Q1 2018
GENERAL LEGAL DISCLAIMER
This communication has been prepared by CIBC FirstCaribbean International Bank (“FCIB”) and the Macro Strategy Desk within the Global Markets Group at CIBC Capital Markets .
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q4 2017 1
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 2
Short-lived periods of volatility in the emerging markets credit space continued, as fears of faster-than-expected reflation
resurfaced in the developed world, especially in the US. Moreover, concerns regarding protectionist measures around the
world continued with the US aluminum and steel tariffs announcement, which kept markets on alert to any retaliatory
measures. In the case of the Caribbean and Central American region, most credits with the exception of BAHAMA and
ELSALV widened in this environment. As we mentioned in our prior publication, the market had already started to move
away from the stars of the region (i.e. DOMREP, PANAMA) as positive developments dried up and credit valuations
remained rich. This continued during the last quarter and, in the case of DOMREP, this situation was exacerbated by the
US$ 1bln issuance of 30Y bonds in February. For the rest of the year, as in previous quarters, we would focus on credits
where we were starting to see an improving trend. The legislative election in El Salvador has created a positive
environment in the short-term with the approval of the 2018 budget and the favourable legislative election outcome on
March 4. Costa Rica, although improving on the margins as congress approved the fast-track route for the long awaited
VAT and Income tax bills, still has to deal with the second round elections and a fragmented congress - an interesting
story to keep track of in 2018.
BARBAD (+140bps on average) was the worst performing credit since our last publication. Sellers appeared close to the
end of 2017 and the market continues to digest the flow. Moreover, with not a date set for the election, uncertainty has
increased, as the market remains concerned about future fiscal adjustment measures.
PANAMA and DOMREP widened +59bps and +49bps on average during the last quarter. DOMREP positive
developments dried up in 2017 in tandem with the deceleration in growth. Moreover, in February, the Dominican Republic
issued a US$1bln 30Y bond at 6.5% supporting the widening of the curve as concessions were built in before the
announcement. In the case of Panama, growth has remained, supported by the external side of the economy, while
consumption remains sluggish. The absence of significant positive news in the pipeline, in our opinion, and its high cost
relative to other credits in the region has worked against the credit. In the case of JAMAN, not much changed over the last
quarter – local buying endures, although not as robust as earlier in 2017, while the country continues to comply with the
IMF guidelines.
After a volatile start to the year, COSTAR gained some ground in March as the government approved the fast-track route
for the much awaited VAT and Income tax bills, and Fabricio Alvarado (PRN) appointed a market friendly economic team.
Nevertheless, given the volatility experienced in the two weeks prior to the first round election, we remain cautious about
the credit in the short-term. We recognize that the fiscal situation has slightly improved, however, further fiscal
adjustments on the expenditure side remain to be seen. We could get a clearer picture on the magnitude and pace of
further adjustments close to the end of H1 2018. Of course any signals of having enough votes to proceed with
fast-tracking expenditure measures would provide support for the COSTAR curve. For now, the PRN and PLN together
with 31 votes would have to negotiate another 7 votes to show some advancement on this front.
With the approval of the 2018 budget and the positive outcome of the legislative elections on March 4, we expect ELSALV
bonds’ positive trend to continue as the market interprets ARENA’s victory and the FMLN losing its veto power as a sign
of improving government effectiveness going into 2018. If momentum carries into next year, ARENA is likely to be the first
government since the civil war that could bypass any opposition veto. Nevertheless, the extension of the short-term
positive environment would depend on the odds of the FMLN making a comeback and the IMF Article IV review to be
released late in March. For more details please refer to our El Salvador – 2018 Legislative elections note published on
March 7.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 3
Bahamas: Latest statistics from the Bahamas Department of Statistics imply that economic activity remained mixed
during 2017. Declines in both air arrivals (down 4.0% y/y) and sea arrivals (down 1.5% y/y) reduced total tourist
arrivals 2.1% y/y during 2017, as closures of airports during the passage of Hurricane Irma reduced total arrivals
34.9% y/y during September 2017. Indicators of current construction output suggest greater activity during the first
three quarters of 2017. The value of construction starts surged 62.4% y/y as the values of residential, and
commercial and industrial starts advanced 21.4% y/y and 33.9% y/y while the public sector started projects worth
US$29.4 mln compared to US$0.2 mln one year earlier. On the fiscal front, having recorded a much larger deficit
during its fiscal year ended June 2017 (up 87.6% y/y to US$669.3 mln or approximately 5.8% of GDP), recent data
released by the Central Bank of the Bahamas suggest that the government reduced its overall fiscal deficit by 36.0%
y/y to US$195.6 mln during July to December 2017. The IMF expects that the Bahamian economy will likely grow by
2.5% in 2018 and the fiscal deficit to land at 3.7% of GDP during 2017/18, as lower spending on post-hurricane
reconstruction and rebounds in revenue collected improve the fiscal balance.
Barbados: The Central Bank of Barbados (CBB) estimates that economic growth slowed down during 2017. Real
GDP expanded 1.0% y/y during 2017 compared to 2.2% during H1 2017 and 1.8% during 2016. Growth in tourism
value added slowed from 4.8% y/y in 2016 to 1.2% y/y in 2017. Greater tax collections and a sharp cut to capital
expenditure and net lending reduced the government’s overall fiscal deficit by 33.0% y/y to US$199.8 mln (about
5.7% of April to December nominal GDP) during April – December 2017. Gross central government debt to GDP
advanced 2.1% y/y to US$6.82blnln (145.9% of GDP) between Q4 2016 and Q4 2017. Both the CBB and the IMF
expect that the slowdown in economic activity during 2017 will likely continue into 2018. The IMF expects economic
growth to reach just 0.5%, as the effects of fiscal consolidation continue to suppress domestic demand.
Bermuda: Latest official statistics from the Government of Bermuda suggest that real GDP expanded between
0.75% and 1.25% during 2017. Total tourist arrivals increased 7.2% y/y during 2017. Arrivals by air and cruise
advanced 10.3% y/y and 5.1% y/y, while the number of passengers arriving by yacht surged 30.8% y/y as Bermuda
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hosted the 35 America’s Cup. Over the six months ended September 2017, the government’s nominal fiscal deficit
declined to US$63.4mln from a deficit of US$100.2mln over the same period one year prior. Gross government debt
remained relatively stable at US$2.5bln between March 2017 and September 2017. The Government of Bermuda
projects that real GDP will likely expand between 1.5% and 2.0% y/y during 2018. Greater economic activity will likely
benefit from greater investment in on-going projects, persistent growth in tourism and on-going demand for financial
services.
Costa Rica: 2017 GDP growth came in at 3.2% y/y, decelerating from the 4.2% posted in 2016 and 0.6 p.p. below
the Banco Central of Costa Rica’s estimates in July 2017. The deceleration in growth was driven by the decline in
private investments, especially construction, increases in the overnight rate, and exchange rate fluctuations. On the
fiscal front, Costa Rica’s Congress approved fast-tracking the revenues (VAT, Income Tax) and expenditure bills
(salaries and fiscal rule) on February 28. The government expects Congress to approve the long-debated bills before
the end of the current legislative cycle (April 30). Moreover, Fabricio Alvarado’s appointment of a market friendly
economic team ignited some optimism following the first-round election. Latest polls suggest a technical tie between
Fabricio Alvarado (PRN) and Carlos Alvarado (PAC). However, given F. Alvarado’s recent economic team
appointment and the anti-corruption sentiment in the air, we expect Fabricio Alvarado to maintain a slight edge going
forward.
Dominican Republic: In line with our expectations, 2017 GDP came in at 4.6% as economic activity growth
increased 5.0% y/y, 6.5% y/y, and 7.4% in October, November and December, respectively, according to the
preliminary results published by the Banco Central Republica Dominicana (BCRD). Non-Financial Public Sector
(NFPS) fiscal revenues excluding donations increased 10.5% to DOP 537.2mln. Total expenditures reached DOP
651mln, increasing 12.2%. As expected, with the slowdown in economic growth, the reconstruction efforts following
natural disasters during the year, and the construction of the Punta Catalina project, the NFPS nominal deficit
reached 3.2% of GDP. IMF’s latest Article IV statement highlighted the good performance of the Dominican economy
despite the deceleration due to external factors (i.e. weather). It also projects 2018 growth quickening to 5.5%, driven
by reinvigorated credit growth and benign external conditions. Although the overall picture on growth is favourable in
the statement, the IMF mentioned higher oil prices, tighter-than-anticipated global financial conditions, and
weaker-than-expected projected external demand as the main downside risks.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 4
El Salvador: Q3 2017 GDP growth came in at 2.37% y/y, up from the 2.25% y/y increase posted in Q2, but down
from Q2 2016’s 2.39% y/y. More recent data point to a continuation of this trend with total economic activity coming in
at 3.09% y/y, 3.19% y/y, and 3.26% y/y in October, November, and December, respectively. On the fiscal front, the
numbers released by the Central Bank of El Salvador indicate that the NFPS revenue (including donations) reached
US$5.9bln in 2017. On the other hand, NFPS expenses increased 3.5%, reaching US$5.96bln in 2017. With these
numbers, the 12-month central government nominal deficit came in at US$71.86mln (-0.26% of GDP), improving
from the US$230mln deficit (-0.86% of GDP) posted in 2016. The 12-month primary surplus came in at US$727.9mln
(2.67% of GDP), up from the US$474.85mln (1.77% of GDP) surplus posted in 2016. A positive outlook for the El
Salvador economy has started to shape up in 2018. The approval of the 2018 budget, ARENA’s victory in the
legislative election, and still healthy levels of remittances and exports growth should improve confidence indicators in
the country. We have updated our GDP forecast to 2.5% for 2018.
Jamaica: The Planning Institute of Jamaica estimated that greater output in the goods-producing and services
sectors expanded real GDP 1.1% y/y during Q4 2017. For the entire calendar year, economic activity increased by
0.5% y/y over the period. Faster growth in revenue than expenditure reduced the overall fiscal deficit by 88.6% y/y to
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US$26.0mln during April 2017 to January 2018. On January 31 2018, Fitch Ratings affirmed the Government of
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Jamaica’s ‘B’ rating on its sovereign debt and revised the outlook from stable to positive. Further, on March 9 2018,
the IMF announced the completion of the third review under Jamaica’s Stand-By Arrangement. The IMF highlighted
that the government achieved progress on macroeconomic policies and outcomes, but economic growth and
progress on social outcomes have been weak. The IMF projected that real GDP will increase by 1.9% y/y during
2018/19.
Panama: Q4 2017 GDP increased 4.9% y/y, decelerating from the 6.1%, 5.25%, and 5.36% growth rates of Q1, Q2,
and Q3. With this number, 2017 growth landed at 5.4%, 0.4 percentage points (p.p.) above the 5.0% posted in 2016.
On the fiscal front, central government revenue came in at US$8.6bln (up 11.5%). Tax revenue increased 1.6% to
US$5.7bln, while central government total expenses reached US$10.4bln, increasing 5.1%. The nominal NFPS
deficit came in at US$1bln or 1.7% of GDP, improving from the 1.9% deficit posted in 2016. The country recorded a
primary surplus of US$75mln or 0.1% of GDP. Looking at the adjusted balance (transfer from the Canal of Panama),
the NFPS posted an adjusted nominal deficit of 1.0%. We maintain our 5.6% forecast for economic growth for 2018
with an upward bias. This is based on the continuous positive contribution of activities along the Canal, the
development of high-income tourist facilities, the expansion of the energy sector and increasing exports.
Suriname: Preliminary data from the Centrale Bank van Suriname suggest that net external demand and
domestically-financed investment likely improved in 2017. A US$480.0mln improvement in the balance of goods
traded reversed the balance on the external current account from a US$144.8mln deficit over the three quarters
ended Q3 2016 to a US$258.2mln surplus over the same period a year later. Strong growth in public sector capital
expenditure over the first eight months of 2017 (up 111.9% y/y) and a 2.9% y/y expansion in total retail and
commercial mortgages over the twelve months ended December 2017 offset a US$261.4mln y/y decline in foreign
direct investment over the first three quarters of 2017. After placing the government of Suriname’s B1 rating on
review for downgrade, Moody’s then downgraded the country’s rating to B2 with a negative outlook. Moody’s cited
the deteriorating fiscal position as the main reason for its rating action.
