Download CARIBBEAN ECONOMIC REPORT On Taming

CARIBBEAN ECONOMIC REPORT
September 2016
On Taming Economic Vulnerability and Volatility
A recent World Bank study investigated the main drivers of economic vulnerability and volatility in real GDP growth in the Eastern Caribbean in particular,
highlighting the fact that growth rates over the last three years exceeded the
2009-13 average. Does this mean that these countries have ‘turned the corner’? Will this growth be sustained? Will poverty levels be reduced? Unfortunately, the report concluded that “While there is optimism with the incipient
recovery in the OECS, there is no reason to believe that the latent sources of
vulnerability and volatility in the region have subsided” and as such, the benefits of current growth rates, may be short-lived. But what are these sources
of vulnerability and volatility? And how do we mitigate them? The study found
that growth volatility in the Caribbean is driven largely by exogenous shocks
such as adverse terms of trade shocks, the decline in official foreign assistance, economic downturn in major trading partners, and recurrent natural
disasters. But compounding these is the pro-cyclicality of fiscal policy in the
Caribbean, which amplifies the business cycle, and leaves Governments less
able to compensate during recessions. The introduction of fiscal responsibility
laws and fiscal rules which promote counter-cyclical fiscal policy, the building up of fiscal buffers, and lower debt, are all key to solving the growth,
vulnerability, and volatility problem therefore. In addition, financial sector
weakness and underdevelopment were found to be key drivers of vulnerability and volatility in the Caribbean. Financial sector development and banking
Central Bank Net Foreign Assets : Aruba
950
USD millions
900
850
800
750
700
sector stability can be achieved by improving savings instruments, strengthening the regional supervision of insurance, and establishing deposit insurance. Further, the financial sector should enhance economic growth though
greater infrastructure, housing, and micro, small and medium sized enterprise financing.
650
Source: Central Bank of Aruba, RBC Financial (Caribbean) Limited
Jul-16
May-16
Jan-16
Mar-16
Sep-15
Nov-15
Jul-15
May-15
Jan-15
Mar-15
Nov-14
Jul-14
Sep-14
May-14
Jan-14
Mar-14
600
550
Aruba — Consumer confidence up on refinery reopening
Caribbean Tourism Organization (CTO) data show a 1.3% expansion in stopover arrivals in H1 2016 y/y, despite 6.5% less Canadians and 0.3% fewer travelers from ‘other’ markets. Cruise passenger arrivals jumped 20.5% y/y from
January to May 2016. Central Bank (CBA) Net Foreign Assets grew 31% y/y to
Marla Dukharan
USD898 million, which we estimate at five months of imports. Deflation,
Group Economist
RBC Caribbean
(868) 688-9845
[email protected]
which has existed since October 2015, reached 1.1% y/y in July 2016, CBA
data show. CBA Consumer Confidence Index for Q2 2016 (while still negative,
reflecting pessimism), has shown a 2.3 index point improvement, probably
based on the announcement of the planned re-opening of the refinery.
The Bahamas — Moody's downgrade to Baa3 (stable)
Central Bank External Reserves : The Bahamas
USD Millions
1100
1050
1000
950
900
850
800
750
Jul-16
Apr-16
Jun-16
May-16
Jan-16
Mar-16
Feb-16
Oct-15
Dec-15
Nov-15
Jul-15
Sep-15
Aug-15
Apr-15
Jun-15
May-15
Jan-15
Mar-15
Feb-15
Oct-14
Dec-14
Nov-14
Jul-14
Sep-14
Aug-14
Apr-14
Jun-14
May-14
Jan-14
Mar-14
Feb-14
700
Non-performing Loans : The Bahamas
17.5%
17.0%
16.5%
16.0%
15.5%
15.0%
14.5%
14.0%
13.5%
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
1.5%, growth expected to average 1.3% from 2016-20 based on structural rigidities, and debt/GDP estimated at 66.1% by the end of 2015/16 from 60.2%
in 2013/14. Moody’s stated that the ratings could be lowered (to speculative
grade) if the deficit is not reduced as expected, if growth is slower than anticipated, and if contingent liabilities “were to crystallize on the government’s balance sheet”. The ratings could move up if the fiscal deficit narrows faster than expected, if implementation of structural reforms boosts
Source: Central Bank of the Bahamas, RBC Financial (Caribbean) Limited
% Non-performing / Total Loans
The main drivers of Moody’s downgrade were: low growth potential at 1-
13.0%
growth potential, and if there is significant improvement in debt metrics.
