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Caribbean Market Overview Q3 2019

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Caribbean Market Overview – Q3 2019

CIBC Capital Markets & CIBC FirstCaribbean International Bank September 2019

Table of Contents

Caribbean Market Review ......................................................................................................... 2

Caribbean Economic Review .................................................................................................. 11

Anguilla .................................................................................................................................... 13

Antigua and Barbuda ............................................................................................................... 15

Aruba ....................................................................................................................................... 17

The Bahamas .......................................................................................................................... 19

Barbados ................................................................................................................................. 21

Belize ....................................................................................................................................... 23

Bermuda .................................................................................................................................. 25

Costa Rica ............................................................................................................................... 27

Curaçao ................................................................................................................................... 29

Dominica ................................................................................................................................. 31

Dominican Republic ................................................................................................................ 33

El Salvador .............................................................................................................................. 35

Grenada .................................................................................................................................. 37

Guyana .................................................................................................................................... 39

Jamaica ................................................................................................................................... 41

Panama ................................................................................................................................... 44

St. Kitts and Nevis ................................................................................................................... 46

St. Lucia .................................................................................................................................. 48

Sint Maarten ............................................................................................................................ 50

St. Vincent and the Grenadines .............................................................................................. 52

Suriname ................................................................................................................................. 54

Trinidad and Tobago ............................................................................................................... 56

Turks and Caicos .................................................................................................................... 59

About CIBC ............................................................................................................................. 61

About CIBC FirstCaribbean ..................................................................................................... 62

Notes ....................................................................................................................................... 63

Caribbean Market Overview – Q3 2019 1


Caribbean Market Review



Caribbean Market Review Luis Hurtado CIBC Capital Markets

Summary

As investors continued their search for yield, the confirmation and expansion of monetary policy easing cycles across

developed economies favoured emerging market credits since our last publication. Despite the favourable monetary policy

environment, investors hit large road bumps as the US-China trade feud turned sour once again. We expect geopolitical

tensions to keep volatility in emerging assets high as markets await the resolution of Brexit and the US-China trade battle

and as the electoral cycle kicks off in the US. Nevertheless, as rates drop further in advanced economies and negative-

yielding assets increase in volume, we expect emerging market credits with solid macro fundamentals to outperform,

while we foresee a bumpy road ahead for higher and speculative-yielding credits.

In line with the global monetary policy easing trends, shorter maturity bonds in Central America and the Caribbean

outperformed since our last publication (May 23). Nevertheless, we point out that despite the positive performance, we

saw investors moving away from risky assets in August as trade and growth concerns increased. With financing concerns

out of the way, ELSALV short-end led the pack, with yields dropping over 90bps on average. PANAMA also posted a

good performance as yields dropped 88bps on average during the same period. The country’s high growth and relatively

low fiscal deficits in the regional investment grade space made PANAMA one of the market’s favourites once again.

Similar to ELSALV, and although enjoying a decent performance over the last three months, we saw a worsening in the

COSTAR curve in August as the government’s ability to meet its fiscal targets was questioned against a backdrop of

concessions to unions, lower growth prospects, and the uncertain external environment. DOMREP remained mid-table,

with yields dropping 70bps on average as the market watched the unfolding of electoral uncertainties and tourism sector

news.

In COSTAR, recent government concessions to unions will likely jeopardise the fiscal goals set by the government after

the approval of the tax reform in November. We expect the short-end of the COSTAR curve to reflect political turmoil,

increasing concerns about the government’s ability to meet its fiscal targets this year, lower growth prospects, and

diminishing odds of external debt issuance approval in 2020. From a relative value point of view, we expect ELSALV 25 to

trade at a spread of 30bps over COSTAR 25. This plays the spread-lows seen in early August and takes advantage of the

lack of significant political news in El Salvador until the budget and external debt issuance discussions at the end of 2019.

Here, President Bukele appears to have a head start as his popularity and high approval levels give him some leverage to

negotiate alliances into next year.

In Panama, we expect concerns regarding fiscal accounts and slower economic growth to temper the recent strength of

the PANAMA curve for the remainder of 2019. Nevertheless, as the new administration recognizes some fiscal slippage

and promises fiscal adjustment measures for the rest of the year, while growth rebounds in tandem with the start of

Minera Panama’s production, we expect PANAMA to provide excellent entry opportunities for those still hungry for yield in

the investment grade space.

In the Dominican Republic, President Danilo Medina ran out of time to find consensus to approve a constitutional

amendment in late July that would have allowed him to run for a third consecutive time. Getting enough votes for a

constitutional amendment could have resurfaced corruption allegations, increased DOMREP volatility with rising electoral

uncertainty, and ignited concerns of further fiscal slippage on an already high fiscal nominal deficit (2.8% of GDP, 1.1 p.p.

above the 2019 target). Moreover, Medina’s candidacy could have accelerated the PLD’s breakdown, improving Luis

Abinader's (PRM) odds ahead of the 2020 election. Although division within the PLD is evident, with Medina not

supporting Leonel Fernandez’s candidacy, the initial market impact of Medina desisting to pursue a constitutional

amendment was marginally positive as Fernandez leads the latest polls, signalling a continuation of macroeconomic

policies. Nevertheless, we expect volatility to resurface ahead given the fragmented support of Fernandez’s candidacy

within his own party. For now, we recommend reducing exposure to the belly of the curve as local political turmoil

increases. The DOMREP curve has already lagged the positive performance of similar credits in the region since the start

of June, reflecting fiscal concerns and tourist deaths that have impacted foreigner arrivals in Q3 2019. We expect this

situation to continue for the remainder of the year.



Bahamas: Latest data from the Bahamas Department of Statistics indicate that real GDP increased 1.6% during

2018 supported primarily by enhanced tourism activity and the associated spill-over into related economic

sectors. Since then, preliminary data from the Central Bank of Bahamas indicate that these trends continued thus

far in 2019. Greater arrivals by air (up 17.5% y/y) and by sea (up 11.8% y/y) lifted total visitor arrivals to the

Bahamas 13.2% y/y during January to May 2019. Increased air arrivals to New Providence and Family Islands of

21.3% y/y and 9.1% y/y, respectively, overshadowed a 2.4% y/y decline to Grand Bahama. During the first nine

months of FY2018/19 ended March 2019 the government’s fiscal deficit narrowed 50.6% y/y to US$129.5mln as

an expansion in revenue (up 14.9% y/y) outpaced increased expenditure (up 5.0% y/y). National debt increased

3.5% y/y to US$8.19bln (65.9% of 2018 GDP) at March 2019. Central government foreign debt fell 3.9% y/y, but

central government domestic debt and contingent liabilities rose 8.3% y/y and 3.8% y/y, respectively. While the

IMF latest forecasts for The Bahamas assumed real GDP growth of 1.8% for 2019, the effects of Hurricane

Dorian will likely negatively impact economic prospects.

Barbados: The Central Bank of Barbados (CBB) reports that real economic activity fell 0.2% y/y during H1 2019,

despite the continued robustness of the tourism sector. Value-added in the tourism sector advanced 3.9% y/y as

increased seating capacity and the hosting of one-off events contributed to a 4.5% y/y expansion in long-stay

arrivals and a 5.1% y/y increase in hotel occupancy. Indicators of investment activity point toward potential

improvement as imports of capital goods rose 6.4% y/y boosted largely by greater machinery imports (up 11.8%

y/y). Nevertheless, construction output is estimated to have declined 5.0% y/y, while growth enhancing capital

spending slipped 22.6% during Q2 2019. The CBB reports that the government’s fiscal balance improved

US$112.0mln to a US$91.5mln surplus during the first three months of FY2018/19 ended June 2019, largely

resulting from reduced interest payments, which fell to 9.2% of revenue compared to 29.5% one year earlier. The

government’s gross public sector debt declined to US$6.4bln (124.2% of GDP) at June 2019 from US$8.1bln

(156.7% of GDP) one year earlier, mostly due to the domestic debt restructuring. Economic growth is expected to

remain sluggish for the remainder of 2019, reflecting the tighter fiscal stance, but this effect is likely to be

moderated by the ongoing repayment of arrears and the repayment of 2018 tax refunds.