Trinidad and Tobago: Recent estimates from the Central Bank of Trinidad and Tobago (CBTT) suggest that energy
output rebounded 13.5% y/y during Q3 2017, while the decline in non-energy production slowed to just 1.9% y/y over
the same period. Since then, preliminary data suggest that while energy production improved y/y during 2017,
non-energy output may have bottomed out during the year. Greater current energy and non-energy revenue
combined with lower current and capital expenditure narrowed the government fiscal deficit from US$373.5mln
during October – December 2016 to US$33.7mln over the same period a year later. The Central Bank of Trinidad
and Tobago projects that real GDP will likely benefit from stronger energy and non-energy performances during
2018. Energy production should benefit from greater natural gas production and greater average oil prices relative to
one year earlier, while stronger energy output and increased demand for manufactured imports from the rest of the
Caribbean Community (CARICOM) should lift non-energy sector output in the near-term.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 5
Chart 1 Chart 2
High Yield - 10Y Against Benchmark Investment Grade - 10Y Against Benchmark
Chart 3
Caribbean Bonds Change in Yields Since Last Publication (December 4, 2017)
BARBAD 7 08/04/22
BARBAD 7 1/4 12/15/21
COSTAR 9.995 08/01/20
CAYMAN 5.95 11/24/19
SURINM 9 1/4 10/26/26
PANAMA 7 1/8 01/29/26
PANAMA 4 09/22/24
BERMUD 4.854 02/06/24
PANAMA 8 7/8 09/30/27
PANAMA 5.2 01/30/20
PANAMA 3 3/4 03/16/25
BARBAD 6 5/8 12/05/35
DOMREP 5 1/2 01/27/25
BERMUD 5.603 07/20/20
PANAMA 3 7/8 03/17/28
DOMREP 6 7/8 01/29/26
DOMREP 7 1/2 05/06/21
DOMREP 6.6 01/28/24
PANAMA 9 3/8 04/01/29
DOMREP 5 7/8 04/18/24
PANAMA 4.3 04/29/53
PANAMA 4 1/2 05/15/47
DOMREP 7.45 04/30/44
COSTAR 4 3/8 04/30/25
JAMAN 6 3/4 04/28/28
COSTAR 4 1/4 01/26/23
DOMREP 6.85 01/27/45
DOMREP 8 5/8 04/20/27
JAMAN 8 06/24/19
BERMUD 4.138 01/03/23
TRITOB 9 3/4 07/01/20
JAMAN 7 5/8 07/09/25
JAMAN 8 1/2 02/28/36
JAMAN 8 03/15/39
JAMAN 7 7/8 07/28/45
ARUBA 4 5/8 09/14/23
TRITOB 5 7/8 05/17/27
JAMAN 9 1/4 10/17/25
COSTAR 7.158 03/12/45
COSTAR 7 04/04/44
COSTAR 5 5/8 04/30/43
ELSALV 7 5/8 09/21/34
ELSALV 6 3/8 01/18/27
BAHAMA 5 3/4 01/16/24
BAHAMA 7 1/8 04/02/38
TRITOB 4 3/8 01/16/24
ELSALV 7 5/8 02/01/41
ELSALV 7.65 06/15/35
BAHAMA 6 5/8 05/15/33
ELSALV 8 5/8 02/28/29
ELSALV 5 7/8 01/30/25
BAHAMA 6.95 11/20/29
ELSALV 7 3/8 12/01/19
ELSALV 7 3/4 01/24/23
-100 -50 0 50 100 150 200
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 6
Chart 4 Chart 5
Caribbean – Investment Grade Caribbean – High Yield
14 YTM
7 YTM BAHAMA '38
BAHAMA' 33
12
6 BARBAD '22
BARBAD '21
BAHAMA '29 10 BARBAD '35
5 BAHAMA '24 SURINM '26
TRITOB '27 8
DOMREP '45
4 ARUBA '23 TRITOB '24 DOMREP DOMREP '44
BERMUD '27 JAMAN '45
BERMUD '24 6 DOMREP '21 DOMREP 4/20/27DOMREP
1/25/27 JAMAN '39
BERMUD '23 1/28/24 DOMREP '26 JAMAN '36
3 TRITOB '20 '20 DOMREP '25
BERMUD 4 JAMAN '19 DOMREP JAMAN
4/18/24JAMAN10/17/25
7/9/25
Modified Duration Modified Duration
2 2
2 3 4 5 6 7 8 9 10 11 0 2 4 6 8 10 12 14
Source: Bloomberg and CIBC Capital Markets – Macro Strategy Source: Bloomberg and CIBC Capital Markets – Macro Strategy
Chart 6 Chart 7
Central America – Panama and Costa Rica BARBAD ‘21s vs. DOMREP ‘21s and JAMAN ’25s
YTM 1200
8 BARBAD '21s - DOMREP '21s
ELSALV '35
7 ELSALV '29 ELSALV '41
COSTAR '44 1000 BARBAD '21s - JAMAN '25s
ELSALV '34 COSTAR '45
6 ELSALV '23 ELSALV '27 COSTAR '43
ELSALV '25 800
COSTAR '20 '19 COSTAR '25
5 ELSALV
COSTAR'27
'23 PANAMA '47
PANAMA PANAMA '29
4 PANAMA '28 PANAMA '53 600
PANAMA '26
3 PANAMA '25
PANAMA '24 400
2 PANAMA
01/30/20 200
1
Modified Duration
0 0
0 5 10 15 20 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18
Source: Bloomberg and CIBC Capital Markets – Macro Strategy Source: Bloomberg and CIBC Capital Markets – Macro Strategy
Chart 8 Chart 9
COSTAR ‘44s vs. DOMREP ‘44s PANAMA ‘24s vs. BAHAMA ‘24s and BERMUD ‘24s
140 4.0 0
120 Spread 3.0
100 -50
Z-Score (RHS)
80 2.0
-100 PANAMA '24s - BAHAMA '24s
60 1.0
37.2 PANAMA '24s - BERMUD '24s
40 -150
20 0.0
-0.72
0 -200
-1.0
-20
-2.0 -250
-40
-60 -3.0 -300
Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18
Source: Bloomberg and CIBC Capital Markets – Macro Strategy Source: Bloomberg and CIBC Capital Markets – Macro Strategy
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 7
Table 1
Public Sector Fiscal Accounts and Debt 2017/18
Ratings Key
2017 Ratings Investment Grade High Yield
S&P Moody’s S&P Moody’s S&P Moody’s
Aruba BBB+ NA AAA Aaa BB+ Ba1
The Bahamas BB+ Baa3 AA+ Aa1 BB Ba2
Barbados CCC+ Caa3 AA Aa2 BB- Ba3
Bermuda A+ A2 AA- Aa3 B B2
Cayman NA Aa3 A+ A1 B- B3
Costa Rica BB- Ba2 A A2 CCC+ Caa1
Dominican Republic BB- Ba3 A- A3 CCC Caa2
El Salvador CCC+ B3 BBB+ Baa1 CCC- Caa3
Jamaica B B3 BBB Baa2 CC Ca
Panama BBB Baa2 BBB- Baa3 C C
Suriname B B2 D
Trinidad and Tobago BBB+ Ba1
*-: On review for downgrade
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 8
Table 3
Caribbean Bonds and Indicative Prices/Spreads (As of March 20, 2018)
Aruba
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
ARUBA 4 5/8 09/14/23 104.28 3.75% 23.63 67.16 BBB+ NR BBB-
Bahamas
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
BAHAMA 5 3/4 01/16/24 104.00 4.95% -1.71 208.48 BB+ Baa3 NR
BAHAMA 6.95 11/20/29 110.26 5.73% -19.82 275.44 BB+ Baa3 NR
BAHAMA 6 5/8 05/15/33 104.05 6.21% -13.19 317.67 BB+ Baa3 NR
BAHAMA 7 1/8 04/02/38 104.78 6.69% -2.01 363.38 BB+ Baa3 NR
Barbados
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
BARBAD 7 1/4 12/15/21 87.33 11.52% 178.06 843.57 CCC+ Caa3 NR
BARBAD 7 08/04/22 84.23 11.71% 180.35 885.86 CCC+ NA NR
BARBAD 6 5/8 12/05/35 74.55 9.65% 62.91 651.04 CCC+ Caa3 NR
Bermuda
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
BERMUD 5.603 07/20/20 106.08 2.88% 58.49 15.77 A+ A2 WD
BERMUD 4.138 01/03/23 103.67 3.30% 34.22 42.81 A+ A2 WD
BERMUD 4.854 02/06/24 105.66 3.77% 66.19 88.06 A+ A2 WD
BERMUD 3.717 01/25/27 97.77 4.02% 52.01 107.84 A+ A2 NA
Cayman Islands
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
CAYMAN 5.95 11/24/19 105.34 2.66% 73.88 -10.41 NR Aa3 NR
Costa Rica
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
COSTAR 9.995 08/01/20 112.14 4.50% 94.34 169.45 BB- Ba2 NR
COSTAR 4 1/4 01/26/23 96.64 5.04% 39.69 218.02 BB- Ba2 BB
COSTAR 4 3/8 04/30/25 94.75 5.27% 43.39 236.81 BB- Ba2 BB
COSTAR 5 5/8 04/30/43 89.88 6.44% 5.72 345.06 BB- Ba2 BB
COSTAR 7 04/04/44 103.04 6.75% 11.81 376.76 BB- Ba2 BB
COSTAR 7.158 03/12/45 104.34 6.80% 15.41 381.43 BB- Ba2 BB
Dominican Republic
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
DOMREP 7 1/2 05/06/21 106.98 5.05% 53.77 134.02 BB- Ba3 BB-
DOMREP 5 7/8 04/18/24 105.17 4.88% 50.10 184.89 BB- Ba3 BB-
DOMREP 6.6 01/28/24 108.92 4.83% 53.56 194.93 BB- Ba3 BB-
DOMREP 5 1/2 01/27/25 102.32 5.09% 61.30 220.18 BB- Ba3 BB-
DOMREP 6 7/8 01/29/26 110.60 5.21% 57.06 230.61 BB- NA BB-
DOMREP 5.95 01/25/27 104.97 5.24% 44.19 231.86 BB- Ba3 BB-
DOMREP 8 5/8 04/20/27 118.30 5.98% 37.21 284.12 BB- Ba3 BB-
DOMREP 7.45 04/30/44 113.19 6.40% 43.98 341.15 BB- Ba3 BB-
DOMREP 6.85 01/27/45 107.05 6.30% 39.01 331.28 BB- Ba3 BB-
DOMREP 6 1/2 02/15/48 103.10 6.27% NA 328.90 BB- Ba3 BB-
El Salvador
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
ELSALV 7 3/8 12/01/19 105.21 4.15% -34.84 147.73 CCC+ B3 B-u
ELSALV 7 3/4 01/24/23 110.06 5.36% -44.98 250.02 CCC+ B3 B-u
ELSALV 5 7/8 01/30/25 100.01 5.87% -19.27 299.87 CCC+ B3 B-u
ELSALV 6 3/8 01/18/27 100.06 6.37% 2.40 342.93 CCC+ B3 B-u
ELSALV 8 5/8 02/28/29 116.25 6.52% -18.32 359.61 CCC+ B3 NA
ELSALV 7 5/8 09/21/34 107.49 6.86% 3.67 379.23 CCC+ B3 B-u
ELSALV 7.65 06/15/35 106.65 6.98% -8.80 399.14 CCC+ B3 B-u
ELSALV 7 5/8 02/01/41 106.65 7.03% -7.92 402.34 CCC+ B3 B-u
Jamaica
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
JAMAN 8 06/24/19 104.16 4.54% 36.17 -42.99 B B3 Bu
JAMAN 7 5/8 07/09/25 117.69 4.73% 27.30 149.46 B B3 Bu
JAMAN 9 1/4 10/17/25 129.99 4.53% 15.83 156.98 B B3 Bu
JAMAN 6 3/4 04/28/28 111.59 5.26% 40.21 223.02 B B3 Bu
JAMAN 8 1/2 02/28/36 123.99 6.26% 25.72 327.76 B B3 Bu
JAMAN 8 03/15/39 120.47 6.24% 25.05 322.13 B B3 Bu
JAMAN 7 7/8 07/28/45 119.82 6.34% 24.29 336.32 B B3 Bu
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 9
Panama
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
PANAMA 5.2 01/30/20 104.37 2.77% 64.48 13.40 BBB Baa2 BBB
PANAMA 4 09/22/24 102.53 3.56% 69.34 65.06 BBB Baa2 BBB
PANAMA 3 3/4 03/16/25 100.57 3.66% 64.39 76.25 BBB Baa2 BBB
PANAMA 7 1/8 01/29/26 122.81 3.74% 70.53 85.34 BBB Baa2 BBB
PANAMA 8 7/8 09/30/27 138.56 3.97% 65.50 104.86 BBB Baa2 BBB
PANAMA 3 7/8 03/17/28 100.13 3.86% 57.76 93.36 BBB Baa2 BBB
PANAMA 9 3/8 04/01/29 145.40 4.19% 51.07 125.21 BBB Baa2 BBB
PANAMA 6.7 01/26/36 125.69 4.58% 57.23 151.75 BBB Baa2 BBB
PANAMA 4 1/2 05/15/47 100.66 4.46% 44.51 147.00 BBB Baa2 BBB
PANAMA 4.3 04/29/53 96.50 4.50% 48.63 152.74 BBB Baa2 BBB
Suriname
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
SURINM 9 1/4 10/26/26 103.39 8.68% 73.43 575.55 B B2 NR
Trinidad and Tobago
Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch
TRITOB 9 3/4 07/01/20 115.41 2.72% 29.96 -11.79 BBB+ Ba1 NR
TRITOB 5 7/8 05/17/27 110.27 4.49% 19.08 152.03 BBB+ Ba1 NR
TRITOB 4 3/8 01/16/24 102.88 3.82% -3.27 92.16 BBB+ Ba1 NR
Source: Bloomberg and CIBC Capital Markets – Macro Strategy
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 10
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 11
Chart 1 Chart 2
Trends in Regional1 Tourist Arrivals Regional2 Loan Growth (y/y; %)
9 12-mth moving Total Stay-Over Arrivals (R) (mln) 20
8 average Mortgages
Growth in Tourist Arrivals (L)
7 growth (%) 15 Corporate Loans
6 Consumer Loans
5 10
4
3 5
2
1 0
0
-1 -5
-2
-3 -10
Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
Source: Caribbean Tourism Organization, Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Regional authorities and CIBC FirstCaribbean.
