  • This will generate the required fiscal balance surplus of $9.9Bn or 0.3% of gross domestic product (GDP), consistent with fiscal rules.
  • The corresponding primary balance required for debt service and to generate the targeted fiscal balance is approximately $165Bn or 5.6% of GDP.
  • Further, the overall public debt is estimated to end the current fiscal year on March 31 at 79.7% of GDP and is expected to decline further to 74.3% of GDP by fiscal year 2023/24. Should this (projection) be achieved, it would mark the first time since the nationalisation of the financial sector crisis through FINSAC in the latter half of the 1990s that debt has entered the domain of pre-FINSAC levels.

(Source: JIS News)

Growth In Trinidad And Tobago To Slow In 2023 As Private Consumption And Exports Moderate Published: 16 March 2023

  • Fitch Solutions expects real GDP growth in Trinidad and Tobago (T&T) will slow from an estimated 5.6% in 2022 to 2.2% in 2023 due to a moderation in exports and private consumption. 
  • Fitch expects private consumption and hydrocarbon exports will provide weaker tailwinds this year, with growth particularly slowing in H223 as the global economy decelerates. Moderating energy prices will also lead to slower hydrocarbon production growth in the quarters ahead, though the sector should remain one of the most important drivers of growth in T&T for 2023.
  • Additionally, inflation was extremely elevated in Q422, reaching 8.7% y-o-y in December, and is expected to average 7.9% in 2023, up from 5.8% in 2022, which would continue to affect private consumption. Particularly, higher prices as a result of subsidy removal for fuel and equipment for fishermen, leading to higher fish prices and contributing to overall food prices will weigh on private consumption.
  • Notably, government consumption is anticipated to remain modest as the government’s commitment to fiscal consolidation will constrain outlays.
  • Overall, Fitch expects government consumption to slow slightly in 2023 compared to 2022, as the government remains committed to fiscal consolidation in the years ahead. Projections are that T&T will run small fiscal deficits in the next few years, as part of a broader effort to reduce its government debt.
  • The upside, however, is if elevated inflation leads to public unrest, the government may bring back subsidies, thereby supporting private consumption and growth and boosting growth prospects for the nation.

(Source: Fitch Solutions)

Latin American tech startups scramble after SVB collapse Published: 16 March 2023

  • Tech startups in Latin America are struggling to find banking alternatives after the sudden crash of Silicon Valley Bank (SVB), one of the few banks that offered much-needed dollar accounts and catered to the specific needs of the sector.
  • "This touched (almost all) venture-backed companies in Latin America," said Brian Requarth, the Mexico City-based co-founder of startup platform Latitud.
  • Local startups now have few alternatives for a banking partner in the wake of SVB's collapse, Requarth said. Over the weekend, U.S. regulators announced an emergency plan allowing depositors of Santa Clara, California-based SVB to access their funds.
  • In 2022, more than 1,300 startups in Latin America raked in an estimated $28.17 billion in funding, according to the Association for Private Capital Investment in Latin America.
  • Vicente Garrido, the co-founder of Mexican rental property startup Roddo, told Reuters he still was not sure whether the company would make payroll this week.
  • "We had all of our capital there, in the U.S.," Garrido said. "In Mexico, we held just a fifth of what we spend in a month."
  • Startups in the region often relied on SVB as one of the few banks that offered them U.S. dollar accounts, a requirement from venture firms providing capital in greenbacks.
  • Startups would open SVB accounts using what Requarth called a "Cayman sandwich," using holding companies in the Cayman Islands and limited liability companies (LLCs) in the U.S. state of Delaware to avoid a taxation double whammy if the firm was ever sold.

(Source: Reuters)

Moody’s Cuts Outlook On U.S. Banking System To Negative, Citing ‘Rapidly Deteriorating Operating Environment’   Published: 16 March 2023

 

  • In a harsh blow to an already-reeling sector, Moody’s Investors Service on Monday cut its view on the entire US banking system to negative from stable citing heightened risks for the sector after the rapid unraveling of SVB Financial Group (SIVB.O) fueled fears of contagion.
  • Two deposit runs occurring at Silicon Valley Bank and Signature Bank have deteriorated the operating environment for the sector that is now battling a crisis of confidence, both from investors and depositors, the ratings agency said. Regardless of the Federal Reserve stating that they will ensure all depositors will have access to their money as of March 13, it has not mitigated the loss in depositor and investor confidence.
  • Pandemic-related fiscal stimulus along with more than a decade of ultralow interest rates and quantitative easing resulted in significant excess deposit creation in the US banking sector. This has given rise to asset-liability management risks, with some banks having invested excess deposits in longer-dated fixed-income securities that have lost value during the rapid rise in US interest rates, resulting in significant unrealized losses.
  • Moody's also said it was expecting the Federal Reserve to continue tightening monetary policy, in contrast to some others who are expecting the bank collapses this month to reshape the trajectory for interest rate hikes.