Bermuda: Following a gain of between 0.5% and 1.0% during 2018 pillared by tourism and construction,

preliminary indicators for tourism and retail sales suggest a mixed performance thus far in 2019. Total air arrivals

slipped 3.3% y/y during H1 2019, reflecting a 4.4% y/y fall-off in seating capacity. Higher air arrivals from Canada

(up 7.5% y/y), the UK (up 4.2% y/y) and Europe (up 8.4% y/y) were insufficient to offset declines from all other

markets. The government of Bermuda reported a US$50mln deficit during the first eight months of FY2018/19

ended November 2018, compared to a US$71.9mln deficit one year earlier. Gross debt was US$2.68bln

(US$2.47bln net of the sinking fund) and 42.7% of 2017 GDP at the end of November 2018.

Costa Rica: Q1 2019 GDP growth came in at 2.2% y/y, pointing to a much lower pace of growth for this year. In

line with this trend, the Banco Central de Costa Rica (BCCR) revised its 2019 GDP growth estimate from 3.2% to

2.2% in its updated 2019-2020 Macroeconomic Program. The BCCR stated the revision responded to external

uncertainties, a drop in important agricultural goods prices, low business and consumer confidence, and the

under-execution of public investments. On the fiscal front, July central government revenue came in at

CRC368.6bln (up 3.9% y/y), while total expenses came in at CRC629.2bln (up 7.1% y/y). The numbers published

by the Ministry of Finance up to July are yet to show a significant improvement in current revenues as the

government fully implements the VAT and other tax adjustments throughout the remainder of the year and into

2020. Moreover, we note that the current trajectory, especially as the justice and health sectors fail to fully comply

with the salary changes as per the tax reform this year, suggests the nominal deficit could come in even higher

than the 6.3% of GDP estimated by the CB in its revised 2019-2020 Macroeconomic Program.

Dominican Republic: Q2 2019 GDP growth came in at 4.7% y/y, decelerating from 5.7% y/y and 6.3% y/y

posted in Q1 2019 and Q4 2018, respectively. With this number H1 2019 growth landed at 4.7% y/y, below the

Banco Central de la Republica Dominicana’s (BCRD) revised 5.5% estimate for 2019. The slowdown in activity

indicators comes on the back of deterioration of the external environmentand local uncertainties as the election

cycle starts delaying consumption and investment decisions. Q2 2019 central government total revenues reached

DOP174.8bln, increasing 13.44% y/y, well above the 8.4% y/y gain posted a year earlier, while expenses came in

at DOP175.8bln or up 10.43% y/y, similar to the 10.5% increase in Q2 2018. With these numbers, the 12-month



Non-Financial Public Sector (NFPS) nominal deficit reached DOP119.3bln or 2.8% of GDP while the NFPS

primary deficit came in at DOP-3.0bln or 0.1% of GDP.

El Salvador: Q1 2019 GDP growth came in at 1.8% y/y, decelerating from the 2.1% y/y posted a quarter earlier

and the 3.2% y/y in Q1 2018. Looking at the demand components up to June 2019, remittances continued to

show a significant deceleration, with H1 2019 inflows at 3.5% y/y, well below the 9.0% posted during the same

period a year earlier, while credit to consumers remained slightly above 4% y/y. The numbers released by the

Central Bank of El Salvador indicate that Non-Financial Public Sector (NFPS) revenue (including donations)

reached US$3.2bln in H1, increasing 2.0% y/y, while expenses increased 1.9% to US$3.2bln. With these

numbers, the 12-month NFPS nominal deficit (excluding donations) was US$770.6mln (-2.9% of GDP) while the

12-month primary surplus came in at US$170.9mln (0.6% of GDP).

Jamaica: Following a 1.8% expansion during 2018, the Statistical Institute of Jamaica reports that real GDP

advanced 1.7% during Q1 2019, buoyed in particular by mining, construction and tourism. Greater spending

across all categories of expenditure, except domestic interest payments, outpaced enhanced revenue collection

and increased the government’s deficit to US$23.9mln during the first two months of FY2019/20 ended May 2019,

from US$12.9mln one year earlier. The Debt Management Unit of the Ministry of Finance and the Public Service

estimates that total public sector debt fell 0.7% y/y to US$15.23bln at February 2019. Total central government

domestic debt remained flat y/y at US$5.87bln but external debt declined 1.1% y/y to US$9.3mln, reducing total

central government debt 0.9% y/y. Net public institutions debt fell 28.8% y/y during the same period.

Panama: Q1 2019 GDP came in at 3.1% y/y, decelerating from the 4.0% y/y and 3.6% y/y increases in Q4 2018

and Q1 2018, respectively. With these numbers, and the recent economic update by new Finance Minister Hector

Alexander, we expect 2019 GDP growth to come in at 4.2% with a downward bias in line with fiscal consolidation

and the increase of external risks. With the 2018 nominal deficit surprisingly landing at 2% of GDP, there were

concerns that the government may have incurred substantial arrears to comply with its 2018 fiscal target. This

situation did not catch the attention of rating agencies as S&P upgraded the country’s credit rating to BBB+.

Nevertheless, in July the new administration unveiled that, without adjustments, the nominal deficit would reach

3.8% of GDP at the end of 2019, higher than the 2.0% allowed by the fiscal law and our initial 2.7% deficit

estimate. In line with this situation, the new economic team made two bond placements in external markets – a

US$750mln 2060 bond, and another US$1.2bln in ‘30s. The proceeds would be used to clear most of the non-

registered payables by the previous administration estimated at around US$1.5bln.

Suriname: Estimates from the Centrale Bank van Suriname indicate that real GDP strengthened to 1.9% in 2018;

since then preliminary data on investment goods imports and key commodity exports suggest a mixed

performance during Q1 2019. The government’s deficit increased 29.1% y/y to US$403.9mln during 2018 as a

20.9% y/y increase in expenditure outpaced a 17.1% y/y expansion in expenditure. Since then, the deficit has

continued to widen as these trends persisted over the first three months of 2019. The Suriname Bureau for the

State Debt indicates that the government’s total debt increased 5.2% y/y to US$2.61bln as external and domestic

debt increased 0.7% y/y and 15.7% y/y to US$1.74bln and US$864.9mln, respectively, at the end of April 2019.

Trinidad and Tobago: Latest Central Bank of Trinidad and Tobago (CBTT) estimates suggest modest growth in

energy output likely slowed in Q1 2019, while non-energy indicators suggest a mixed performance. During the

first eight months of FY2018/19 ended May 2019, the government’s fiscal balance improved 18.5% y/y to

US$607.1mln, as a US$192.3mln boost in capital receipts supported the expansion in revenue collections, which

outpaced increased spending during the period. Gross public sector debt-to-GDP increased 1.6 percentage points

y/y to 78.2% of GDP as central government debt rose 1.8 percentage points y/y to 60.1% of GDP and contingent

liabilities remained at 18.2% of GDP y/y at the end of March 2019. Central government domestic debt and

external debt grew 0.6 percentage points y/y and 1.2 percentage points y/y to 43.3% of GDP and 16.3% of GDP,

respectively.