1 Caribbean region includes: Anguilla, Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Curaçao, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia,
St. Maarten and St. Vincent and the Grenadines.
2 Caribbean region includes: Anguilla, Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, Curaçao, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Maarten, St. Vincent and the Grenadines, Trinidad and Tobago, and
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 12
Government fiscal balances worsened in half of the region’s markets in 2017, as greater current spending generally more
than offset additional revenues collected. Just four of eighteen markets – Anguilla, the Cayman Islands, Grenada and St.
Kitts and Nevis recorded fiscal surpluses, and thus, public debt increased across most markets during the period.
Specifically, the countries of the Northern OECS who depend heavily on Citizenship-by-Investment inflows – Antigua and
Barbuda, Dominica, and St. Kitts and Nevis – suffered from lower non-tax revenues from that source, while a US$45.5
mln award against the Government of Belize for the Belize Bank Limited by the Caribbean Court of Justice increased
capital transfers and net lending and reversed a previously-positive improvement in their fiscal balance.
Global commodity prices increased and pushed regional consumer prices higher during 2017. Excluding Suriname where
volatile exchange rate fluctuations fed through to prices over the last two years, average inflation reached 1.3% y/y at
September 2017 compared to 0.5% y/y one year earlier. Most recent data suggest that inflation accelerated across most
of the region, with inflation falling significantly only in Trinidad and Tobago, where domestic demand remains weak.
Further, growth in foreign exchange (FX) reserves in net commodity importers has generally slowed with reserve
expansion limited primarily to the OECS, Curacao and Sint Maarten, Jamaica and the Bahamas. Issuance of external
debt in the latter two markets aided to offset the effects of greater energy prices on imports. Meanwhile, FX reserves
continue to trend upward in Suriname, but have not reversed their downward trend in Trinidad and Tobago.
No loan growth and an acceleration in deposit growth further increased excess liquidity y/y during Q3 2017. Domestic
deposits increased 5.3% y/y, up from 1.8% y/y a year earlier, while loans and advances remained unchanged after
increasing 0.9% y/y in Q3 2016. Retail loans advanced 2.5% y/y, but corporate lending shrank 2.7% y/y. Non-performing
loans, particularly in the larger markets, continued to decline, while regulatory capital as a ratio of risk-weighted assets
remains above globally-accepted minimums.
Having accelerated during 2017, the IMF expects that real global economic growth will accelerate again to 3.9% y/y in
2018, up from 3.7% y/y in 2017. Advanced economies will likely expand once more by 2.3% y/y as faster growth in the
USA (up to 2.7% y/y) offsets decelerated expansions in the UK (1.5%) and Canada (2.3%). Specifically, assuming no
commensurate spending cuts, the USA will likely benefit from the reduction in corporate tax rates and allowances for full
expensing of investment. Meanwhile, led by faster expansions in India, Sub-Saharan Africa, and the Middle East, North
Africa, Afghanistan and Pakistan, economic growth in emerging markets will likely accelerate to 4.9% y/y. Further, the IMF
expects that average oil prices will likely increase 11.7% y/y during 2018. Consequently, faster US expansion should aid
in accelerating economic growth in those Caribbean markets heavily dependent on US tourists, while still-modest growth
in UK GDP may limit growth in visitors from that market. Further, while those markets impacted by Hurricanes Irma and
Maria will likely continue to attract fewer tourists, construction activity associated with rebuilding and rehabilitation should
offset the effects of weaker tourism, particularly in less-tourism dependent Dominica. Finally, commodity producers will
likely benefit from greater global economic expansion and higher oil prices, thus positioned to enjoy improved growth
prospects in 2018.
Chart 3
Regional3 Inflation and Intl. Commodity Prices (%; end of period)
5 90
Regional Inflation Rate (L)
Growth in International Oil Prices* (R) 70
4
Growth in International Food Prices+ (R) 50
3
30
2 10
-10
1
-30
0
-50
-1 -70
Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17
3Caribbean region includes Anguilla, Antigua and Barbuda, Aruba, Barbados, Belize, British Virgin Islands, Cayman Islands, Curaçao, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Maarten, St.
Vincent and the Grenadines and Trinidad and Tobago.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 13
Chart 1 Chart 2
Stay-Over Tourist Arrivals Inflation (y/y; %)
Source: Caribbean Tourism Organization, Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 14
Having declined from 49.3% to 6.5% y/y during 2016 on account of the resolution of two large insolvent banks, the
non-performing loans ratio subsequently surged to 23.5% in Q4 2017. Meanwhile, the annualised return on assets and
the regulatory capital adequacy ratio contracted to 0.1% and 10.4% respectively as at Q4 2017 from 1.1% and 11.8% one
year earlier.
Government Debt
A sharp increase in the value of grants collected boosted the government fiscal surplus from US$0.8 mln during January
to September 2016 to a US$11.7mln surplus one year later.
Total current revenue increased US$2.9mln y/y to US$56.1mln. Taxes collected expanded US$3.3 mln y/y to
US$48.8mln, but non-tax receipts fell US$0.4mln y/y to US$7.4mln. Taxes on property and taxes on domestic
goods and services rose US$1.1mln (106.3% y/y) and US$5.3 mln (29.8% y/y), but taxes on income and profits
and taxes on international trade and transactions declined US$0.2mln (4.1% y/y) and US$2.9mln (13.1% y/y).
Additionally, total grants received by the government rose US$11.1mln y/y to US$11.3mln.
Greater spending in all categories except personal emoluments increased current expenditure by US$1.7 mln y/y
to US$53.1mln. Spending on goods and services, interest payments, and transfers and subsidies expanded
US$0.4mln (3.5% y/y), US$1.2mln (37.2% y/y) and US$0.4mln (3.3% y/y), but spending on personal emoluments
declined US$0.3mln (1.4% y/y). Meanwhile, capital expenditure and net lending surged 111.9% y/y to US$2.6mln.
Total public sector debt advanced 8.7% y/y to US$175.2mln (approximately 52.1% of projected 2017 nominal GDP) as at
September 2017, but declined 4.5% since the end of 2016.
Outlook
The damaged inflicted from Hurricane Irma during September 2017 will likely have a material impact on the trajectories of
economic activity and public indebtedness during 2018. The ECCB expects that economic activity likely declined by 3.5%
in 2017, but reconstruction post-Irma and the associated positive knock-on effects to mining and quarrying, and
manufacturing will likely lead to a recovery in real output of 5.9% y/y during 2018. Meanwhile, notwithstanding external
financial assistance to fund reconstruction efforts, a likely fall-off in government revenues and any borrowing to
supplement grant funding will likely worsen the fiscal balance and increase indebtedness during 2018.
Chart 3 Chart 4
Public Sector Debt Outstanding Growth in Key Balances (%)
200 (US$mln) 20
180 10
160
0
140
120 -10
Loans
100 -20
Deposits
80
-30
60
40 -40
20 -50
0
-60
2013Q3 2014Q3 2015Q3 2016Q3 2017Q3
2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 15
Chart 1 Chart 2
Stay-Over Tourist Arrivals Inflation (y/y; %)
2,000 (US$/person) Visitor Expenditure/person (L) (000's) 270 5 All Items (L) 10
Food (L)
Stay-Over Arrivals (R) 4
260 Fuel and Light (R) 5
3
1,500 0
250 2
1 -5
240
1,000 0
-10
230 -1
-15
-2
500 220 -3 -20
Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean, Caribbean Tourism Organization. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 16
Higher liquidity (as evidenced by a 4.1% percentage point fall y/y in the loan-to-deposit ratio to 65.7%) coincided
with declines in the weighted average interest rates paid on loans (down 10 bps y/y to 9.01%) and deposits (down
6 bps y/y to 1.62%).
The average return on assets and the ratio of non-performing loans-to-total loans fell from 1.5% and 8.7%
respectively, to 1.4% and 7.9% during Q4 2017; while the regulatory capital adequacy ratio increased 1.6
percentage points to 38.0%.
Government Debt
Declines in tax, non-tax, and capital revenues more than offset declines in current and capital expenditure to widen the
government fiscal deficit by 27.3% y/y to US$20.7 mln during January to September 2017.
Current revenues contracted US$12.7 mln y/y to US$201.4 mln. Non-tax current revenue primarily associated
with lower Citizenship by Investment inflows declined US$10.2 mln y/y to US$21.2 mln, while tax receipts fell
US$2.5mln y/y to US$180.2 mln. Taxes on income and profits and taxes on international trade and transactions
fell US$1.7 mln (7.5% y/y) and US$4.1 mln (5.9% y/y), respectively, but taxes on property and taxes on domestic
goods and services rose US$1.1 mln (19.2% y/y) and US$2.2 mln (2.5% y/y). Meanwhile, capital revenues
contracted US$11.8mln y/y to US$3.8 mln, but the government received US$0.4 mln in grants compared to none
a year earlier.
Current expenditures declined US$0.8 mln y/y to US$213.4 mln. Spending on personal emoluments, and
transfers and subsidies shrank US$0.1 mln (0.1% y/y) and US$1.6 mln (2.6% y/y) and more than offset greater
spending on goods and services (up US$0.4 mln y/y) and interest payments (up US$0.5 mln y/y). Capital
expenditures and net lending plunged US$18.9 mln y/y to US$12.9 mln, in line with lower capital revenue.
Between Q3 2016 and Q3 2017, total public sector debt expanded from US$1.11 bln (approximately 76.3% of GDP) to
US$1.15 bln (approximately 75.3% of GDP).
Outlook
After an expected slowdown in real GDP growth to 3.1% during 2017, the ECCB expects real GDP growth to accelerate to
5.8% in 2018. The central bank expects that construction growth will likely accelerate in 2018 and support growth in other
sectors of the economy. Further, the IMF expects that deteriorations in the primary balance will worsen the government’s
fiscal balance again in 2018.
Chart 3 Chart 4
Public Sector Debt Outstanding Growth in Key Balances (%)
1,100 -2
-4
1,050
-6
1,000 -8
2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 17
Chart 1 Chart 2
Real GDP and Unemployment (%) Growth in Tourist Arrivals and Length of Stay
Source: Centrale Bank van Aruba and CIBC FirstCaribbean. Source: Caribbean Tourism Organization, Centrale Bank van Aruba and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 18
The central bank’s net foreign assets declined 1.4% y/y to US$921.3 mln (approximately 20.5 weeks of projected 2017
imports of goods and services) during 2017.
Government Debt
During H1 2017, the government’s overall fiscal deficit worsened US$7.7 mln y/y to US$59.8 mln.
Higher non-tax revenues (up US$8.4 mln y/y) more than offset a US$5.5 mln (1.8% y/y) decline in tax revenues to
push total revenues US$3.0 mln higher y/y to US$339.3 mln. Taxes on commodities, taxes on property, taxes on
services, the turnover tax, and the foreign exchange tax increased US$7.4 mln (10.1% y/y), US$4.0 mln (16.1%
y/y), US$0.2 mln (1.6% y/y), US$3.2 mln (12.3% y/y), and US$0.1 mln (0.4% y/y), respectively. However, taxes
on income and profits contracted US$20.3 mln y/y to US$136.5 mln.