CTO data show 2.4% y/y growth in stopover arrivals in Q1 2016, while cruise
passenger arrivals fell 1.6%. The Central Bank (BCB) reported 2.7% and 1.5%
growth in stopover and cruise passenger arrivals, respectively in H1 2016. BCB
external reserves expanded 9.8% y/y to USD1.058 billion at end-July 2016,
which we estimate at roughly 2.6 months of imports. Non-performing loans
reached 14.3% of total loans in July 2016, down from 15.2% one year prior.
Deflation persisted for a sixth consecutive month, to reach 0.33% y/y in June
2016, BCB data show.
Source: Central Bank of the Bahamas, RBC Financial (Caribbean) Limited
Monetary Base : Barabdos
BBD '000
Please click here for a full review of the budget. Government is budgeting for
1,700,000
a deficit at 5.8%/GDP in FY2016/17, compared to a planned deficit of 4%/GDP
1,500,000
for FY2015/16, which ended up at 7%. The IMF recently reported central Gov-
1,300,000
ernment debt at 141.6%/GDP (the highest in the Caribbean) and total public
1,100,000
sector debt (including NIS) at 156.6%/GDP. Central Bank (CBB) data show the
900,000
monetary base expanded 23% y/y in July 2016, to BBD2.162 billion, while CBB
holdings of central Government debt increased by 63% y/y to BBD1.69 billion
Source: Central Bank of Barbados, RBC Financial (Caribbean) Limited
International Reserves : Barbados
USD '000
Barbados — Highest debt/GDP and inadequate reserves
1,900,000
Jul-16
Apr-16
Jan-16
Jul-15
Apr-15
Oct-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Jul-13
Apr-13
Oct-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Jul-11
Apr-11
Oct-11
Jan-11
Oct-10
Jul-10
Jan-10
Apr-10
2,100,000
900,000
850,000
800,000
750,000
700,000
650,000
or 63% of total CBB assets, up from 49% one year prior. This likely contributed
to international reserves dropping 11.2% y/y in July 2016 to USD438 million,
which we estimate at 2.6 months of imports—below the three-month precautionary benchmark, and along with the Bahamas, the lowest in the English
600,000
550,000
500,000
450,000
400,000
350,000
May-16
Oct-15
Mar-15
Aug-14
Jan-14
Jun-13
Nov-12
Apr-12
Sep-11
Jul-10
Feb-11
Dec-09
Oct-08
Mar-08
May-09
Jan-07
Jun-06
Aug-07
Apr-05
Sep-04
Nov-05
Jul-03
Feb-04
Dec-02
Oct-01
May-02
Jan-00
Mar-01
Aug-00
300,000
Real GDP Growth : The Cayman Islands
money; and also below “comfortable” levels for small open economies with
high debt and fixed-exchange rate regimes.” CTO data show stopover and
2016, with stronger arrivals coming from all major source markets.
% change y-o-y
5.0%
4.3%
2.4%
1.2%
1.2%
1.7%
1.4%
2.10%
3.0%
1.0%
2008
2009
2010
2011
2012
2013
2014
-0.2%
-2.7%
-6.3%
Source: Cayman Islands Economics and Statistics Office, RBC Financial (Caribbean) Limited
2
lower than the estimated threshold...given the level required to cover broad
cruise arrivals grew 5.3% and 5.5% y/y respectively, from January to May
Source: Central Bank of Barbados, RBC Financial (Caribbean) Limited
2007
speaking Caribbean. The IMF recently reported “reserves are significantly
2015e
2016f
Cayman Islands — 2.4% growth in Q1 2016 y/y
The Economics and Statistics Office estimated GDP growth at 2.4% in Q1
-1.0%
2016, up from 1.4% in Q1 2015, as the dominant financing and insurance
-3.0%
sector expanded by 1.3%, up from 0.4% in Q1 2015. The authorities are fore-
-5.0%
casting growth at 2.1% this year. CTO data show stopover arrivals declined
-7.0%
1.4% y/y in H1 2016 as arrivals from Canada, Europe and ‘other’ markets fell.