Chart 1 High Yield - 10Y Against Benchmark

Chart 2 Investment Grade - 10Y Against Benchmark

Source: Bloomberg and CIBC Capital Markets 10Y bonds are: COSTAR 4 3/8 04/30/25 DOMREP 6 07/19/28 JAMAN 6 3/4 04/28/28 BAHAMA 6.95 11/20/29 BERMUD 4 3/4 02/15/29 TRITOB 4 1/2 08/04/26 PANAMA 3 7/8 03/17/28 SURINM 9 ¼ 10/26/26 ELSALV 8 5/8 02/28/29

Chart 3 Caribbean Bonds Change in Yields Since Last Publication (May 23, 2019)

Source: Bloomberg and CIBC Capital Markets

200

250

300

350

400

450

500

550

600

Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19

bps

DOMREP COSTAR JAMAN ELSALV

40

90

140

190

240

290

340

390


bps PANAMA BAHAMA

BERMUD TRITOB

-150 -100 -50 0 50 100 150

SURINM 9 1/4 10/26/26

ELSALV 7 5/8 09/21/34

COSTAR 5 5/8 04/30/43

JAMAN 8 1/2 02/28/36

DOMREP 7 1/2 05/06/21

BAHAMA 5 3/4 01/16/24

COSTAR 4 3/8 04/30/25

COSTAR 7 04/04/44

COSTAR 7.158 03/12/45

TRITOB 4 1/2 08/04/26

BAHAMA 6 5/8 05/15/33

TRITOB 4 3/8 01/16/24

COSTAR 4 1/4 01/26/23

ELSALV 7 5/8 02/01/41

ARUBA 4 5/8 09/14/23

JAMAN 7 7/8 07/28/45

ELSALV 7.65 06/15/35

JAMAN 8 03/15/39

DOMREP 5 7/8 04/18/24

BAHAMA 6.95 11/20/29

BAHAMA 7 1/8 04/02/38

DOMREP 7.45 04/30/44

PANAMA 5.2 01/30/20

DOMREP 6.85 01/27/45

JAMAN 7 5/8 07/09/25

ELSALV 8 5/8 02/28/29

CAYMAN 5.95 11/24/19

JAMAN 6 3/4 04/28/28

ELSALV 7 3/8 12/01/19

DOMREP 8 5/8 04/20/27

DOMREP 5 1/2 01/27/25

PANAMA 3 3/4 03/16/25

PANAMA 4 09/22/24

DOMREP 6 7/8 01/29/26

PANAMA 8 7/8 09/30/27

DOMREP 6.6 01/28/24

JAMAN 9 1/4 10/17/25

PANAMA 3 7/8 03/17/28

PANAMA 7 1/8 01/29/26

BERMUD 4.854 02/06/24

PANAMA 4 1/2 05/15/47

TRITOB 9 3/4 07/01/20

PANAMA 4.3 04/29/53

PANAMA 9 3/8 04/01/29

ELSALV 6 3/8 01/18/27

ELSALV 5 7/8 01/30/25

ELSALV 7 3/4 01/24/23

COSTAR 9.995 08/01/20



Chart 4 Caribbean – Investment Grade

Chart 5 Caribbean – High Yield

Source: Bloomberg and CIBC Capital Markets Source: Bloomberg and CIBC Capital Markets

Chart 6 Central America – Panama, Costa Rica, and El Salvador

Chart 7 ELSALV ‘23s vs. COSTAR ‘23s


Chart 8 COSTAR ‘44s vs. DOMREP ‘44s

Chart 9 PANAMA ‘24s vs. BAHAMA ‘24s and BERMUD ‘24s


ARUBA '23

BAHAMA '24

BAHAMA '29

BAHAMA' 33

BAHAMA '38

BERMUD '23 BERMUD '24 BERMUD '27

TRITOB '27

TRITOB '24

2

3

4

5

6

2 4 6 8 10 12

YTM

Modified Duration

DOMREP '21

DOMREP 4/18/24

DOMREP 1/28/24 DOMREP '25

DOMREP '26

DOMREP 1/25/27

DOMREP 4/20/27

DOMREP '44 DOMREP '45

JAMAN 7/9/25

JAMAN 10/17/25

JAMAN '36

JAMAN '39

JAMAN '45

SURINM '26

2

4

6

8

10

12

14

0 2 4 6 8 10 12 14

YTM

Modified Duration

COSTAR '20

COSTAR '23

COSTAR '25

COSTAR '43 COSTAR '44 COSTAR '45

PANAMA 01/30/20

PANAMA '24 PANAMA '25

PANAMA '26 PANAMA '27 PANAMA '28

PANAMA '29

PANAMA '47

PANAMA '53

ELSALV '19

ELSALV '23 ELSALV '25

ELSALV '27



0

1

2

3

4

5

6

7

8

0 5 10 15 20

YTM

Modified Duration

27.0

0.17

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

-150

-100

-50

0

50

100

150

200

250

300

350


ELSALV 23 -COSTAR 23

Spread

Z-Score (RHS)

107.7

0.24

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

-40

10

60

110

160

210


COSTAR 44 - DOMREP 44

Spread

Z-Score (RHS)

-280

-230

-180

-130

-80

-30

20


PANAMA '24s - BAHAMA '24s

PANAMA '24s - BERMUD '24s



Table 1 Public Sector Fiscal Accounts and Debt 2019 or 2019/20

2019 or 2019/20 Primary/Adjusted

Balance Nominal Balance

Gross Government Debt

Net Public Sector Debt

Real GDP Growth

% of GDP % of GDP % of GDP % of GDP % of GDP

Antigua and Barbuda -1.4% -4.3% 88.3% n.a. 4.0%

Aruba 4.0% -0.7% 75.5% 26.7% 0.7%

The Bahamas 0.6% -2.1% 59.5% 55.6% 2.1%

Barbados 6.1% 3.3% 118.0% 113.5% -0.1%

Belize 1.9% -1.7% 92.6% 88.2% 2.5%

Bermuda 2.0% 0.2% 38.1% 0.0% 1.1%

Cayman Islands 2.6% 2.0% 6.4% n.a. 2.8%

Costa Rica -2.5% -6.4% 60% n.a. 2.0%

Dominica 0.5% -1.4% 83.4% n.a. 8.0%

Dominican Republic 0.3% -2.5% 40.0% 29.0% 5.5%

El Salvador -0.1% -3.2% 63.5% n.a. 2.0%

Grenada 6.6% 4.6% 56.1% n.a. 4.2%

Jamaica 7.2% 0.7% 97.0% 90.0% 1.7%

Panama -1.5% -3.0% 40.0% 37.0% 4.2%

St. Kitts and Nevis 4.0% 2.6% 59.5% n.a. 3.5%

St. Lucia -1.4% -4.7% 72.5% n.a. 3.3%

St. Vincent and the Grenadines 0.1% -1.7% 71.4% 68.6% 2.3%

Suriname -2.7% -5.0% 68.5% 66.1% 1.4%

Trinidad and Tobago -2.5% -5.6% 63.5% n.a. 0.0%

Sources: IMF, Bloomberg, CIBC Capital Markets, Cayman Islands' Economics and Statistics Office (ESO), Standard and Poor's, Moody’s. NA: Not available.