In contrast, total spending increased US$11.6 mln y/y to US$397.7 mln. Spending on employer’s contribution,
wage subsidies, and transfers to the General Health Insurance fell US$1.8 mln (5.8% y/y), US$9.8 mln (21.8%
y/y), and US$5.0 mln (25.1% y/y), respectively. However, the government spent more on wages (up US$1.9 mln
y/y), goods and services (up US$2.6 mln y/y), interest on debt (up US$0.8 mln y/y), the development fund (up
US$4.8 mln y/y), investment (up US$1.4 mln y/y), and transfers and subsidies (up US$16.8 mln y/y). Finally, net
lending declined US$1.0 mln y/y to US$1.5 mln.
Since then, total revenue declined US$12.5 mln y/y to US$666.0 mln. Tax revenues increased US$7.2 mln y/y to
US$607.7 mln, but non-tax receipts fell US$19.6 mln y/y to US$58.3 mln.
Total government debt increased by 4.4% y/y to US$2.34 bln (86.1% of GDP) during June 2017. The stock of domestic
debt increased 13.5% y/y to US$1.13 bln, but the stock of foreign debt contracted 2.8% y/y to US$1.21 bln.
Outlook
The latest projections from the central bank suggest that, having likely rebounded by 2.6% in 2017, real GDP will likely
increase by 2.7% in 2018. The central bank expects that tourist receipts will likely increase by 2.4% in 2018, while
investment activity should benefit from postponements of investments from 2017 into 2018. These developments in
tourism and investment should aid in boosting private consumption by 2.8% y/y, while inflation should remain modest at
0.3% in 2018.
Chart 3 Chart 4
Inflation (y/y; %) Growth in Key Balances (%)
2.5 12 Loans
All Items
2.0 10 Deposits
1.5 8
1.0 6
0.5 4
0.0 2
-0.5 0
-1.0 -2
-1.5 -4
-2.0 -6
Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Centrale Bank van Aruba and CIBC FirstCaribbean. Source: Centrale Bank van Aruba and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 19
Chart 1 Chart 2
Growth in Tourist Arrivals Inflation (y/y; %)
1,550 12-month 10
rolling Tourist Arrivals All Items Food
1,500 000's of 8
persons 6
1,450
4
1,400 2
1,350 0
-2
1,300
-4
1,250
-6
Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17
Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17
Source: Caribbean Tourism Organization and CIBC FirstCaribbean. Source: Central Bank of the Bahamas and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 20
Commercial bank private sector loan delinquency declined further in January 2018. The private sector non-performing
loans to total loans ratio fell from 12.4% at January 2017 to 9.8% twelve months later. Alternatively, banks’ excess liquid
assets surged 23.5% y/y to US$1.85 bln.
Having advanced 6.5% during 2017, the Bahamas International Securities Exchange All Share Index declined 0.6%
year-to-date by the end of February 2018.
Substantial external borrowing during Q4 2017 boosted the central banks’ external reserves by 57.3% y/y to US$1.46 bln
(approximately 15.2 weeks of import cover) during January 2018.
Government Debt
Having recorded a much larger deficit during its fiscal year ended June 2017 (up 87.6% y/y to US$669.3 mln or
approximately 5.8% of GDP), recent data released by the Central Bank of the Bahamas suggest that the government
reduced its overall fiscal deficit by 36.0% y/y to US$195.6 mln during July to December 2017.
Total revenue and grants expanded US$26.7 mln y/y to US$878.5 mln as a US$5.9 mln (6.6% y/y) rise in non-tax
revenue supported a US$20.8 mln (2.7% y/y) expansion in taxes collected. Taxes on international trade and
transactions, and the departure tax fell US$2.3 mln (0.9% y/y) and US$0.4 mln (0.7% y/y), while the Value Added
Tax (VAT) – the single largest source of government revenue – increased US$9.9 mln (3.3% y/y). Property taxes,
business and professional licences, and other taxes rose US$0.6 mln (1.8% y/y), US$5.3 mln (34.3% y/y) and
US$7.8 mln (8.3% y/y).
Total spending declined US$83.2 mln y/y to US$1.07 bln. Despite greater spending on goods and services (up
US$4.3 mln y/y), personal emoluments (up US$21.0 mln y/y), and interest payments (up US$9.2 mln y/y), a
US$41.1 mln (11.5% y/y) drop in spending on subsidies and other transfers reduced total current expenditure by
US$6.5 mln to US$998.3 mln. Similarly, declines in both capital formation and asset acquisition reduced capital
expenditure by US$76.7 mln y/y to US$75.8 mln.
Total national debt increased 11.8% y/y to US$7.88 bln by December 2017. Total direct debt rose 13.7% y/y to US$7.18
bln, but total contingent liabilities declined 4.1% y/y to US$704.2mln. Of direct debt, total debt denominated in foreign
currency surged 49.8% y/y to US$2.61 bln, as the government successfully raised US$750 mln in foreign financing, but
internal direct debt declined 0.1% y/y to US$4.56 bln.
Outlook
The IMF expects that the Bahamian economy will likely increase by 2.5% in 2018, as stronger growth in US GDP, further
opening of the Baha Mar luxury resort and casino and foreign-financed construction activity accelerate economic growth
relative to 2017. Additionally, the IMF projects that the government will reduce its fiscal deficit to 3.7% of GDP during
2017/18, as lower spending on post-hurricane reconstruction and rebounds in revenue collected improve the fiscal
balance.
Chart 3 Chart 4
Foreign Direct Investment (January–September) Growth in Key Balances (%)
800 (US$mln) 3 20
Land Sales Loan Growth (L) Deposit Growth (R)
700 2 10
Equity
600 1 0
0 -10
500
-1 -20
400
-2 -30
300
-3 -40
200 -4 -50
100 -5 -60
0 -6 -70
2012 2013 2014 2015 2016 2017 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17
Source: Central Bank of the Bahamas and CIBC FirstCaribbean. Source: Central Bank of the Bahamas and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 21
Chart 1 Chart 2
Key Economic Indicators (%) Net Long-Term Private Capital Flows
(January-December US$mln)
20 600 Net Long-Term Private Capital Flows
15
500
10
400
5
300
0
-5 200
Real GDP Growth
-10 100
Tourist Arrivals
-15 Unemployment Rate
0
2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Central Bank of Barbados, Barbados Statistical Service, Caribbean Tourism Organization and Source: Central Bank of Barbados and CIBC FirstCaribbean.
CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 22
Major financial stability indicators improved over the first three quarters of 2017. Commercial banks’ capital adequacy ratio
and return on assets increased to 20.1% and 1.1%, respectively, from 19.6% and 1.0% at the end of 2016, while the non-
performing loans to total loans ratio declined from 8.9% to 8.2% over the same period.
The central bank’s foreign exchange reserves continued to trend downward and declined by US$137.0 mln y/y to
US$204.9 mln (6.6 weeks of imports of goods and services) by the end of 2017. The external current account deficit
declined marginally from 4.5% of GDP to 4.4% of GDP between 2016 and 2017, as greater tourism receipts and lower
non-intermediate imports marginally offset greater intermediate imports. However, financial inflows could not finance the
current account deficit as private long-term capital inflows declined for the third consecutive year while government repaid
foreign debt without the commensurate inflow of public borrowing.
Government Debt
Greater tax collections and a sharp cut to capital expenditure and net lending reduced the government overall fiscal deficit
by 33.0% y/y to US$199.8 mln (about 5.7% of April to December nominal GDP) during April – December 2017.
Greater taxes (up US$99.7 mln y/y) and non-tax revenue and grants (up US$3.6 mln y/y) lifted revenue by
US$103.3 mln y/y to US$968.2 mln. Collections of personal taxes, corporate taxes, property taxes, and the
financial institutions tax increased US$1.0 mln (0.6% y/y), US$17.4 mln (28.8% y/y), US$0.5 mln (0.9% y/y) and
US$6.1 mln (53.7% y/y), respectively, while other direct taxes fell US$9.7 mln (38.4% y/y). Similarly, stamp duties,
VAT, excise taxes and proceeds from the National Social Responsibility Levy rose US$0.2 mln (4.6% y/y),
US$15.0 mln (4.9% y/y), US$33.7 mln (62.2% y/y) and US$42.4 mln (706.7% y/y), respectively, but import duties
and other taxes fell US$4.6 mln (5.5% y/y) and US$2.3 mln (4.9% y/y).
Current spending rose US$28.0 mln y/y to US$1.11 bln. Outlays on wages and salaries, and goods and services
contracted US$2.3 mln (0.8% y/y) and US$3.4 mln (2.8% y/y), respectively, but interest on debt, and transfers
and subsidies expanded US$8.6 mln (2.9% y/y) and US$25.0 mln (6.6% y/y). Capital expenditure and net lending
shrank 29.1% y/y to US$55.8 mln.
Gross central government debt to GDP advanced 2.1% y/y to US$6.82 bln (145.9% of GDP) between Q4 2016 and Q4
2017. However, higher commercial bank securities reserve requirements and a smaller fiscal deficit led to a reduction in
the CBB’s financing to government from US$357.3 mln during April – December 2016 to US$48.4 mln a year later.
Outlook
Both the CBB and the IMF expect that the slowdown in economic activity during 2017 will likely continue into 2018. The
IMF expects economic growth to reach just 0.5%, as the effects of fiscal consolidation continue to suppress domestic
demand. The IMF also projects that the government’s fiscal deficit will likely fall to 4.1% of GDP during 2017/18, below the
targeted balanced budget the government projected back in May. Finally, the CBB expects that, while inflows associated
with greater tourist arrivals and tourism investment projects will boost foreign exchange receipts, their foreign exchange
reserves will likely continue to come under pressure from ongoing foreign debt service and rising global fuel prices.
Chart 3 Chart 4
Inflation (y/y; %) Developments in Credit Market Indicators (%)
-4 -15 -4
2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Central Bank of Barbados and CIBC FirstCaribbean. Source: Central Bank of Barbados and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 23
Chart 1 Chart 2
Key Economic Indicators (%) Inflation (y/y; %)
20 2.5
Real GDP Growth
2.0 All Items
15 Tourist Arrivals
1.5
10
1.0
5 0.5
0 0.0
-0.5
-5
-1.0
-10 -1.5
2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Source: Central Bank of Belize, Caribbean Tourism Organization and CIBC FirstCaribbean. Source: Central Bank of Belize and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 24
Government Debt
No growth in total revenue and grants received combined with growth in both current and capital expenditure widened the
government fiscal deficit to US$63.5 mln during April to November 2017 from US$29.0 mln over the same period twelve
months earlier.
Despite higher collections of current revenue (up US$10.3 mln y/y), declines in capital revenue (down US$0.3 mln
y/y) and grants (down US$10.3 mln y/y) reduced total revenue and grants by US$0.2 mln y/y to US$356.0 mln.
Current tax receipts increased US$8.0 mln y/y to US$316.8 mln as greater collections of taxes on income and
profits (up US$0.7 mln y/y), taxes on property (up US$0.2 mln y/y), and taxes on goods and services (up US$12.1
mln y/y) more than offset a US$4.9 mln (8.4% y/y) decline in taxes on international trade and transactions.
Current non-tax receipts increased US$2.3 mln y/y to US$32.8 mln.
Higher current (up US$14.5 mln y/y) and capital (up US$19.9 mln y/y) expenditure propelled total expenditure
US$34.3 mln higher y/y to US$419.5 mln. Current spending on goods and services fell US$3.9 mln (5.7% y/y), but
outlays on wages and salaries, pensions, interest on debt, and subsidies and other transfers all increased US$7.9
mln (5.9% y/y), US$4.5 mln (16.0% y/y), US$3.8 mln (13.0% y/y), and US$2.3 mln (4.2% y/y). Further,
notwithstanding a US$25.3 mln (36.1% y/y) plunge in development spending-related capital expenditure, a
US$45.5 mln award against the Government of Belize for the Belize Bank Limited by the Caribbean Court of
Justice increased capital transfers and net lending from US$0.9 mln during April – November 2016 to US$46.1
mln one year later.
Public sector debt increased 12.2% y/y to US$1.77 bln (95.2% of GDP) by the end of 2017. External debt increased 4.4%
y/y to US$1.25 bln, and the stock of domestic debt surged 37.3% y/y to US$513.3 mln.
Outlook
The Central Bank of Belize estimates that real GDP will likely expand by between 1.5% and 2.0% in 2018 as agriculture,
fishing and tourism activity expand. Primary sector output will likely expand by 3.8% y/y as sugar cane and shrimp
production increase by 14.0% y/y and 12.0% y/y. Secondary sector output will continue to suffer from lower petroleum
production and declines in citrus juice processing, but broad growth in wholesale and retail trade, transportation and
communication, tourism, and government services will likely push tertiary output 2.2% higher y/y.