Cuba—Growth slows on effects of Venezuela’s crisis
Growth is estimated to have slowed to 1% in H1 2016, Global News Matters
Real GDP Growth : Cuba
4.0
% change, y-o-y
3.5
3.5
reported, based mainly on reduced oil flows from Venezuela, which President
3.0
3.0
2.8
Castro is addressing via cuts in public spending and energy consumption. Over
2.7
2.4
2.5
46,600 Cubans immigrated to the USA during the last 10 months, according to
2.0
1.5
the Pew Research Center, up from 43,159 in 2015 and 24,278 in 2014. CTO
1.5
1.3
data show stopover arrivals up 13.4% in Q1 2016, with lower Canada arrivals.
1.0
0.8
0.5
Curacao and Sint Maarten — Stronger growth expected
According to CTO data, Curacao stopover arrivals expanded 1.5% y/y in H1
2016, while St. Maarten’s grew 9.6% y/y from January to April 2016. Cruise
0.0
2009
2010
2011
2012
2013
2014
2015e
2016f
Source: Global News Matters, Cuban Offical Announcements, RBC Financial (Caribbean) Limited
Net Official Reserves : Curacao and Sint Maarten
NAf Millions
2,400
2,300
passenger arrivals fell 11.5% y/y in Curacao and 18.1% y/y in St. Maarten for
2,200
2,100
the same respective periods. Central Bank data show net official reserves
projected to decline by 1.33% y/y in August 2016, which we estimate at six
months of imports. The IMF reported 2015 growth at 0.1% in Curacao and
0.5% in St. Maarten, and forecasts 2016 growth at 0.5% and 0.7% respectively,
Jul-16
Aug-16
Apr-16
Jun-16
May-16
Jan-16
Mar-16
Feb-16
Oct-15
Dec-15
Nov-15
Jul-15
Sep-15
Aug-15
Apr-15
Jun-15
May-15
Jan-15
Mar-15
Feb-15
Oct-14
Dec-14
Nov-14
Jul-14
Sep-14
Aug-14
Apr-14
Jun-14
May-14
Jan-14
1.91
1.85
1.75
1.71
1.23
1.5
0.39
0.62
0.50
0.64
0.23
-0.04
2.0
1.0
0.43
1.16
1.02
at 7.4% in H1 2016, on Q2 2016 growth of 8.7% y/y. Growth may hit 7% for
1.59
2.34
1.74
2.5
1.54
1.58
inflation at 1.85% - below the target 4.0% ± 1.0%. The BCRD estimates growth
3.0
2.53
2.88
2.83
3.5
2.68
3.68
3.41
3.13
3.49
2.99
2.84
2.82
4.0
In August the Central Bank (BCRD) held the policy rate at 5%, citing lower
y growth in stopover arrivals in H1 2016 with higher numbers coming from all
1,600
Inflation Rate : The Dominican Republic
Dominican Republic—7.4% growth in H1 2016
0.5
Jul-16
Jun-16
Apr-16
Mar-16
May-16
Jan-16
Feb-16
Dec-15
Nov-15
Oct-15
Sep-15
Jul-15
Jun-15
Aug-15
Apr-15
Mar-15
May-15
Jan-15
Feb-15
Dec-14
Oct-14
Sep-14
Nov-14
Jul-14
Jun-14
Aug-14
Apr-14
Jan-14
Mar-14
Feb-14
0.0
May-14
for the third consecutive year, according to the BCRD. CTO data show 6.5% y/
1,700
% change y/y
of needed structural reforms, according to the IMF.