Table 2 Ratings of Caribbean Sovereigns

2019 Ratings

Ratings Key

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 SD Caa3 AA Aa2 BB- Ba3

Bermuda A+ A2 AA- Aa3 B+ B1

Cayman NA Aa3 A+ A1 B B2

Costa Rica B+ B1 A A2 B- B3

Dominican Republic BB- Ba3 A- A3 CCC+ Caa1

El Salvador B- B3 BBB+ Baa1 CCC Caa2

Jamaica B B3 BBB Baa2 CCC- Caa3

Panama BBB+ Baa1 BBB- Baa3 CC Ca

Suriname B B2 C C

Trinidad and Tobago BBB Ba1

*-: On review for downgrade

Sources: Bloomberg, S&P, and Moody’s



Table 3 Caribbean Bonds and Indicative Prices/Spreads (As of September 3, 2019)

Aruba

Bond Price Yield 3m Yield Change Z-Spread S&P Moody's Fitch

ARUBA 4 5/8 09/14/23 104.60 3.39% -60.76 153.44 BBB+ NR BBB-

Bahamas


BAHAMA 5 3/4 01/16/24 107.30 3.91% -48.22 256.32 BB+ Baa3 NR

BAHAMA 6.95 11/20/29 116.80 4.84% -67.37 345.61 BB+ Baa3 NR

BAHAMA 6 5/8 05/15/33 113.48 5.23% -55.61 381.10 BB+ Baa3 NR

BAHAMA 7 1/8 04/02/38 118.74 5.50% -68.06 405.40 BB+ Baa3 NR

Barbados


BARBAD 7 1/4 12/15/21 64.64 SD Caa3 NR

BARBAD 7 08/04/22 64.37 SD NA NR

BARBAD 6 5/8 12/05/35 64.90 SD Caa3 NR

Bermuda


BERMUD 4.138 01/03/23 106.20 2.19% -97.20 84.33 A+ A2 WD

BERMUD 4.854 02/06/24 110.96 2.23% -93.25 89.68 A+ A2 WD

BERMUD 3.717 01/25/27 107.22 2.64% -100.65 132.10 A+ A2 NA

BERMUD 3.717 01/25/29 116.50 2.75% NA 137.89 A+ A2 NA

Cayman Islands


CAYMAN 5.95 11/24/19 100.98 1.45% -72.44 -114.61 NR Aa3 NR

Costa Rica


COSTAR 9.995 08/01/20 105.51 3.74% -124.89 163.55 B+ B1 NR

COSTAR 4 1/4 01/26/23 98.70 4.67% -59.89 331.74 B+ B1 B+

COSTAR 4 3/8 04/30/25 96.53 5.09% -50.26 377.95 B+ B1 B+

COSTAR 5 5/8 04/30/43 88.85 6.56% -43.86 508.46 B+ B1 B+

COSTAR 7 04/04/44 101.40 6.88% -52.25 540.82 B+ B1 B+

COSTAR 7.158 03/12/45 102.77 6.93% -52.39 547.84 B+ B1 B+

Dominican Republic


DOMREP 7 1/2 05/06/21 105.34 4.15% -47.54 107.14 BB- Ba3 BB-

DOMREP 5 7/8 04/18/24 107.45 4.09% -64.74 229.32 BB- Ba3 BB-

DOMREP 6.6 01/28/24 111.64 3.71% -81.25 240.07 BB- Ba3 BB-

DOMREP 5 1/2 01/27/25 107.14 4.01% -75.93 271.71 BB- Ba3 BB-

DOMREP 6 7/8 01/29/26 114.68 4.23% -79.41 292.77 BB- Ba3 BB-

DOMREP 5.95 01/25/27 110.20 4.32% -86.92 302.20 BB- Ba3 BB-

DOMREP 8 5/8 04/20/27 121.76 5.14% -72.88 340.32 BB- Ba3 BB-

DOMREP 6 07/19/28 110.84 4.50% -82.18 320.76 BB- Ba3 BB-

DOMREP 7.45 04/30/44 121.44 5.80% -68.80 437.01 BB- Ba3 BB-

DOMREP 6.85 01/27/45 115.48 5.69% -69.62 424.26 BB- Ba3 BB-

DOMREP 6 1/2 02/15/48 111.12 5.70% -62.42 425.45 BB- Ba3 BB-

El Salvador


ELSALV 7 3/8 12/01/19 100.86 3.69% -72.68 117.04 B- B3 B-u

ELSALV 7 3/4 01/24/23 108.67 4.94% -106.79 358.31 B- B3 B-u

ELSALV 5 7/8 01/30/25 102.21 5.40% -101.95 410.74 B- B3 B-u

ELSALV 6 3/8 01/18/27 103.25 5.82% -97.71 452.17 B- B3 B-u

ELSALV 8 5/8 02/28/29 116.11 6.34% -70.65 501.74 B- B3 NA

ELSALV 8 1/4 04/10/32 114.12 6.58% -70.39 517.82 B- B3 NA

ELSALV 7 5/8 09/21/34 106.68 6.90% -27.12 544.16 B- B3 B-u

ELSALV 7.65 06/15/35 107.89 6.82% -63.48 541.03 B- B3 B-u

ELSALV 7 5/8 02/01/41 107.72 6.93% -60.61 544.58 B- B3 B-u



Jamaica


JAMAN 7 5/8 07/09/25 117.93 4.14% -70.54 223.26 B B3 B+u

JAMAN 9 1/4 10/17/25 128.73 3.92% -81.39 261.69 B B3 B+u

JAMAN 6 3/4 04/28/28 117.23 4.34% -72.50 280.09 B B3 B+u

JAMAN 8 1/2 02/28/36 131.33 5.57% -46.71 413.05 B B3 B+u

JAMAN 8 03/15/39 129.69 5.50% -63.83 402.89 B B3 B+u

JAMAN 7 7/8 07/28/45 130.39 5.63% -61.05 417.58 B B3 B+u

Panama


PANAMA 5.2 01/30/20 101.32 1.89% -68.83 -32.91 BBB+ Baa1 BBB

PANAMA 4 09/22/24 108.25 2.26% -78.02 90.83 BBB+ Baa1 BBB

PANAMA 3 3/4 03/16/25 107.46 2.31% -76.95 97.07 BBB+ Baa1 BBB





PANAMA 6.7 01/26/36 146.49 3.07% -103.46 152.55 BBB+ Baa1 BBB



PANAMA 4.3 04/29/53 123.19 3.17% -95.86 168.15 BBB+ Baa1 BBB

Suriname


SURINM 9 1/4 10/26/26 89.75 11.38% 121.74 1000.71 B B2 NR

Trinidad and Tobago


TRITOB 9 3/4 07/01/20 106.48 1.77% -95.26 -25.56 BBB Ba1 NR

TRITOB 4 3/8 01/16/24 104.21 3.33% -56.54 202.69 BBB Ba1 NR

TRITOB 4 1/2 08/04/26 102.91 4.01% -54.22 267.97 BBB Ba1 NR

Source: Bloomberg and CIBC Capital Markets



Caribbean Economic Review



Caribbean Economic Review Tiffany Grosvenor-Drakes CIBC FirstCaribbean

The weaker pace of global growth continued into the first half of 2019, but the IMF reports that advanced economies, including two of the Caribbean’s major trading partners, performed stronger than expected despite escalated trade and technology tensions, and the sustained ambiguity surrounding the nature of Brexit. US real GDP growth accelerated to an annualized rate of 3.1% during Q1 2019 compared to 1.1% during the previous quarter, bolstered by increased inventory investment and an improved net export position. Similarly, inventory accumulation likely associated with preparations for Brexit at that time, particularly in the manufacturing sector, led to a 1.8% y/y expansion in UK output compared to 1.2% y/y during Q4 2018. Meanwhile, economic growth in Canada remained subdued, with real GDP growing at an annualized rate of 0.4% in Q1 2019 compared to 0.3% the previous quarter as a contraction in exports largely offset increased household spending and business investment. The Venezuelan economy continued to shrink and worsened amid oil sector sanctions. Finally, although oil prices trended upward through April 2019, the price of WTI crude oil has since declined to US$55 per barrel at the end of August 2019, likely reflecting anemic demand and fears of a further global slowdown. The performance of the Caribbean thus far in 2019 has mostly reflected the outturn of the region’s major trading partners, the continued recovery from the 2017 hurricanes and ongoing fiscal consolidation. Following 2018’s performance when real GDP expanded in all markets except Curaçao, Sint Maarten and Barbados, preliminary indicators for 2019 suggest improved prospects for Sint Maarten. However, despite a strong tourism outturn, real GDP growth in Barbados remained subdued during H1 2019 as activity in all other sectors either declined or remained flat, while the ongoing refinery challenges in Curaçao are likely to restrict economic growth. Tourism, the region’s major engine of growth registered gains across all dependent markets except in Bermuda, where arrivals slipped for the year-to-date. Specifically, stay-over arrivals to hurricane-hit Anguilla, Dominica and Sint Maarten rebounded following double-digit declines one year earlier, while all other markets sustained a robust growth momentum. Overall, stay-over arrivals advanced 17.8% y/y during Q1 2019 compared to a 0.7% fall-off during Q1 2018. Further, while the US market generally continued to register a strong performance, UK arrivals to Barbados and the Organisation of Eastern Caribbean States (OECS) strengthened during Q1 2019 following a flat performance one year earlier, likely buoyed by the England Cricket tour to those islands during the period. Meanwhile, commodity producers