The central bank also expects that gross international reserves will remain stable, but the external current account deficit
will narrow as higher earnings from tourism and goods exports more than offset greater merchandise imports. Finally, the
government will likely persist with efforts to achieve a primary fiscal surplus of 2.0% of GDP in 2018/2019, but public debt
will likely remain elevated at 95.0% of GDP during 2018.
Chart 3 Chart 4
Foreign Direct Investment (January–September) Developments in Credit Market Indicators (%)
140 (US$mlns) 6
Loans
120 5
100 4
80 3
60 2
40 1
20 0
0 -1
2011 2012 2013 2014 2015 2016 2017 2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Central Bank of Belize and CIBC FirstCaribbean. Source: Central Bank of Belize and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 25
Chart 1 Chart 2
Real GDP (%) Total Tourist Arrivals
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 26
Banking sector loans declined 3.6% y/y. The shares of real estate-related loans and loans to other financial
institutions increased from 49.0% and 10.4% to 50.0% and 17.5% between September 2016 and September
2017, but the shares of loans for other business and services, and all other loans including those to individuals fell
from 5.9% and 34.7% to 5.4% and 27.1%, respectively.
Lower savings (down 3.4% y/y), demand (down 3.9% y/y) and time (down 2.7% y/y) deposits reduced total
deposits 3.6% y/y. Thus, the loan-to-deposit ratio remained stable at 47.3%.
Non-performing loans as a ratio of total loans increased 0.2 percentage points y/y to 7.1%, but the Basel III capital
adequacy ratio increased from 21.9% to 22.3%.
Government Debt
Over the six months ended September 2017, the government nominal fiscal deficit declined to US$63.4 mln from a deficit
of US$100.2 mln over the same period one year prior.
Total revenues increased US$31.2 mln (6.3% y/y), as the government collected more revenues from customs
duties, payroll taxes and stamp duties. In contrast, revenues from the passenger tax and civil aviation receipts
contracted.
Current expenditure excluding debt service declined US$6.4 mln y/y, as lower outlays on professional services
more than offset higher grants and contributions for the Bermuda Airport Authority and the America’s Cup. Interest
expense remained on par with 2016 levels while capital expenditure declined US$1.1 mln y/y.
Gross government debt remained relatively stable at US$2.5 bln between March 2017 and September 2017.
Outlook
The Government of Bermuda projects that real GDP will likely expand between 1.5% and 2.0% y/y during 2018. Greater
economic activity will likely benefit from greater investment in ongoing projects, persistent growth in tourism and ongoing
demand for financial services. The government also expects employment levels to continue to rise during the year, while
inflation will likely increase on account of greater demand for goods and services and some rebound in global commodity
prices. However, the recent cut in US corporate tax rates from 35% to 21% and the new base erosion and anti-abuse tax
pose significant downside risks to the competitive advantage enjoyed by the Bermudan insurance industry.
Chart 3
Current Account Balance/GDP (%)
30
25
20
15
10
0
2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 27
Chart 1 Chart 2
Key Economic Indicators (%) Tourism Indicators
4 440 (000's of persons)
420
3
400
380
2
360
1 340
320
Real GDP Growth Tourist Arrivals (12-month rolling)
0 300
2012Q2 2013Q2 2014Q2 2015Q2 2016Q2 2017Q2 2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean. Source: Cayman Islands Economic and Statistics Office, Caribbean Tourism Organization and CIBC
FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 28
Government Debt
Higher revenues and lower spending increased the government fiscal surplus to US$176.4 mln during H1 2017 from
US$163.4 mln during H1 2016.
Higher coercive (up US$7.0 mln y/y) and non-coercive (up US$1.4 mln y/y) receipts increased total revenue by
US$8.3 mln y/y to US$547.8 mln. Coercive receipts from taxes on international trade and transactions, and
domestic taxes on goods and services increased US$2.7 mln (2.6% y/y) and US$16.1 mln (4.5% y/y), but
collections of taxes on property, fines, and other taxes fell US$6.1 mln (15.7% y/y), US$0.5 mln (30.1% y/y) and
US$5.2 mln (97.8% y/y).
Current expenditure fell US$9.1 mln y/y to US$343.6 mln. Spending on personnel costs and on transfer payments
increased US$5.0 mln (3.3% y/y) and US$0.6 mln (3.5% y/y), but outlays on supplies and consumables,
subsidies, depreciation, interest payments, and other executive expenses declined US$3.7 mln (6.6% y/y),
US$7.2 mln (8.5% y/y), US$2.6 mln (11.7% y/y), US$0.5 mln (3.2% y/y), and US$0.6 mln (22.1% y/y),
respectively. Net capital expenditure and net lending rose US$4.4 mln y/y to US$27.8 mln.
The central government debt declined 6.9% y/y to US$559.8 mln (approximately 15.9% of 2016 GDP) in June 2017.
Outlook
The government of the Cayman Islands suggests that, after a likely 2.1% y/y increase in real GDP in 2017, planned
private and public sector investments should accelerate real economic growth to 2.4% during 2018 and remain above 2%
annually over the medium-term. Consequently, the unemployment rate should fall below 4.0% to 3.6% in 2018 and
stabilise around 3.5% thereafter. Further, greater economic activity will likely contribute to accelerated inflation rates, with
inflation reaching 2.3% y/y in 2018.
Chart 3 Chart 4
Inflation (y/y; %) Growth in Key Balances (%)
Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean. Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 29
Chart 5 Chart 6
Growth in Corporate Loans and Mortgages (%) Interest Rates (%)
Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean. Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 30
-4
Mar-09 Apr-10 Jun-11 Aug-12 Oct-13 Nov-14 Jan-16 Mar-17
Source: Ministerio de Hacienda, IMF and CIBC Capital Markets – Macro Strategy. Source: Bloomberg.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 31
Government Debt
2017 central government revenue came in at CRC 4741.9bln (3.83%), while total expenses came in at CRC 6764.0bln
(+9.08%). The 12-month nominal deficit came in at 6.2% of GDP, up 0.9 percentage points from 2016’s 5.3%. The
12-month primary deficit also deteriorated from the 2.21% of GDP posted in October 2016 to 2.74% of GDP as of October
2017.
With 39 votes in favour, Costa Rica’s Congress approved fast-tracking the revenues (VAT, Income Tax) and expenditure
bills (salaries and fiscal rule) on February 28. The government expects congress to approve the long-debated bills before
the end of the current legislative cycle (April 30). This is a positive development for the COSTAR curve. We expect rating
agencies to highlight the improvement, but to reiterate the need to implement further fiscal adjustments, especially on the
expenditure side.
Outlook
Growth decelerated significantly in 2017 coming in below our 3.5% forecast and well below the 3.8% expected by the
central bank in 2017. We expect consumption and investment to remain depressed, in line with a hawkish central bank
and weak consumer confidence indicators. Moreover, given the frail fiscal situation, we do not expect to see support from
the government side of the equation. Nevertheless, we expect exports to support growth in 2018 although facing
increasing risks. Hence, we have updated our 2018 GDP forecast to 3.2%, down 0.6 p.p from our previous estimate and
0.4 p.p. from the current central bank forecast. The fiscal situation remains the most challenging point for the country in
2018. With a still high level of uncertainty in the latest polls, we expect the central government nominal deficit to increase
to 7% of GDP and the primary deficit to remain at 3.5% of GDP.
Chart 2 Chart 3
Inflation (y-o-y; %) Government Debt and Deficits
Source: Central Bank of Costa Rica. Source: IMF, CIBC Capital Markets – Macro Strategy.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 32
Chart 1 Chart 2
Key Economic Indicators (%) Inflation (y/y; %)
Source: Central Bank of Curaçao and St. Maarten, Caribbean Tourism Organization and CIBC Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean.
FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 33
Ultimately, the total loans to total deposits ratio fell from 76.4% at December 2016 to 72.5% twelve months later.
Similarly, resident loans as a ratio of resident deposits declined 1.7 percentage points y/y to 71.0%.
The central bank’s net official reserves advanced 11.0% y/y to US$1.87 bln during December 2017.
Government Debt
Over the first three quarters of 2017, the government’s current budget balance worsened to a deficit of US$31.8 mln
compared to a deficit of US$16.8 mln during the corresponding period one year prior.
Total revenues increased US$3.0 mln y/y to US$988.7 mln. Declines in taxes on income and profits (down
US$6.4 mln y/y) and taxes on international trade and transactions (down US$2.7 mln y/y) more than offset greater
collections of taxes on property (up US$1.4 mln y/y) and taxes on goods and services (up US$0.9 mln y/y) to
reduce total tax receipts by US$6.3mln y/y to US$600.2 mln. However, non-tax and other revenues expanded
US$9.3 mln y/y to US$388.4 mln.
Current expenditures increased US$18.0 mln y/y to US$1.02 bln. The government spent US$3.0 mln (1.0% y/y)
and US$5.6 mln (0.9% y/y) less on wages and salaries, and transfers and subsidies, but outlays on goods and
services, interest on debt, and other expenditures increased US$8.9 mln (15.1% y/y), US$1.1 mln (6.4% y/y) and
US$16.6 mln (60.8% y/y).
Total public debt increased 6.6% y/y to US$1.53 bln (49.1% of GDP) by September 2017. The stock of domestic debt
increased 63.6% y/y to US$249.3 mln, but foreign debt outstanding declined 0.2% y/y to US$1.28 bln. However, during
Q3 2017, the government withdrew some of its deposits in the banking system and accumulated arrears with the public
pension fund to assist in financing in budget deficit.
Outlook
Weak economic performance over the first three quarters of 2017 suggest that economic activity likely declined during
2017. Further, the Centrale Bank van Curaçao en Sint Maarten projects that real GDP will likely rebound by just 0.3% y/y
in 2018, as improvements in private and public investment and public consumption just offset an expected decline in
private consumption. However, the central bank does expect that government will likely reverse the negative trend in its
current budget balance and record a balanced budget during 2018.
Chart 3
Developments in Credit Market Indicators (%)
20 Loans
NPLs/Total Loans
15
10
-5
2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 34
2,500 (US$/person) Visitor Expenditure/person (L) (000's) 100 4 All Items (L) 6
Stay-Over Arrivals (R) Food (L)
95
2,000 3 Fuel and Light (R) 4
90
2 2
1,500 85
1 0
1,000 80
75 0 -2
500
70 -1 -4
0 65 -2 -6
Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 35
Thus, the loan-to-deposit ratio fell 6.6 percentage points y/y to 41.3%. Consequently, weighted average lending
and deposit rates declined 16 bps y/y and 10 bps y/y, respectively, to 7.96% and 1.60%.
The non-performing loans ratio increased 3.0% y/y to 17.4% and return on assets fell 2.4 percentage points y/y to
-1.6%, both likely related to the likely economic contraction following the damage caused by Hurricane Maria.
Government Debt
Despite some improvement in tax revenues, a sharp decline in Citizenship-by-investment related non-tax revenues and
greater current and capital expenditure worsened the fiscal balance from a US$158.0 mln surplus during January –
September 2016 to a US$8.7 mln deficit during January – September 2017.
Current revenue plunged US$110.6 mln y/y to US$192.5 mln. Non-tax revenues tumbled to US$88.9 mln,
US$117.8 mln lower than the prior year, but still US$66.5 mln greater than the outturn recorded during January to
September 2015. In contrast, taxes increased US$7.2 mln y/y to US$103.6 mln as receipts from all major tax
categories increased. Taxes on income and profits, taxes on property, taxes on domestic goods and services, and
taxes on international trade and transactions increased US$0.9 mln (4.6% y/y), US$1.1 mln (57.1% y/y), US$3.1
mln (5.6% y/y), and US$2.0 mln (10.6% y/y). Total grants received rose US$3.0 mln y/y to US$10.7 mln, while
capital revenue increased from US$36k to US$68k.
Current expenditure increased US$14.4 mln y/y to US$121.7 mln. Spending on personal emoluments, goods and
services, and transfers and subsidies increased US$0.1 mln (0.2% y/y), US$9.1 mln (28.7% y/y), and US$5.3 mln
(21.1% y/y), but interest payments declined marginally US$0.1 mln (1.6% y/y) in line with a lower public debt
stock. Capital expenditure and net lending surged US$44.8 mln y/y to US$90.3 mln.
Total public debt declined from US$401.8 mln (69.1% of 2016 GDP) at September 2016 to US$383.2 mln (71.1% of
projected 2017 GDP) at September 2017.
Outlook
The ECCB estimates that the passage of Hurricane Maria during September 2017 likely reduced real GDP by 6.2% during
2017. However, the central bank expects that much stronger construction activity associated with post-Maria rebuilding
and a rebound in other economic sectors should propel output 10.6% higher y/y in 2018. However, if the government
receives insufficient grants to fund the expected rise in expenditure, the government’s fiscal balance will likely deteriorate
further, and debt will rise in 2018.