2016 overall, which is above plan, and would be the highest in Latin America
1,800
Source: Central Bank of Curacao and Sint Maarten, RBC Financial (Caribbean) Limited
3.70
crisis, loss of correspondent banking relationships, and slow implementation
Mar-14
risks to the outlook include continued low euro area growth, Venezuela’s
1,900
1,500
Feb-14
accelerating to 0.9% and 1.3% respectively, over the medium term. The major
2,000
P
r
o
v
i
s
i
o
n
a
l
-0.5
Source: Central Bank of the Dominican Republic, RBC Financial (Caribbean) Limited
Net International Reserves : Guyana
USD Millions
850
source markets, while cruise passenger arrivals jumped 58.4% y/y in H1 2016.
800
750
reserves at USD634.6 million or 4.2 months of imports in June 2016, and the
Mar-16
May-16
Jan-16
Sep-15
Nov-15
Jul-15
May-15
Jan-15
Mar-15
Nov-14
Jul-14
Sep-14
Jan-14
Mar-14
May-14
Sep-13
Nov-13
Jul-13
(down from 4.4%), fueled by the mining and services sectors. BoG reported
Mar-13
500
May-13
and 14.1% decline in manufacturing. Growth is now expected at 4% for 2016
Jan-13
550
Nov-12
quarrying overall, outweighing the 10% y/y contraction in agriculture output
Jul-12
600
Sep-12
2015, based largely on y/y growth of 94.3% in gold, and 65.7% mining and
May-12
650
Jan-12
700
The Central Bank (BoG) reported growth at 2% in H1 2016, up from 0.9% in H1
Mar-12
Guyana — 2016 growth outlook at 4%, down from 4.4%
Source: Bank of Guyana, RBC Financial (Caribbean) Limited
Monthly Average USD Selling Rate : Jamaica
JMD / USD
average USD selling rate was GYD209.52—largely unchanged y/y.
JMD 128
JMD 126
JMD 124
JMD 122
JMD 120
JMD 118
JMD 116
JMD 114
JMD 112
JMD 110
Jamaica — Policy rates now at lowest level in history
Citing inflation softening to 2.5% y/y in Q2 2016, down from 3% in Q1, and
JMD 108
JMD 106
JMD 104
below the target of 4.5-6.5%, the Central Bank cut its policy rate by 25bps to
JMD 102
JMD 100
JMD 98
5% - the lowest on record. The Government has signalled its intention to have
tion. The JMD depreciated 8.09% y/y in August 2016 to JMD127.03/USD1.00.
1-Jan-13
1-Feb-13
1-Mar-13
1-Apr-13
1-May-13
1-Jun-13
1-Jul-13
1-Aug-13
1-Sep-13
1-Oct-13
1-Nov-13
1-Dec-13
1-Jan-14
1-Feb-14
1-Mar-14
1-Apr-14
1-May-14
1-Jun-14
1-Jul-14
1-Aug-14
1-Sep-14
1-Oct-14
1-Nov-14
1-Dec-14
1-Jan-15
1-Feb-15
1-Mar-15
1-Apr-15
1-May-15
1-Jun-15
1-Jul-15
1-Aug-15
1-Sep-15
1-Oct-15
1-Nov-15
1-Dec-15
1-Jan-16
1-Feb-16
1-Mar-16
1-Apr-16
1-May-16
1-Jun-16
1-Jul-16
1-Aug-16
a successor arrangement with the IMF as the current program nears comple-
JMD 96
JMD 94
JMD 92
Source: Bank of Jamaica, RBC Financial (Caribbean) Limited
3
Suriname—Performance under IMF program is ‘mixed’
International reserves: Suriname
USD Millions
800
Though progress has been made, reforms needed under the IMF programme
700
have not been fully executed. Specifically, petrol taxes and electricity tariffs
600
500
400
are below-target and put strain on fiscal balances, social spending is belowtarget, and interest rates have not increased enough given the level of inflation, which reached 64% in June 2016. International reserves fell 18% y/y in
300
200
July 2016 to USD378.2 million, which we estimate at 2 months of imports.