have registered a mixed performance thus far in 2019. Efforts to reduce fiscal imbalances are progressing in most regional markets. Those governments with the highest debt-to-GDP ratios – Barbados (124%) and Jamaica (95%) – are engaged in targeted programs with a path set to reach 60% by 2033 and 2026, respectively. Similarly, those with the lowest debt ratios – the Cayman Islands (13%) and the Turks and Caicos Islands (less than 1%) – continue to record improved fiscal surpluses, with progress toward reducing debt even further. While public debt in Aruba, Belize, and Trinidad and Tobago remain elevated, fiscal deficits have narrowed, and the Bahamian government made good progress in meeting its fiscal targets. However, while the ECCB has set a target of reducing public debt to 60% by 2030, debt rose in all but three markets. Further, the two OECS markets with the highest debt levels – Antigua and Barbuda and Dominica – experienced wider fiscal deficits due to increased spending in the aftermath of the 2017 hurricanes.

Chart 1 Trends in Regional1 Tourist Arrivals

Chart 2 Regional2 Loan Growth (y/y; %)

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 Turks and Caicos Islands.

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3

4

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6

7

8

9

Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19

(mln) 12-mth moving average growth (%)

Total Stay-Over Arrivals (R)

Growth in Tourist Arrivals (L)

-10

-5

0

5

10

15

20


Retail Loans

Corporate Loans



The net effect of lower global oil prices and changes to regional taxation structures continued to influence changes in consumer prices. The average inflation rate slowed to 1.9% y/y during March 2019 from 2.2% y/y one year earlier, as prices rose in all markets except Anguilla and St. Kitts and Nevis, but decelerated y/y in approximately half of these markets. While the second drawdown of IMF funding was largely responsible for an increase in Barbados’ FX reserves to 15.3 weeks of imports of goods and services, the enhanced tourism outcome likely contributed to the higher FX reserves recorded for Barbados, Aruba, and the Bahamas for the year to date. FX reserves fell y/y in Belize, Jamaica, Suriname, Trinidad and Tobago, and Curaçao and Sint Maarten, but all remained above the internationally accepted three-month benchmark in all markets except Belize and Guyana. FX reserves in Trinidad and Tobago in particular continued on a near five-year slide, falling to 7.9 months of import cover at the end of June 2019 – the lowest level on record since March 2007 – but continue to be a strong external buffer. Loan growth outpaced deposit growth and marginally reduced regional excess liquidity y/y during Q1 2019. Total loans and advances rose 2.5% y/y, as retail lending increased 4.3% y/y and a 3.6% y/y expansion in public sector lending led to a 0.5% y/y rise in corporate loans. Loan delinquency generally continued to recover, but non-performing loans as a percentage of total loans rose in Bermuda, Anguilla, St. Kitts and Nevis, and Trinidad and Tobago during the period. Further, capital adequacy continued to exceed globally accepted minimums across the region. The IMF recently revised downward its expectations for global economic growth in 2019 and 2020 by 0.1 percentage points to 3.2% and 3.5%, respectively, citing the anticipated impact of the May 2019 increase of US tariffs on Chinese exports, and subsequent retaliation by China. However, growth forecasts for the US and UK have improved by 0.3 percentage points and 0.1 percentage points to 2.6% and 1.3% for 2019, respectively, reflecting the better-than-predicted Q1 performance, while projections for Canada remained unchanged at 1.5%. Nonetheless, the overarching developments point to a slowing momentum for the Caribbean’s major trading partners in 2019 when compared to the previous year. Consequently, economic activity in the Caribbean is also likely to advance at a slower pace in 2019, with a few notable exceptions – those markets recovering from negative growth in 2018 and/or experiencing a lagged recovery from the 2017 hurricanes will likely register improved output in 2019. Further, while the IMF latest forecasts for the Bahamas assumed real GDP growth of 1.8% for 2019, the effects of Hurricane Dorian will likely negatively impact economic prospects. Other external factors continue to pose a threat to the region’s outlook, as Brexit uncertainty lingers and the recent inversion of the US yield curve on Treasury securities sparked debate about the possibility of a looming recession in the US.

Chart 3 Regional3 Inflation and Intl. Commodity Prices (y/y; %)

Source: Regional authorities, International Monetary Fund and CIBC FirstCaribbean. * Average of U.K. Brent, Dubai and West Texas Intermediate + International Monetary Fund Food Index.

3 Caribbean 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.

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-30

-10

10

30

50

70

90

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2

3

4

5


Regional Inflation Rate (L)

Growth in International Oil Prices* (R)

Growth in International Food Prices+ (R)



Anguilla Tiffany Grosvenor-Drakes CIBC FirstCaribbean

Production, Prices, and Employment Preliminary data from the Eastern Caribbean Central Bank (ECCB) suggest that a rebound in tourism activity, likely supported by construction activity, propelled the economic recovery during Q1 2019.

Tourism activity regained momentum, as the total number of visitor arrivals rebounded 188.2% y/y while visitor

expenditure was up 97.9% y/y during Q1 2019. Stay-over arrivals from all major markets bounced back, with the

number of tourists from the US, the UK, Canada, the Caribbean, and all other markets increasing 242.8% y/y,

225.6% y/y, 174.7% y/y, 5.7% y/y and 203.6% y/y, respectively. Further, stay-over arrivals expanded 23.3% y/y

relative to (pre-hurricane) Q1 2017, with all major markets growing except for Canada. The number of

excursionists also rebounded 195.3% y/y.

While activity associated with repairs and reconstruction likely continued to bolster construction output, investment

indicators were mixed as growth in the imports of inedible crude materials except fuels slowed to 1.8% y/y, while

imports of machinery and transport equipment declined 2.0% y/y after surging 42.7% y/y and 43.7% y/y in Q1

2018, respectively. However, an overall 3.2% y/y decline in total imports combined with a doubling of total exports

improved the merchandise trade deficit by 7.0% y/y.

Higher prices for food and non-alcoholic beverages (up 3.0% y/y), housing, utilities, gas and fuels (up 1.2% y/y), and communication (up 3.4% y/y) partially offset lower prices for transport (down 5.2% y/y), increasing consumer prices 0.3% y/y during March 2019.