Chart 3 Chart 4
Public Sector Debt Outstanding Growth in Key Balances (%)
420 (US$mln) 25
Loans
410 20 Deposits
15
400
10
390
5
380
0
370
-5
360 -10
2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 36
Table 1 Chart 1
Key Economic Indicators & Forecast Real GDP (y/y; %)
Key Annual Indicators 2014 2015 2016F 2017F 2018F 12%
Real GDP Growth* 7.3% 7.0% 6.5% 4.6% 5.0% 10%
Inflation (End of Period) 1.6% 2.3% 1.7% 3.3% 3.9%
Prim. Central Govt Fiscal Balance (% GDP) -0.3% 2.7% 0.06% 0% -0.12% 8%
Nom. Central Govt Fiscal Balance (% GDP) -2.77% 0.11% -2.84% -3.2% -2.7% 6%
Exchange Rate (US$/CRC) 44.4 45.5 46.7 48.1 49.1
4%
Policy Interest Rate (End of Period) 6.25% 5.0% 5.50% 6.0% 6.25%
Net Govt Debt (% of GDP) 33.7% 34.4% 36.7% 39.0% 38.5% 2%
0%
-2%
-4%
-6%
Jan-06 Mar-08 May-10 Jul-12 Oct-14 Dec-16
Source: Ministerio de Hacienda, IMF and CIBC Capital Markets – Macro Strategy. Source: Bloomberg.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 37
Government Debt
NFPS revenues (excluding donations) increased 10.5% to DOP 537.2mln. Total expenditures reached DOP 651mln,
increasing 12.2%. With the slowdown in economic growth, the reconstruction efforts following natural disasters during the
year, and the construction of the Punta Catalina project, the NFPS nominal deficit reached 3.2% of GDP or 0.9 p.p. above
the initial 2.3% deficit target.
In 2017, gross NFPS debt reached US$29.5bln or 40.0% of GDP. External debt at US$18.8bln accounted 25.5% of GDP,
while local debt and intragovernmental debt reached US$7.8bln and US$2.9bln, respectively. In February, the Dominican
Republic issued bonds for a total of US$1.8bln. The issuance consisted of US$1bln of 30Y bonds placed at a rate of 6.5%
and a DOP 800mln issue at 8.9%.
Outlook
The acceleration in economic activity, global economic growth, especially from the US, and the lower base due to the
2017 natural disasters in the country, continue to bode well for growth this year. Hence, we expect growth to come in at
5% in 2018 with an upward bias, mostly coming from sectors linked to tourism. With regards to prices, we expect inflation
to approach the BCRD’s inflation target by year end, as growth accelerates and commodity prices increase. Moreover, we
expect the current account deficit to increase to 1.5% of GDP in 2018 driven by an increase in imports (higher oil prices).
Regarding the fiscal account, we expect the government to fall short of its 2.3% deficit target, landing at around 2.7% of
GDP in 2018.
Chart 2 Chart 3
Inflation (y-o-y; %) Government Debt and Deficits
16% 0.5 40.0
14% 0.0 39.0
12% -0.5 38.0
10% 37.0
-1.0
8% 36.0
-1.5
6% 35.0
-2.0
4% 34.0
-2.5 33.0
2%
0% -3.0 32.0
-2% -3.5 31.0
-4% 2014 2015 2016 2017F 2018F
Mar-09 Dec-10 Sep-12 Jul-14 Apr-16 Jan-18 Nom. Gov't Bal. (%GDP, L) Govt Debt (% GDP, R)
Source: Central Bank of Costa Rica. Source: IMF, CIBC Capital Markets – Macro Strategy.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 38
Table 1 Chart 1
Key Economic Indicators & Forecast Real GDP (y/y; %)
Key Annual Indicators 2014E 2015E 2016F 2017F 2018F 5%
Real GDP Growth* 1.4% 2.3% 2.4% 2.4 % 2.5% 4%
Inflation (End of Period) 0.5% 1.0% -0.9% 2.0% 1.5%
3%
Prim. NFPS Fiscal Balance (% GDP) -1.2% -0.8% -0.2% -0.0% 0.1%
Nom. NFPS(% GDP) -3.6% -3.3% -2.8% -2.3% -2.4% 2%
Current Account (% of GDP) -4.8% -3.6% -2.0% -1.8% -3.0% 1%
Debt/GDP 57.8% 60.1% 61.8% 62.7% 63.5% 0%
-1%
-2% Real GDP Growth y/y
-3%
-4%
-5%
Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17
Source: Ministerio de Hacienda, IMF and CIBC Capital Markets – Macro Strategy. Source: Bloomberg.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 39
Government Debt
The numbers released by the Central Bank of El Salvador indicate that NFPS revenue (including donations) reached
US$5.9bln in 2017, increasing 6.52% from the same period last year. Income taxes, VAT, and import tariff, up
US$75.61mln (4.56%), US$90.42mln (4.99%), and US$4.34mln (2.1%) contributed the most to revenue growth. On the
other hand, NFPS expenses increased 3.5%, reaching US$5.96bln in 2017. The increase in expenses responded to the
increase of interest payments and capital transfers.
The 12-month central government nominal deficit came in at US$71.86mln (-0.26% of GDP), improving from the
US$230mln deficit (-0.86% of GDP) posted in 2016. The 12-month primary surplus came in at US$727.9mln (2.67% of
GDP), up from the US$474.85mln (1.77% of GDP) surplus posted in 2016.
Legislative Elections
With 80% of the acts counted, ARENA emerged as the big winner in the March 4 election, securing 38 seats out of the 84
seats in congress. FMLN lost its veto power obtaining only 22 seats as of the latest count, while PCN and GANA reached
10 and 9 seats. With these results, ARENA and GANA, if they continue to collaborate, would have a simple majority (44)
or at least enough votes to approve laws and reforms. Moreover, to appoint the Attorney General and approve future
budgets (56 votes - 2/3), ARENA would have to negotiate with GANA and the PCN.
We expect ELSALV bonds to benefit from the results as the market interprets ARENA’s victory and the FMLN losing its
veto power as a sign of an improving governability going into next year. If momentum carries into next year, ARENA is
likely to be the first government since the civil war that could bypass any opposition veto. Nevertheless, extension of the
short-term positive environment would depend on the odds of the FMLN making a comeback and the IMF Article IV
review to be released late in March. For more details please refer to our El Salvador – 2018 Legislative elections note
published on March 7.
Outlook
A positive outlook for the Salvadoran economy has started to take shape in 2018. The approval of the 2018 budget,
ARENA’s victory in the legislative election, and still healthy levels of remittances and exports growth should improve
confidence indicators in the country and maintain a similar growth level in 2018. Hence, we have updated our GDP
forecast to 2.5% for 2018 from 2.0%. On the fiscal front, The government is hoping to secure a budget support loan from
the Inter-American Development Bank. The loan would be used to cover the government’s financial needs as proposed in
the 2018 Budget approved in January. Although government officials have remained optimistic regarding an agreement,
approval of the loan appears to be contingent on a positive IMF Article IV review. Further improvement of the fiscal picture
would depend on the odds of the FMLN making a comeback into next year’s presidential election. For now, focus would
be put into negotiations around the approval of any liability management as US$800mln in external bonds mature in 2019.
Chart 2 Chart 3
Inflation (y-o-y; %) Government Debt and Deficits
Source: Central Bank of Costa Rica. Source: IMF, CIBC Capital Markets – Macro Strategy.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 40
Chart 1 Chart 2
Stay-Over Tourist Arrivals Inflation (y/y; %)
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 41
Greater corporate loans (up 2.9% y/y) exactly offset a 1.6% y/y fall in retail loans. Business loans and consumer
loans increased 3.5% y/y and 0.2% y/y, but mortgages and public sector loans declined 3.3% y/y and 3.2% y/y.
Total deposits increased 4.6% y/y. Demand deposits, savings deposits and foreign currency deposits increased
13.0% y/y, 2.6% y/y, and 46.5% y/y, respectively, but time deposits contracted 16.9% y/y.
The loan-to-deposit ratio fell 2.6 percentage points y/y, and the average interest rate spread narrowed by 33 bps
y/y to 6.66%. Weighted average lending and deposit rates fell 45 bps y/y and 12 bps y/y to 7.98% and 1.32%.
The return on assets and capital adequacy ratio each fell 0.4 percentage points y/y to 1.1% and 13.8% during Q4
2017, but the non-performing loans ratio declined from 6.7% to 3.9%.
Government Debt
During 2017, the Government of Grenada produced larger primary and overall fiscal surpluses compared to one year
earlier and original targets. The primary balance increased to US$64.7 mln (5.8% of GDP) by 17.7% y/y and 17.5%
relative to target, while lower interest payments increased the overall fiscal balance by 46.4% y/y and 54.3% relative to
the target of US$35.8mln (3.2% of GDP).
Total revenue and grants rose 3.5% y/y to US$288.2 mln, but fell 4.6% below the target. Revenues increased to
US$259.3 mln (7.4% higher y/y and 5.4% higher relative to the target) as receipts from the Citizenship-by-
Investment programme increased 81.0% y/y to US$51.8 mln. Meanwhile, grants received fell to US$28.9 mln
(down 21.9% y/y and 48.6% relative to the target).
Total spending declined to US$252.4 mln (down 0.6% y/y and 9.5% compared to the original budget). Interest
payments fell to US$28.9 mln (down 5.2% y/y and 9.4% compared to the target), in line with a falling debt stock.
However, higher non-interest current spending increased total recurrent expenditure to US$222.6 mln (up 6.3%
y/y and 0.3% compared to the target). Commensurate with falling grant receipts, capital expenditure plunged to
US$29.9 mln (down 32.9% y/y and 47.8% compared to the target).
Total public debt declined 1.4% y/y to US$845.3 mln (approximately 76.1% of estimated 2017 nominal GDP) as at
September 2017 from US$857.7 mln (approximately 81.2% of 2016 nominal GDP) one year prior.
Outlook
In its October 2017 World Economic Outlook, the IMF projected that Grenada’s economy will likely expand by 2.3% in
2018 and average 2.5% thereafter. Annual inflation rates will likely remain just under 2% between 2018 and 2022, while
the IMF expects that the government will continue to produce fiscal surpluses above 2% of GDP through to 2021.
Consequently, government debt should continue to trend downward and reach below 70% of GDP by end-2018.
Chart 3 Chart 4
Public Sector Debt Outstanding Growth in Key Balances (%)
880 (US$mln) 8
Loans
6 Deposits
870
4
860
2
850 0
840 -2
-4
830
-6
820 -8
810 -10
2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 42
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 43
Government Debt
Faster growth in revenue than expenditure reduced the overall fiscal deficit by 88.6% y/y to US$26.0 mln during April
2017 to January 2018.
The government collected US$309.2 mln more y/y in revenue to US$3.40 bln. Tax revenues, non-tax revenues
and capital revenues increased US$215.2 mln (7.6% y/y), US$106.3 mln (56.8% y/y), and US$13.2 mln (331.1%
y/y), but the bauxite levy and grants fell US$14.4 mln (93.6% y/y) and US$11.1 mln (28.3% y/y).
Total spending increased US$106.8 mln y/y to US$3.42 bln. Higher spending on programmes (up US$85.2 mln
y/y), wages and salaries (up US$51.0 mln y/y) and capital projects (up US$9.1 mln y/y) outpaced a US$38.5 mln
(4.2% y/y) fall in interest expense.
Latest data sourced from the Bank of Jamaica points to a 2.1% y/y fall in the stock of debt to US$14.5bln by December
2017. Total internal debt declined 14.2% y/y to US$5.30bln, while the stock of direct externally-issued debt increased
6.5% y/y to US$9.20bln.
st
On January 31 2018, Fitch Ratings affirmed the Government of Jamaica’s ‘B’ rating on its sovereign debt and revised the
th
outlook from stable to positive. Further, on March 9 2018, the IMF announced completion of the third review under
Jamaica’s Stand-By Arrangement. The IMF highlighted that the government achieved progress on macroeconomic
policies and outcomes, but economic growth and progress on social outcomes have been weak.
Outlook
In its last published forecasts under the second IMF review associated with the Stand-By Arrangement, the IMF projected
that real GDP would increase by 1.9% y/y during 2018/19. However, in its most recent review, the IMF suggests that
creating an enabling environment for private sector investment is necessary to foster inclusive economic growth.
Moreover, with inflation rates likely to remain at the lower-end of the central bank’s target range, the IMF expects that a
less tight monetary stance will remain appropriate for the foreseeable future.