(Sources: Moody’s and Reuters)

  Analysis: Swiss Blank Cheque Wins Some Time For Credit Suisse   Published: 16 March 2023

 

  • Switzerland's radical pledge to bankroll Credit Suisse Group AG has won the embattled lender the chance to resurrect itself from an almost complete collapse in confidence that rattled global markets.
  • The move, tantamount to a blank cheque from one of the globe's leading central banks, is reminiscent of the promise by European Central Bank to do whatever it takes to support the euro during the financial crash more than a decade ago.
  • In the years that followed, the ECB and other central banks printed billions of euros, a free-money era that spawned a global rally in asset prices. A reversal of low rates to stem rampant inflation has forced a risk rethink and exposed the vulnerability of firms such as Credit Suisse.
  • The Swiss National Bank and the country's financial regulator, FINMA, in a joint statement on Wednesday night sought to draw a line under months of speculation about the bank's future that had culminated in a 30% drop in its stock price on Wednesday.
  • In the early hours of Thursday, Credit Suisse said it was taking "decisive action" to strengthen its liquidity by exercising its option to borrow from the Swiss National Bank up to 50 billion Swiss francs ($54 billion).
  • The move to support the group is designed to stem a crisis of confidence in Switzerland's second-biggest lender resulting from years of scandals and losses. It is one step short of a fully-fledged bailout like those seen during the financial crash more than a decade ago.
  • However, it leaves the central bank, which prints the Swiss franc and underpins the Alpine nation's economy, firmly on the hook should confidence in the bank resume its spiral. Meanwhile, Credit Suisse still needs to push ahead with a radical restructuring it undertook in October to restore profitability.
  • In their joint statement on Wednesday, the Swiss National Bank and financial regulator said the "current turmoil in the U.S. banking market" would not have any spillover for Switzerland's banks.
  • The collapse of Silicon Valley Bank in the U.S. on Friday prompted a widespread flight to quality that saw the bigger lenders that are deemed more solid, including Swiss rival UBS Group AG, attract deposits, deepening Credit Suisse's woes.

(Source: Reuters)

Eight Years of No New Taxes; Initiatives to Reduce Energy Bill   Published: 14 March 2023

 

  • No new taxes will be introduced to finance the Government’s $1 trillion budget for the upcoming fiscal year. This was announced by Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, as he opened the 2023/24 Budget Debate in the House of Representatives on Tuesday (March 7).
  • This is the sixth consecutive fiscal year in which the government has not introduced any new taxes and the eighth year of no new net taxes. Instead, expenditure will be financed with tax and non-tax receipts.
  • In terms of new initiatives, Dr. Clarke announced that the Income Tax Act will be amended to incentivise households to purchase solar power generation systems. It will give a 30% tax credit on the cost of these systems up to a maximum cost of $4Mn.
  • Whilst the loss in potential revenues from the implementation of this measure was estimated at $100 million, the Minister posited that the potential losses would be offset by positive socio-economic gains, including environmental gains from reducing carbon dioxide emissions, diversifying local energy supply and reducing the demand for crude oil.
  • Given the increasing importance of Environmental, Social and Governance (ESG) concerns locally and internationally, environmental initiatives benefiting the productive sector would also be welcomed. Credits made available to the productive sector for environmental and social initiatives have the potential to be a game-changer in the way that Jamaican companies prioritise environmental and social issues, in keeping with international best practices.

(Source: PWC)

Reforms to Remove Disparity in GCT Treatments   Published: 14 March 2023

 

  • Considering the disparity that currently exists in GCT treatments in the second-hand car sales market for private individuals versus registered GCT taxpayers (such as car dealers), the Minister of Finance will be implementing an initiative in the new fiscal year to remove same.
  • The reform will see registered motor vehicle dealers paying a rate of 15% general consumption tax (GCT) on the mark-up margin on second-hand car sales, rather than the full price, while sellers continue to pay a flat fee of $12,000 or $18,000.
  • This adjustment will reduce the distorted price competition, as well as disincentivise the structuring of off-book sales to avoid taxation, and hence improve compliance and allow TAJ to secure GCT and other taxes on commissions generated by some of these businesses. 