Developments in Financial Markets Loans declining faster than deposits increased excess liquidity over the four quarters ended March 2019. Loan quality worsened but capital adequacy improved during the same period.

Total loans advances fell 10.8% y/y, reflecting declines across all categories of loans. Lending to businesses and

the public sector fell 10.6% y/y and 55.9% y/y, respectively, pushing corporate loans 13.3% lower y/y while retail

loans balances declined 8.8% y/y.

A 4.8% y/y fall-off in non-resident deposits and a 7.4% y/y decline in corporate deposits overshadowed a 2.9% y/y

expansion in retail deposits, and lowered total deposits 5.4% y/y.

As a result, the loan-to-deposit ratio fell 2.9 percentage points y/y to 47.4% at the end of March 2019. The

weighted average lending and deposit rates remained at 10% and 2%, respectively, at March 2019 relative to one

year earlier.

Chart 1 Stay-Over Tourist Arrivals (y/y; %)

Chart 2 Inflation (y/y; %)

Source: Caribbean Tourism Organization, Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.

35

45

55

65

75

85

95

1,900

1,950

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(000's) (US$/person)

Visitor Expenditure/person - 12-month average (L)

Stay-Over Arrivals (R)

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2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1

All Items

Food

Fuel and Light



Non-performing loans as a percentage of total loans worsened 1.7 percentage points y/y to 24.7% at March 2019. However, regulatory capital to risk-weighted assets improved 7.1 percentage points y/y to 17.4% over the same period.

Government Debt

The government’s fiscal surplus fell from US$1.6mln in 2017 to US$0.9mln (0.3% of GDP) during 2018 as increased

expenditure outpaced revenue gains.

Current revenue increased US$3.5mln (5.0% y/y) to US$74.2mln as a US$0.2mln (6.1% y/y) decline in tax

revenue partially offset a US$3.8mln (37.6% y/y) rise in non-tax revenue. Taxes from income and profits and

taxes on international trade transactions were increased by US$0.3mln (6.2% y/y) and US$7.9mln (28.3% y/y),

but collections of property taxes and taxes on domestic goods and services fell US$0.2mln (7.0% y/y) and

US$8.3mln (33.2% y/y), respectively. Total grant inflows increased US$1.4mln (12.0% y/y), much of which was

associated with hurricane relief.

Higher spending on goods and services (up $0.5mln or 3.0% y/y), personal emoluments (up US$1.5mln or 4.9%

y/y), interest payments (up US$1.7mln or 28.7% y/y), and transfers and subsidies (up US$0.8mln or 4.4% y/y)

pushed current expenditure 4.6% higher y/y. When combined with a US$1.1mln (13.4% y/y) increase in capital

spending and net lending, total expenditure rose 5.6% y/y to US$86.0mln.

The stock of public debt fell 0.2% y/y to US$188.4mln (58.4% of GDP) at the end of March 2019.

Outlook

Latest ECCB estimates suggest that real economic activity in Anguilla rebounded 10.9% in 2018, following the devastation

of Hurricane Irma in 2017. The ECCB now projects real GDP growth of 8.8% in 2019 consistent with the expected

recovery in tourism output (up 47.2%) and knock-on effects to other sectors ̶̶ transport storage and communication (up

31.2%) and distribution (up 3.0%). However, construction output is projected to slip 8.5% following a 165.1% increase in

2018.

Chart 3 Public Sector Debt Outstanding

Chart 4 Growth in Key Balances (y/y; %)

Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.

0

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2015Q1 2016Q1 2017Q1 2018Q1 2019Q1

(US$mln)

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Antigua and Barbuda Tiffany Grosvenor-Drakes CIBC FirstCaribbean

Production, Prices, and Employment

Strong tourism growth and increased construction output likely boosted economic activity in Antigua and Barbuda during

Q1 2019.

The number of stay-over arrivals to Antigua and Barbuda expanded 6.3% y/y, reflecting a higher number of

tourists from the US (12.9% y/y), the UK (up 4.5% y/y), the Caribbean (1.0% y/y) and all other markets (up 10.1%

y/y), which overshadowed a 4.3% y/y decline from Canada. Yacht passengers arrivals also advanced (up 22.5%

y/y), but despite a 3.4% increase in the number of cruise-ship calls, cruise-ship passenger arrivals declined 1.5%

y/y, moderating the growth in total visitor arrivals to 0.3% y/y. Notwithstanding, total visitor expenditure increased

20.8% y/y during the period.

Indicators of construction and investment activity were mixed but suggest likely continued improvement in the

construction sector. Imports of inedible crude materials except fuels advanced 39.6% y/y, while imports of

machinery and transport equipment ticked upward (0.8% y/y). Further, loans to the construction sector advanced

2.4% during Q1 2019.

The overall merchandise trade deficit widened 11.4% y/y to US$180.9mln as a 12.7% y/y expansion in total imports

overshadowed a 58.0% y/y increase in total exports.

Consumer prices rose 1.2% y/y during March 2019 as higher prices for food (up 3.3% y/y), household furniture and equipment (up 1.7% y/y) and transportation and communication (up 0.3% y/y) eclipsed a 0.1% y/y fall-off in the price of housing and utilities.

Developments in Financial Markets Loan growth outstripped deposit accumulation and reduced excess liquidity over the four quarters to March 2019. Banks’ loan quality and profitability improved during the period.

Total loans advanced 9.5% y/y, reflecting a 2.3% y/y increase in retail loans and a 16.7% y/y expansion in

corporate loans. Lending to businesses increased 25.6% y/y while public sector loans rose 5.7% y/y.

A 9.0% y/y expansion in corporate deposits overshadowed reductions of 1.0% y/y and 0.8% y/y in retail and non-

resident deposits, respectively, lifting total deposits 2.8% higher y/y.

The loan-to-deposit ratio increased 4.0 percentage points y/y to 65.1% at March 2019. The weighted average

lending rate remained at 9% at March 2019, while the weighted average deposit rate fell from 2% to 1% over the

year to March 2019.

Chart 1 Stay-Over Tourist Arrivals


Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean, Caribbean Tourism Organization. Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.

220

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2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1

All Items (L)Food (L)Fuel and Light (R)



Banks’ financial stability indicators generally improved over the period. Non-performing loans to gross loans fell

1.5 percentage points y/y to 6.2% in Q1 2019 and the annualized return on assets increased from 1.35% to 1.37%

over the same period. Further, while capital adequacy fell marginally from 36.6% to 36.4% it remained more than

adequate at Q1 2019.

Government Debt

The fiscal deficit widened by US$1.8mln to US$37.6mln (2.3% of GDP), 18.8% larger than the National Budget estimates,

as increased current and capital spending outstripped revenue gains during 2018.

A US$14.0mln increase in tax revenue, attributed to improved tax administration, eclipsed a US$5.5mln fall-off in

non-tax revenue, despite a US$2.0mln (10.0% y/y) increase in Citizenship by Investment (CBI) receipts. Taxes on

income and profits, property, domestic goods and services, and international trade transactions rose US$1.6mln

(5.8% y/y), US$0.4mln (5.3% y/y), US$11.5mln (10.4%), and US$0.5mln (0.6% y/y), respectively. Capital revenue

and grants also rose US$6.5mln and US$5.0mln, respectively, due to land sales and drawdowns from the United

Kingdom Caribbean Infrastructure Fund (UK-CIF) for road infrastructure development.

Capital outlays increased US$6.4mln (28.6% y/y), while current expenditures increased US$15.4mln (4.9% y/y).