Chart 1 Chart 2
Key Economic Indicators (%) Inflation (y/y%)
3 20
25 All Items
2 15 Food
Housing, Utilities & Other Fuels
1 10
15
0 5
-1 0 5
-2 -5
Real GDP Growth (L) -5
-3 -10
Tourist Arrivals (R)
-4 Unemployment Rate (R) -15 -15
2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18
Source: Planning Institute of Jamaica, Bank of Jamaica, Caribbean Tourism Organization and CIBC Source: Bank of Jamaica and CIBC FirstCaribbean.
FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 44
Chart 3 Chart 4
Foreign Direct Investment and Remittances Developments in Credit Market Indicators (%)
1,800 (US$mln) Direct Investment (Jan-Sep) 14
Loan Growth
1,600 Net Remittance Inflows (Jan-Sep) 12 NPLs/Total Loans
1,400 10
1,200 8
1,000 6
800 4
600 2
400 0
200 -2
0 -4
2012 2013 2014 2015 2016 2017 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3
Source: Bank of Jamaica and CIBC FirstCaribbean. Source: Bank of Jamaica and CIBC FirstCaribbean.
Chart 5 Chart 6
US$JMD Exchange Rate Developments in Capital Market Indicators
Source: Bank of Jamaica and CIBC FirstCaribbean. Source: Bank of Jamaica and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 45
1.0%
0.0%
-1.0%
Jan-13 Aug-13 Apr-14 Dec-14 Jul-15 Mar-16 Nov-16 Jul-17 Feb-18
Source: Ministerio de Hacienda, IMF and CIBC World Markets Source: Bloomberg
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 46
Government Debt
Central government revenue came in at US$8.6bln (up 11.5%). Tax revenue increased 1.6% to US$5.7bln, while non-tax
income rose 38.5% or US$806mln to US$2.9bln. On the expenditure front, central government total expenses reached
US$10.4bln, increasing 5.1%. Current expenses increased 8.5% to US$6.5bln, as personnel services, goods and
services, and transfers grew 12.6%, 7.3% and 0.8%, respectively. Capital expenses dropped US$16mln or 0.4% to
US$3.7bln. The central government nominal deficit came in at US$1.82bln or 3.1% of GDP, down from the 4.0% deficit
posted in 2016.
With these numbers, the 2017 Non-Financial Public sector (NFPS) revenues came in at US$12.4bln, up US$785mln
(+6.7%) from 2016. Total expenses increased US$736mln or 5.8% to US$13.4bln, while current savings reached
US$2.8bln (+0.9%). Hence, the nominal NFPS deficit came in at US$1bln or 1.7% of GDP, improving from the 1.9%
deficit posted in 2016. Looking at the adjusted balance (transfer from the Canal of Panama), the NFPS posted an
adjusted nominal deficit of 1.0%.
As of January 31, 2018, total public debt reached US$23.38bln or 39.9% of GDP. External debt at US$ 18.37bln and
internal debt at US$5.0bln accounted for 78.56% and 21.44% of total debt.
Outlook
We maintain our 5.6% economic growth forecast for 2018 with an upward bias. This is based on the continuous positive
contribution of activities along the Canal, the development of high-income tourist facilities, the expansion of the energy
sector, and increasing exports. On the Fiscal front, we expect the government to comply with the FRL and post an
adjusted deficit of 0.5% of GDP in line with the medium-term fiscal framework thanks to the ACP dividend. According to
the estimated budget, the Canal of Panama will contribute US$1.66bln and US$225mln directly and indirectly (through
tolls and services) to treasury. This represents a 17.7% y/y increase.
Chart 2 Chart 3
Inflation (y-o-y; %) Government Debt and Deficits
Source: Central Bank of Costa Rica. Source: IMF, CIBC World Markets.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 47
Chart 1 Chart 2
Stay-Over Tourist Arrivals Inflation (y/y; %)
Source: Caribbean Tourism Organization, Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 48
Notwithstanding a 4.0% y/y expansion in savings deposits, declines in demand deposits (down 4.8% y/y), time
deposits (down 1.4% y/y) and foreign currency deposits (down 13.3% y/y) reduced total deposits by 3.8% y/y.
Consequently, the loan-to-deposit ratio increased from 37.7% to 39.8% between December 2016 and December
2017. However, declines in the weighted average lending rate (down 15 bps y/y to 8.41%) and the weighted
average deposit rate (down 8 bps y/y to 1.77%) reduced the average interest rate spread by 7 bps y/y to 6.64%.
While the banking sector’s capital adequacy ratio increased 4.7 percentage points y/y to 27.4% during Q4 2017,
the return on assets declined 0.1 percentage points y/y to 0.8% and the non-performing loans ratio surged 5.8
percentage points y/y to 20.5%.
Government Debt
Greater spending and lower revenue collections further reduced the government’s fiscal surplus by 48.4% y/y to US$23.1
mln during the first nine months of 2017.
The government collected US$10.0 mln less (4.8% y/y) in current revenue during the period. Tax revenue
declined US$0.4 mln y/y to US$132.2 mln, as declines in taxes on property (down US$0.9 mln y/y), and taxes on
domestic goods and services (down US$2.3 mln y/y) eclipsed greater collections of taxes on income and profits
(up US$1.9 mln y/y) and taxes on international trade and transactions (up US$1.0mln y/y). Non-tax revenue
continued to trend downward and fell US$9.7 mln y/y to US$68.4 mln as the government attracted less
Citizenship-by-Investment inflows. On the other hand, total capital revenue and total grants increased US$0.9 mln
y/y and US$3.5 mln y/y to US$2.2 mln and US$21.2 mln, respectively.
Except for a US$2.1 mln (5.3% y/y) fall in spending on goods and services, higher spending on personal
emoluments (up US$0.3 mln y/y), interest on debt (up US$2.2 mln y/y) and transfers and subsidies (up US$0.4
mln y/y) increased total current expenditure US$0.8 mln y/y to US$168.5 mln. Capital expenditure and net lending
surged US$15.3 mln y/y to US$32.3 mln.
While the government continued to produce a fiscal surplus, the government’s stock of public debt increased 1.0% y/y to
US$584.2 mln (61.4% of 2017 projected GDP) at the end of September 2017.
Outlook
The Eastern Caribbean Central Bank projects that faster growth in construction, tourism, agriculture and manufacturing
will likely accelerate growth in economic activity to 4.0% in 2018. However, despite a persistent decline in Citizenship-by-
Investment inflows, a recent rebranding of the programme and a reduction in the price of entry may boost inflows in the
medium-term and provide material benefits to both construction activity and the government’s revenue intake.
Chart 3 Chart 4
Public Sector Debt Outstanding Growth in Key Balances (%)
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 49
Chart 1 Chart 2
Stay-Over Tourist Arrivals Inflation (y/y; %)
1,500 (US$/person) 380 (000's) 20 All Items Food Utilities and Housing
1,400 370
15
360
1,300
350 10
1,200 340 5
1,100 330
320 0
1,000
310 -5
900
300
Visitor Expenditure/person (L) -10
800 290
Stay-Over Arrivals (R)
700 280 -15
Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17
Source: Caribbean Tourism Organization, Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 50
The banking sector loan-to-deposit ratio fell from 87.8% to 83.5%, while the average interest rate spread fell
1 basis point y/y as average lending and deposit rates fell 16 bps y/y to 7.99% and 15 bps y/y to 1.47%.
Return on assets increased from -0.3% to 1.2% between Q4 2016 and Q4 2017, while the non-performing loans
ratio declined 0.6 percentage points y/y to 12.5%. Further, the regulatory capital to risk-weighted assets ratio
increased from 11.8% to 18.2% over the same period.
Government Debt
Faster growth in expenditure than in revenue reduced the government’s overall fiscal balance from a US$4.2 mln surplus
during January – September 2016 to an overall deficit of US$16.9 mln one year later.
Current revenue increased US$4.9 mln y/y to US$290.3 mln. Tax revenues increased marginally by US$0.3 mln
y/y to US$275.6 mln, as greater receipts from taxes on income and profits (up US$0.4 mln y/y), taxes on property
(up US$0.2 mln y/y) and taxes on international trade and transactions (up US$9.8 mln y/y) more than offset a
US$10.0 mln (8.4% y/y) drop in taxes on domestic goods and services. Further, unlike in the Northern Caribbean,
stronger Citizenship-by-Investment inflows lifted non-tax revenues US$4.6 mln higher y/y to US$14.7 mln. Total
grants received surged US$3.2 mln y/y to US$8.0 mln, but capital revenue fell from US$57k to US$19k.
Current expenditure expanded US$22.7 mln y/y to US$269.6 mln. Spending on personal emoluments, goods and
services, interest payments, and transfers and subsidies all advanced US$0.6 mln (0.5% y/y), US$4.0 mln (8.8%
y/y), US$4.7 mln (11.1% y/y), and US$13.5 mln (25.0% y/y). Capital expenditure and net lending increased
US$6.5 mln y/y to US$45.6 mln.
Total public debt expanded 3.0% y/y to US$1.16 bln or approximately 67.7% of projected 2017 GDP.
Outlook
The ECCB projects that St Lucia’s economy will likely expand by 3% in 2018, led by strong growth in construction and
agriculture. Meanwhile, the IMF expects that the government’s fiscal deficit will likely narrow marginally in 2018 and the
government’s debt to GDP ratio will therefore likely decline to 66% of GDP by the end of the year. However, growing fiscal
deficits thereafter will likely put public debt on an upward trajectory in the medium-term.
Chart 3 Chart 4
Public Sector Debt Outstanding Growth in Key Balances (%)
1,150 Deposits
10
1,100 5
1,050 0
1,000 -5
950 -10
900 -15
2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 51
Chart 1 Chart 2
Key Economic Indicators (%) Inflation (y/y; %)
8 10
Tourist Arrivals All Items Food
7
6 8
5
6
4
3 4
2
1 2
0
0
-1
-2 -2
Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17
Source: Caribbean Tourism Organization and CIBC FirstCaribbean. Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 52
The central bank’s net official reserves increased from US$1.69 bln to US$1.87 bln between December 2016 and
December 2017.
Government Debt
Pre-Irma, the government’s current fiscal surplus improved by US$21.9 mln y/y to US$36.3 mln during H1 2017.
Total revenue increased US$23.0 mln y/y to US$155.9 mln. Revenues from taxes, concessions and fees,
licences, and other categories increased US$5.8 mln (5.1% y/y), US$1.6 mln (13.6% y/y), US$0.3 mln (8.1% y/y),
and US$15.4 mln (310.1% y/y).
Current government spending rose US$1.1 mln y/y to US$119.6 mln. Spending on goods and services, and social
security expanded US$2.6 mln (12.6% y/y) and US$0.2 mln (2.8% y/y), while outlays on wages and salaries
remained unchanged y/y. However, expenditure on subsidies, interest payments, and other items fell US$0.6 mln
(2.0% y/y), US$0.1 mln (1.6% y/y), and US$1.0 mln (19.8% y/y).
Total public debt declined from 36.3% of GDP in Q2 2016 to 31.7% of GDP four quarters later.
Since then, the government of the Netherlands pledged €550 mln in aid to the government of Sint Maarten to assist in
funding reconstruction efforts. However, the Netherlands insisted on certain pre-conditions before funding was released,
including the establishment on an Integrity Chamber and strengthening of border controls.
Outlook
The Centrale Bank van Curaçao en Sint Maarten expects real GDP to decline by 9.5% y/y in 2018. Weaker foreign
exchange earnings from fewer tourist arrivals combined with greater imports associated with reconstruction efforts will
likely reduce net foreign demand, while domestic demand will likely increase due to greater private and public investments
and greater public consumption. Private consumption will likely decline in line with lower employment levels.
Chart 3
Developments in Credit Market Indicators
6 14
4 12
10
2
8
0
6
-2
4
-4 Loan Growth (L) 2
NPLs/Total Loans (R)
-6 0
2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 53
Chart 1 Chart 2
Stay-Over Tourist Arrivals Inflation (y/y; %)
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 54
Between Q4 2016 and Q4 2017, the banking sector capital adequacy ratio and return on average assets fell from
20.9% and 0.3% to 19.9% and -0.1%, but the non-performing loans to gross loans ratio also fell 1.4 percentage
points to 8.2%.
Government Debt
The government’s overall fiscal balance continued to worsen y/y during the first three quarters of 2017. The fiscal balance
worsened from a US$4.2 mln surplus during Q1 – Q3 2016 to a US$6.2 mln deficit a year later.