Jul-16
Apr-16
Jun-16
May-16
Jan-16
Mar-16
Feb-16
Oct-15
Dec-15
Nov-15
Jul-15
Sep-15
Jun-15
Aug-15
Apr-15
May-15
Jan-15
Mar-15
Feb-15
Oct-14
Dec-14
Nov-14
Jul-14
Sep-14
Jun-14
Aug-14
Apr-14
May-14
Jan-14
Mar-14
Feb-14
100
Source: Central Bank of Suriname, RBC Financial (Caribbean)
T&T — 21% less USD sold to all authorized dealers YTD
Central Bank (CBTT) data show the TTD depreciated 6% y/y to average
Central Bank USD Injections Per Month : Trinidad and Tobago
800,000
695,000
USD '000
700,000
TTD is the single most overvalued currency in the Caribbean and Latin America. International reserves fell 11.7% y/y to USD9.259 billion or 10.9 months of
imports in July 2016. From January—August 2016, USD3.932 billion was sold
135,000
50,000
50,000
130,000
125,000
75,000
100,000
142,000
125,000
200,000
150,000
400,000
270,000
275,000
150,000
135,000
125,000
60,000
250,000
50,000
250,000
225,000
175,000
225,000
80,000
500,000
0
100,000
250,000
160,000
140,000
60,000
40,000
130,000
190,000
160,000
399,900
600,000
TTD6.7392/USD1.00 in August 2016, but a recent UNECLAC report shows the
300,000
200,000
100,000
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
0
by the public and CBTT to all authorized FX dealers, down TTD1.032 billion or
20.8% y/y from the USD4.964 billion sold from January—August 2015. As at
September 7th 2016, excess liquidity stood at TTD3.64 billion, up roughly 11%
from TTD3.278 billion in September 2015.
Source: Central Bank of Trinidad and Tobago, RBC Financial (Caribbean) Limited
Caribbean Economic Indicators
Nominal
Popl'n GDP (USD Per capita
(000)
Billions) GDP (USD)
Credit Rating
& (outlook)
GDP
Import
change Unemplo Gross Public cover Inflation
y/y
yment Debt / GDP (months)
y/y
Aruba
107
2.6
24,402
BBB+ (Positive)
0.1%
7.6%
80.1%
5.0
-1.1%
The Bahamas
347
8.5
23,417 BBB- (Negative)
-1.7%
14.8%
76.5%
2.6
-0.3%
Barbados
274
4.5
16,307
B (Negative)
1.3%
10.7%
156.6%
2.6
-1.2%
58
3.0
54,338
Aa3 (Stable)
1.9%
4.7%
21.0%
n/a
-2.8%
11,300
77.1
4.7%
3.0%
22.3%
n/a
1.2%
143
3.0
20,260
A- (Stable)
0.1%
11.7%
44.3%
6.0
-0.4%
10,400
60.8
7,000
BB- (Stable)
6.1%
5.7%
48.5%
3.5
1.9%
ECCU
637
5.2
8,163
n/a
2.6%
20.0%
76.0%
5.4
-1.8%
Guyana
756
2.7
3,596
Not rated
2.0%
11.0%
49.0%
4.2
1.1%
2,751
15.3
5,526
B (Stable)
1.5%
13.7%
125.0%
4.9
2.5%
43
0.8
26,025
Baa2 (Stable)
0.5%
8.9%
36.5%
6.0
0.3%
541
5.1
9,339
B1 (Stable)
0.1%
9.5%
39.8%
2.0
63.8%
1,328
23.8
17,935
A- (Negative)
-2.1%
3.5%
62.8%
10.9
3.4%
Cayman
Cuba
Curacao
Dom Rep
Jamaica
St. Maarten
Suriname
T&T
6,848 Caa2 (Positive)
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