Increased spending on personal emoluments of US$33.6mln (27.7% y/y), partly due to a 5% salary increase and

back pay, and interest payments of US$2.1mln (5.7% y/y) overshadowed declines in expenditures on goods and

services and transfers and subsidies of US$3.2mln (6.5% y/y) and US$17.1mln (16.5% y/y), respectively.

The stock of public debt increased 1.8% y/y to US$1.26bln, and 1.4 percentage points y/y to 78.1% of 2018 GDP at the

end of March 2019.

Outlook

Latest ECCB estimates suggest that real GDP expanded 7.4% in 2018, bolstered in particular by tourism (up 8.1%) and

construction (up 28.0%). The central bank now projects a 5.3% expansion in real economic activity in 2019 supported by

more modest advances in the tourism and construction sectors and an acceleration in the distribution sector. The

expected outturn for 2019 also reflects the anticipated opening of the Royalton Hotel and the Hammock Cove Resort and

Spa during the year.




1,000

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Loans

Deposits



Aruba Tiffany Grosvenor-Drakes CIBC FirstCaribbean


Real GDP expanded 0.9% in 2018 driven primarily by tourism services. Since then, the latest indicators of tourism and

construction activity from the Centrale Bank van Aruba suggest a likely uptick in economic activity during Q1 2019.

The Aruba Airport Authority reports 1.1% y/y and 1.3% y/y growth in tourist arrivals and visitor nights during 2018,

respectively, despite a 47.7% y/y contraction in the Venezuelan market. The number of arrivals from the US

market, in particular, increased 6.6% y/y. Since then, stay-over arrivals increased 3.0% y/y during January 2019,

and 4.1% y/y excluding the Venezuelan market. US market arrivals advanced 10.0% y/y, increasing its share to

69.4%, but an 11.2% y/y fall-off in Canadian arrivals moderated growth in the North American market to 7.7% y/y.

Arrivals from the European market increased 8.1% y/y led by a 13.6% y/y expansion from the Netherlands, but

arrivals from Latin America fell 15.6% y/y, partially reflecting a 16.8% y/y reduction from Venezuela.

Indicators of construction activity suggest a likely uptick during Q1 2019 as the number and value of construction

permits increased 44.6% y/y and 9.4% y/y, respectively, while the number of connections for electricity and water

grew 2.3% y/y and 1.2% y/y, respectively. Meanwhile, the quantity of electricity produced remained unchanged

from the previous quarter, but a 3.4% y/y fall-off in gas production partially offset a 6.0% expansion in water

production and likely resulted in an uptick in utilities output.

Consumer prices grew 4.8% y/y during June 2019, compared to an increase of 3.4% y/y one year earlier, partially reflecting the increase in the turnover tax rate during mid-2018.

Developments in Financial Markets Loan growth outpaced deposit growth and reduced excess liquidity over the four quarters ended May 2019, while loan quality and capital adequacy continued to improve during the period.

Loan growth advanced 7.8% y/y, reflecting higher balances of both retail and corporate loans. An 8.4% y/y

expansion in mortgages more than offset a 2.7% y/y reduction in consumer loans and lifted total retail loans 5.8%

y/y, while loans to businesses grew 13.2% y/y. This increased lending was reflected in greater balances to

residents (7.9% y/y) and non-residents (6.3% y/y).

Total deposits also rose (3.3% y/y) as increases in demand and savings deposits of 4.9% y/y and 2.7% y/y,

respectively, more than offset a 0.3% y/y decline in time deposits.

Consequently, the loan-to-deposit ratio rose 3.2 percentage points to 75.8% at May 2019. The weighted average

rate on loans increased 0.1bps y/y to 6.9%, but the weighted average rate on deposits remained unchanged at

1.6% at March 2019.

Chart 1 Real GDP and Unemployment (%)

Chart 2 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.

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Non-performing loans as a percentage of total loans improved to 3.7% at March 2019 from 4.0% one year earlier,

while the capital adequacy ratio increased 1.3 percentage points to 32.4% over the same period.

The central bank’s net foreign assets rose 7.5% y/y to US$1.03bln or approximately 23 weeks of projected 2019 imports

of goods and services during May 2019.

Government Debt The government of Aruba’s fiscal deficit narrowed US$48.4mln to US$25.5mln during 2018, primarily reflecting higher collections of tax and non-tax revenues and no development spending.

A US$14.0mln (18.9% y/y) increase in non-tax revenue combined with a US$30.2mln expansion in tax revenue

pushed total revenue 6.5% higher y/y to US$725.7mln. A mid-2018 rate increase resulted in a US$21.8mln

(37.5% y/y) advancement in turnover tax, while taxes on income and profits, commodities, and services also grew

US$7.1mln (2.6% y/y), US$6.6mln (3.9% y/y), and US$1.0mln (3.8% y/y), respectively. However, taxes on

property and the foreign exchange tax declined US$5.6mln (10.6% y/y) and US$0.7mln (2.4% y/y), respectively.

Total expenditure fell US$3.5 million as declines in development spending (down US$17.9mln), transfers to

General Health Insurance (down US$18.3mln or 61.5% y/y) and interest payments (down US$0.9mln or 0.7% y/y)

overshadowed increases in all other expenditure categories. Outlays for wages, employers’ contributions, wage

subsidies, goods and services, investment, and transfers and subsidies rose US$0.5mln (0.2% y/y), US$0.9mln

(1.7% y/y), US$4.7mln (7.1% y/y), US$15.8mln (13.8% y/y), US$4.4mln (121.9% y/y), and US$7.4mln (6.0% y/y),

respectively.

Total debt increased 5.3% y/y to US$2.45bln (approximately 89.5% of 2018 projected GDP) at the end of September 2018. Domestic debt grew 3.8% y/y to US$1.17bln while foreign debt rose 6.6% y/y to US$1.28bln.

Outlook

The IMF projects real GDP growth to slow to 0.7% in 2019 as fiscal consolidation is likely to contain economic activity. The

fiscal adjustment programme, which underpinned a new agreement with the Netherlands in November 2018, is aimed at

placing debt on a sustainable trajectory, with fiscal targets for 2019 and the medium term. However, strong growth in

tourism, particularly from the US, and the implementation of several large investment projects (including the airport,

utilities, hospital, and hotels) are expected to raise growth to 1.1% over the medium term. The IMF expects inflation to

slow to 1.8% in 2019 as the pass-through effect of the increase in the turnover tax rate ends. Further, the IMF notes, that

though unlikely, the re-opening of the refinery could boost employment and economic activity, but any potential refugee

influx from Venezuela, though limited thus far, could burden labour markets or dissuade tourists.



Source: Centrale Bank van Aruba and CIBC FirstCaribbean. Source: Centrale Bank van Aruba and CIBC FirstCaribbean.

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The Bahamas Tiffany Grosvenor-Drakes CIBC FirstCaribbean


Latest data from the Bahamas Department of Statistics indicate that real GDP increased 1.6% during 2018, supported

primarily by enhanced tourism activity and the associated spillover into related economic sectors. Since then, preliminary

data from the Central Bank of Bahamas indicate that these trends continued thus far in 2019.

A higher number of arrivals both by air (up 17.5% y/y) and by sea (up 11.8% y/y) lifted total visitor arrivals to the

Bahamas 13.2% y/y during January to May 2019. Increased air arrivals to New Providence and Family Islands of

21.3% y/y and 9.1% y/y, respectively, overshadowed a 2.4% y/y decline to Grand Bahama. In a similar vein, sea

arrivals to New Providence and Family Islands grew 24.3% and 5.8%, respectively, but fell 18.1% y/y to Grand

Bahama. Further, total room revenue expanded 34.0% during January to April 2019, as the average daily room

rate rose by 10.4% y/y to US$300.00 and average occupancy increased 11.9 percentage points to 77.9%. Since

then, data from the Nassau Airport Development Company suggests that departures, net of domestic passengers,

rose 19.4% y/y during January to June 2019, representing the largest H1 expansion in over a decade.