Current revenue increased US$4.4 mln y/y to US$156.1 mln. Non-tax revenue declined US$1.4 mln y/y to
US$19.6 mln, but higher collections increased tax revenue by US$5.8 mln y/y to US$136.5 mln. Taxes on income
and profits, taxes on property, and taxes on goods and services advanced US$0.5 mln (1.2% y/y), US$5.1 mln
(49.6% y/y), and US$1.7 mln (2.6% y/y), but taxes on international trade contracted US$1.5 mln (8.7% y/y).
However, capital revenue and grants plunged 44.3% y/y to US$6.9 mln.
All categories of current expenditure increased y/y. Spending on employee compensation, spending for the use of
goods and services, interest payments, and transfers increased US$1.4 mln (1.8% y/y), US$0.6 mln (3.7% y/y),
US$0.9 mln (8.1% y/y), and US$4.8 mln (13.6% y/y). Capital expenditure on the other hand fell US$2.6 mln y/y to
US$14.7 mln.
The government’s worsening fiscal balance coincided with a rising debt stock. Total public debt increased 2.6% y/y to
US$648.5 mln (82.8% of 2017 projected GDP) between Q3 2016 and Q3 2017.
Outlook
The ECCB projects a 1.9% y/y rebound in real GDP during 2018 after a likely 0.7% y/y contraction one year prior. This
recovery will likely depend on improved developments in wholesale and retail trade, manufacturing, tourism and
construction.
Further, the IMF expects that the government’s overall fiscal deficit will likely fall marginally during 2018 and 2019, while
the public debt to GDP ratio will likely peak in 2019, before trending downward thereafter.
Chart 3 Chart 4
Public Sector Debt Outstanding Growth in Key Balances (%)
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 55
Chart 1 Chart 2
Real GDP (%) Inflation (y/y; %)
8 90
6 80
70
4
60
2 50
0 40
-2 30
20
-4
10
-6 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
\
Source: Centrale Bank van Suriname and CIBC FirstCaribbean. Source: Centrale Bank van Suriname and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 56
Notwithstanding the significant improvement in the external current account balance, less net foreign direct investment
inflows (down US$261.4 mln y/y) contributed to a US$369.8 mln y/y fall in the financial account balance to a US$61.2 mln
deficit during Q1 – Q3 2017.
International reserves continued to recover and increased 11.5% y/y to US$444.6 mln (approximately 13.4 weeks of
imports of goods and services) during January 2018. Thus, the SRD/US$ depreciated 0.6% y/y during January 2018, but
subsequently appreciated 1.0% y/y one month later to 7.47:1.
Government Debt
Weaker revenues and greater spending increased the government overall fiscal deficit by 24.6% y/y to US$194.9 mln
during the first eight months of 2017.
Declines in both taxes (down US$15.6 mln y/y to US$269.7 mln) and non-tax revenues (down US$6.2 mln y/y to
US$101.3 mln) reduced total revenues by US$21.8 mln y/y to US$371.0 mln. Direct taxes increased US$32.1 mln
y/y to US$156.8 mln, but indirect taxes fell US$47.8 mln y/y to US$112.9 mln.
Current expenditure contracted US$28.7 mln y/y to US$479.9 mln. Spending on wages and salaries, other goods
and services, and subsidies declined US$27.1 mln (13.8% y/y), US$5.9 mln (5.8% y/y), and US$22.0 mln (12.5%
y/y), but interest on debt surged US$26.2 mln (75.2% y/y). Capital expenditure also ballooned US$45.4 mln y/y to
US$86.0 mln.
Total government debt increased 1.8% y/y to US$2.41 bln as at December 2017.
After placing the government of Suriname’s B1 rating on review for downgrade, Moody’s then downgraded the country’s
rating to B2 with a negative outlook. Moody’s cited the deteriorating fiscal position as the main reason for its rating action.
Outlook
The IMF expects that economic activity will likely expand by 1.2% in 2018 and slowly accelerate thereafter. Further, the
IMF now expects growth in consumer prices to accelerate to 12.3% y/y by the end of 2013, while unemployment will likely
fall to 8.8% over the same period. The IMF expects that the fiscal deficit will improve to 4.9% of GDP in 2018 and
gradually decline thereafter, while government debt will peak in 2018 before it returns to a downward trajectory. Finally,
the IMF projects that, having likely produced an external account surplus of 9.4% of GDP in 2017, the external surplus will
fall to 6.1% of GDP in 2018.
Chart 3 Chart 4
Growth in Key Balances (%) Interest Rates (%)
30 Loans 16
20 Deposits
14
10
0 12
-10 10
-20
8
-30
-40 6 Weighted Average Lending Rate
Weighted Average Deposit Rate
-50 4
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Source: Centrale Bank van Suriname and CIBC FirstCaribbean. Source: Centrale Bank van Suriname and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 57
Chart 1 Chart 2
Key Economic Indicators (%) Key Commodity Prices (US$)
10 120 7
5 100 6
0 5
80
4
-5 60
3
-10 40
2
-15 Real GDP Growth 20 Crude Oil price/ barrel (Brent; L) 1
Crude Oil Production Natural Gas price/million metric (Henry Hub; R)
-20 Liquefied Natural Gas Production 0 0
2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18
Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean. Source: International Monetary Fund and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 58
Banking sector loans increased 4.5% y/y as increases in mortgages (up 7.8% y/y), consumer loans (up 2.3% y/y)
and business loans (up 4.2% y/y) eclipsed a 6.1% y/y fall in public sector loans.
Commercial bank non-performing loans to gross loans declined from 3.1% at December 2016 to 2.9% twelve
months later.
Declines in demand (down 0.9% y/y), savings (down 3.7% y/y), time (down 0.2% y/y) and foreign currency (down 1.4%
y/y) deposits reduced total deposits by 2.1% y/y.
The Trinidad and Tobago stock composite price index advanced 2.5% y/y during February 2018.
Notwithstanding higher energy production and prices, the Central Bank of Trinidad and Tobago’s net official FX reserves
declined 11.0% y/y to US$8.09 bln (9.2 months of imports) during February 2018. However, the TTD/US$ exchange rate
remained stable at 6.78:1 over the same period.
Government Debt
Greater current energy and non-energy revenue combined with lower current and capital expenditure narrowed the
government fiscal deficit from US$373.5 mln during October – December 2016 to US$33.7 mln over the same period a
year later.
Total revenue increased US$125.7 mln y/y to US$1.33 bln. Greater petroleum prices and natural gas production
contributed to a US$152.3 mln y/y surge in current energy revenue to US$326.3 mln, but less sales of CL
Financial assets reduced capital revenue from US$88.1 mln to US$1.1 mln. Further, current non-energy revenue
increased US$60.4mln y/y to US$1.01 bln, as greater receipts from taxes on income (up US$38.9 mln y/y), taxes
on property (up US$28k y/y), and taxes on goods and services (up US$103.4 mln y/y) eclipsed declines in taxes
on international trade (down US$9.5 mln y/y) and non-tax revenues (down US$72.5 mln y/y).
However, lower spending in all major categories except interest payments reduced total expenditure by US$214.1
mln y/y to US$1.37 bln. Current spending fell US$182.1 mln y/y to US$1.35 bln as outlays on wages and salaries
(down US$20.4 mln y/y), goods and services (down US$54.8 mln y/y) and transfers and subsidies (down
US$119.8 mln y/y) more than offset a US$12.9 mln (15.8% y/y) increase in interest payments. Capital expenditure
and net lending plunged US$32.0 mln y/y to US$17.3 mln.
Total gross public sector debt declined from 80.1% of GDP in Q4 2016 to 77.5% of GDP four quarters later. Central
government external debt as a percentage of GDP increased 0.9 percentage points y/y to 15.3%, but the central
government domestic debt to GDP ratio and total contingent liabilities debt to GDP ratio both fell 2.1 percentage points y/y
and 1.3 percentage points y/y to 43.2% and 19.0%.
Outlook
The Central Bank of Trinidad and Tobago projects that real GDP will likely benefit from stronger energy and non-energy
performances during 2018. Energy production should benefit from greater natural gas production and greater average oil
prices relative to one year earlier, while stronger energy output and increased demand for manufactured imports from the
rest of the Caribbean Community (CARICOM) should lift non-energy sector output during the near-term.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 59
Chart 3 Chart 4
Inflation (y/y; %) Developments in Credit Market Indicators
20 All Items
20 8
Loan Growth (L)
18
Food 15 NPLs/Total Loans (R)
16
6
14
10
12
10 5 4
8
6 0
4 2
2 -5
0
-10 0
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4
Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean. Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean.
Chart 5 Chart 6
US$/TTD Exchange Rate Capital Market Indicators
6.60 1.0%
1,100
0.8%
1,000
0.6%
6.40 900
0.4%
800 0.2%
6.20
700 0.0%
Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18
Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18
Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean. Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 60
Chart 1 Chart 2
Key Economic Indicators (GDP Growth; %) Inflation (y/y; %)
10 9
Real GDP Growth All Items
5 8
7
0
6
-5 5
-10 4
3
-15
2
-20 1
-25 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013
Source: Turks and Caicos Statistical Office, S&P and CIBC FirstCaribbean. Source: Turks and Caicos Statistical Office, S&P and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 61
Government Debt
During the fiscal year ending March 2017, the government produced a fiscal surplus of US$58.9 mln compared to a
budget surplus of US$37.4 mln and the prior year’s outturn of US$67.3 mln.
The government collected more revenue year-over-year and relative to budget. Total revenue expanded US$3.3
mln y/y and US$11.5 mln relative to budget to US$267.2 mln. Non-recurrent receipts fell 26.2% y/y to US$4.1 mln,
but recurrent revenues rose 1.8% y/y to US$263.1 mln. Receipts of import duties, the hotel and restaurant tax,
customs processing fees, and stamp duties on land transactions advanced US$2.7 mln (4.0% y/y), US$3.4 mln
(5.8% y/y), US$1.2 mln (4.3% y/y), and US$0.8 mln (3.1% y/y), but income from work permits and residency fees,
and other revenues declined US$0.5 mln (2.6% y/y) and US$2.9 mln (4.8% y/y).
The government spent US$208.3 mln – 4.6% less relative to their budget, but 5.9% more y/y. Recurrent
expenditure expanded 8.9% y/y to US$201.6 mln, but non-recurrent spending declined 41.8% y/y to US$6.7 mln.
Recurrent spending on personnel costs, transfers to the NHIB, subventions, asset rentals, and other recurrent
expenditures except hospital provisional charges increased US$6.8 mln (9.0% y/y), US$7.0 mln (36.1% y/y),
US$2.6 mln (27.3% y/y), US$0.03 mln (0.7% y/y), and US$3.5 mln (6.7% y/y), respectively, but hospital
provisional charges declined US$3.5 mln (14.8% y/y).
Total public debt declined 26.9% y/y to US$32.4 mln during March 2017.
Outlook
In 2018, the lingering effects of Hurricane Irma will likely boost economic growth, as reconstruction efforts boost building
activity. The likely surge in public capital expenditure and an already-upward trend in residential construction will likely aid
in rebuilding efforts, but the former will likely reduce the expected fiscal surplus if not financed by external grant funding.
However, debt will likely remain below the average of regional peers in the near- to medium-term.
Chart 3
Growth in Key Balances (%)
25 Growth in Loans
20 Growth in Deposits
15
10
5
0
-5
-10
-15
Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17
Source: Turks and Caicos Financial Services Commission and CIBC FirstCaribbean.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 62
About CIBC
CIBC (CM: TSX, NYSE) is a leading Canadian-based financial institution with a market capitalization of $50bln and a
Basel III Common Equity Tier 1 capital ratio of 10.6%. Through our four strategic business units – Canadian Personal and
Small Business Banking, Canadian Commercial Banking and Wealth Management, U.S. Commercial Banking and Wealth
Management, and Capital Markets – our nearly 45,000 employees provide a full range of financial products and services
to 11mln individual, small business commercial, corporate, and institutional clients in Canada, the U.S. and around the
world.
CIBC is committed to causes that matter to our clients, employees and communities. Our goal is to make a difference
through corporate donations, sponsorships and the volunteer spirit of employees. In 2017, CIBC invested more than $70
mln in community organizations across Canada and the U.S. through more than 2,200 charitable donations, including over
$45mln in corporate contributions and over $25mln in employee-led fundraising and giving.
Capital Markets
Capital Markets provides integrated global markets products and services, investment banking advisory and execution,
corporate banking and top-ranked research to corporate, government and institutional clients around the world.
Our goal is to be the leading capital markets franchise for our core clients in Canada and the lead relationship bank for our
core clients globally by delivering best-in-class insight, advice and execution. To enable CIBC’s strategy and priorities, we
collaborated with our partners across our bank to deepen and enhance client relationships.
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018 63
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
Caribbean Market Overview – Q1 2018
Notes
CIBC Capital Markets & CIBC FirstCaribbean International Bank March 2018
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