(Source: PWC and JIS News)

US$35.4M Contract Signed To Make ‘One Card’ System A Reality in Guyana Published: 14 March 2023

  • Yet another milestone has been reached to bring the vision of a single electronic identification card for all government and business transactions to reality, as a US$35.4 million contract was signed between Germany-based company, Veridos and the Government of Guyana on Friday, March 10.
  • The implementation of the single electronic identification card allows for the issuance of work permits and resident identification through a more coordinated approach that will see holders of the registration numbers using that single identification for all transactions, President Dr Irfaan Ali said during a simple signing ceremony at State House.
  • He stated that the enhancement is necessary due to the immediate need to implement a robust national identity management system that focuses on the integration of identification services across government agencies, security, ease of use, and acquisition of IDs.
  • The government embarked on this process in October 2021; and sought the support of the United Arab Emirates. Since then, two companies submitted prototypes which were assessed by technical teams from Guyana’s National Data Management Authority (NDMA) and the Office of the National Information and Communications Technology (ICT).
  • In the Head of State’s view, the card will enhance the ease of transactions and be one of the most technologically advanced systems. The President explained that the new electronic identification system would revolutionize how business is done in Guyana and, with its advanced security system, will eliminate the need for certain documents.
  • As an example, the banking sector would now have fingerprint verification and validation of its clients, thereby eliminating the need for proof of address and all other audit documentation.
  • The cost of doing business, effectiveness, competitiveness, and efficiency is all set to improve as a result of this technology through the introduction of e-health, e-education, e-security, e-agriculture, electronic permit, and license processing, among other areas.

(Source: CariCris)

Bahamas Update: Fuel Price Issues Published: 14 March 2023

  • The Bahamas Petroleum Dealers Association has requested the government to authorize a marginal increase in fuel prices for retailers, who have been advocating for an increase in their profit margins on fuel, but Economy Minister Michael Halkitis rejected those claims.
  • Fuel retailers have called on Halkitis to have “a change of heart” and are also threatening to take action to prompt the authorities to react, arguing that the increase in costs has made the current margin regime unsustainable. The Association said that retailers “don’t want to strike,” but the local media reported that last week they discussed possible actions to call the government’s attention.
  • Currently, the government collects some $1.70 per gallon of fuel sold in the Bahamas (customs duty plus VAT plus special fuel contribution). Retailers get a $0.54 per gallon margin. That margin was last adjusted in 2011 when it was at $0.44 per gallon. Wholesalers receive $0.34 per gallon.
  • Halkitis stated that while the Davis administration is “sympathetic” to the issues raised by the retailers’ association, the government is not willing to endorse any measure that would lead to immediate increases in fuel prices at the pump.
  • Last year, Halkitis acknowledged that the government had discussions with retailers about shifting from a fixed contribution regime to an ad-valorem tax based on a percentage of base fuel price. The Association has indicated that it is open to those conversations. If there is no progress in the negotiations, a strike cannot be ruled out.
  • The potential of a strike could morph into broader social unrest, due to the effect of it possibly lowering output due to fuel shortages causing a decrease in business deliveries.

(Source: Oppenheimer & Co. Inc.)

Biden Promises 'whatever needed' for U.S. Bank System as SVB Shock Hammers Stocks   Published: 14 March 2023

 

  • Bank stocks around the world plunged on Monday even as President Joe Biden vowed to take whatever action was needed to ensure the safety of the U.S. banking system after the sudden collapse of Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O).
  • Biden's efforts to reassure markets and depositors came after emergency measures by the United States to guarantee deposits at both banks failed to dispel investor worries about potential contagion to other lenders worldwide. Major U.S. banks lost more than $70 billion in stock market value on Monday, bringing their total loss over the past three days to about $170 billion.
  • SVB's customers will have access to all their deposits from Monday and regulators set up a new facility to give banks access to emergency funds that the Federal Reserve made it easier for banks to borrow from it in emergencies.
  • SVB Financial Group (SIVB.O) and two top executives were sued on Monday by shareholders, who accused them of concealing how rising interest rates would leave its Silicon Valley Bank unit "particularly susceptible" to a bank run. The proposed class action against SVB, Chief Executive Greg Becker, and Chief Financial Officer Daniel Beck was filed in the San Jose, California, federal court.
  • A furious race to re-price interest rate expectations also sent waves through markets as investors bet the Fed will be reluctant to hike next week. Traders currently see a 50% chance of no rate hike at that meeting, with rate cuts priced in for the second half of the year. Early last week a 25 basis point hike was fully priced in, with a 70% chance seen of 50 basis points.

(Source: Reuters)