Small- and medium-scale foreign investment projects coupled with increased domestic activity contributed to

activity in the construction sector during Q1 2019. Total mortgage disbursements for new construction and repairs

(reported by banks, insurance companies and the Bahamas Mortgage Corporation) increased 28.1% y/y, with the

dominant residential segment up 26.0% y/y. However, loan commitments fell in both volume and value during the

period, suggesting improvements could potentially be short-lived.

The number of employed persons rose 3.4% y/y during November 2018, reflecting job gains in the private sector,

including new staff at the Baha Mar resort. However, labour force growth outpaced job gains, with the unemployment rate

increasing from 10.1% in November 2017 to 10.7% in November 2018.

Consumer prices increased 3.6% y/y during February 2019, reflecting higher prices of food and non-alcoholic beverages

(up 1.1%y/y), housing, water, electricity, gas and other fuels (up 2.6% y/y), transport (up 8.4% y/y), and miscellaneous

goods and services (up 5.5% y/y).

Developments in Financial Markets Even though growth in deposit balances outpaced loan growth, commercial banks’ excess liquid assets fell during the 12 months ended March 2019.

Total loans advanced 1.1% y/y as a 32.5% increase in public sector lending eclipsed declines in all other loan

categories. Mortgages and consumer lending fell 0.2% y/y and 5.5% y/y, respectively, lowering total retail loans

2.5% y/y, while business loans slipped 0.1%, moderating the increase in corporate loans to 12.5% y/y.

Deposit balances rose 8.5% y/y, reflecting expansions in retail, corporate and non-resident deposits of 1.3% y/y,

0.7% y/y and 17.4% y/y, respectively.

Chart 1 Growth in Tourist Arrivals


Source: Caribbean Tourism Organization and CIBC FirstCaribbean. Source: Central Bank of the Bahamas and CIBC FirstCaribbean.

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However, commercial banks’ excess liquid assets declined 11.8% y/y to US$1.7bln in March 2019, while the

average interest rate spread narrowed to 9.36% at March 2019 as the weighted average lending and deposit rates

fell -179bps y/y and -11bps y/y to 10.00% and 0.64%, respectively. Additionally, total private sector non-

performing loans to total loans declined to 8.9% at the end of May 2019 from 9.7% one year earlier.

The Central Bank’s external reserves increased 30.6% since December 2018, but fell 0.6% y/y to US$1.56bln at the end of June 2019, representing 14.1 weeks of 2020 projected imports of goods and services, compared to import cover of 14.2 weeks one year earlier.

Government Debt

During the first nine months of FY2018/19 ended March 2019 the government’s fiscal deficit narrowed 50.6% y/y to

US$129.5mln as an expansion in revenue (up 14.9% y/y) outpaced increased expenditure (up 5.0% y/y).

Total revenue increased US$219.2mln (14.9% y/y), reflecting greater tax (up 15.0% y/y) and non-tax revenue (up

14.5% y/y). Boosted by the 4.5 percentage point hike in the rate, value-added taxes rose US$98.7mln (20.1%

y/y), stamp taxes doubled to US$161.6mln, and business license fees and receipts from banks and trust

companies advanced US$24.7mln (35.0% y/y) and US$7.1mln (39.2% y/y). However, taxes on international trade

dipped US$3.5mln, as a lower intake of import and export taxes partially offset increased departure tax receipts.

A 9.3% y/y expansion in recurrent spending overshadowed a 31.0% y/y drop in capital outlays, increasing total

government expenditure by US$86.7mln (5.0% y/y). Spending on subsidies predominantly for healthcare, interest

payments (primarily external), social assistance benefits, and pensions and gratuities increased US$41.4mln

(18.0% y/y), US$22.4mln (30.9% y/y), US$4.5mln (16.3% y/y), and US$5.4mln (5.8% y/y). However,

compensation of employees contracted US$56.4mln (36.6% y/y).

National debt increased 3.5% y/y to US$8.19bln (65.9% of 2018 GDP) at March 2019. Central government foreign debt

fell 3.9% y/y, but central government domestic debt and contingent liabilities rose 8.3% y/y and 3.8% y/y, respectively.

Outlook In his May 2019 Budget Communication, the Minister of Finance indicated that the fiscal deficit is expected to have declined to 1.8% of GDP for FY 2018/19 ended June 2019, in line with the fiscal targets and compared to the IMF’s estimate of 2.3%. Further, latest IMF projections assumed real GDP growth of 1.8% in 2019 driven by new FDI-funded tourism projects, airport upgrades, and tourism activity. Now, the effects of Hurricane Dorian, which wreaked havoc on Grand Bahama and the Abaco Islands, will likely negatively impact economic prospects, through a reduction in tourist arrivals and a decline in business activity, as these islands account for approximately 12% of total arrivals and 19% of the employed labour force in The Bahamas. Further, the government’s fiscal consolidation efforts could be derailed by reduced revenues and increased spending on clean up and recovery. However, immediate potential mitigants include US$40mln which the Government planned to set aside for disaster relief during FY 2018/19 and insurance coverage with the Caribbean Catastophe Risk Insurance Facility (CCRIF). Although it is too early to determine the magnitude of the impact, reconstruction activity is likely to boost growth over the medium term.

Chart 3 Foreign Direct Investment (January to December)


Source: Central Bank of the Bahamas and CIBC FirstCaribbean. Source: Central Bank of the Bahamas and CIBC FirstCaribbean.

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Barbados Tiffany Grosvenor-Drakes CIBC FirstCaribbean


The Central Bank of Barbados (CBB) reports that real economic activity fell 0.2% y/y during H1 2019, despite the

continued robustness of the tourism sector.

Value-added in the tourism sector advanced 3.9% y/y as increased seating capacity and the hosting of one-off

events contributed to a 4.5% y/y expansion in long-stay arrivals and a 5.1% y/y increase in hotel occupancy.

Specifically, the number of arrivals from the US and the UK increased 9.1% y/y and 8.6% y/y, respectively, but the

number of visitors from Canada slipped 4.1% y/y, following four consecutive years of growth. However, a 4.0% y/y

fall-off in the number of cruise-ship calls induced a 1.9% y/y reduction in cruise-passenger arrivals, reflecting the

base effect of itinerary reversals, as hurricane-hit destinations recovered cruise-ship capacity lost during Q3 2017.

Indicators of investment activity point toward potential improvement as imports of capital goods rose 6.4% y/y

boosted largely by greater machinery imports (up 11.8% y/y). However, despite a 15.3% y/y expansion in the

imports of construction materials and a 3.4% y/y uptick in the local consumption of construction materials,

construction output is estimated to have declined 5.0% y/y, while growth enhancing capital spending slipped

22.6% during Q2 2019.

Agriculture production declined 8.0% y/y as adverse weather reduced sugar yields (down 36.1% y/y), while

chicken output and fish catches also fell. Activity in most other sectors also fell or remained unchanged.

The unemployment rate rose by 1.9 percentage points y/y to 10.1% during Q2 2019. Along with a 2.3% y/y drop in the labour force, the number of employed persons declined 4.3% y/y. A reduced number of individuals were employed in public administration and defence (down 26.0% y/y), construction, mining and quarrying (down 15.5% y/y), manufacturing (down 14.4% y/y), professional and technical services (down 26.0% y/y), and the utilities sector (down 41.0% y/y). Inflation slowed to 3.2% y/y during June 2019 from 5.5% y/y as the effect of increased bus fares and water rates overshadowed the effect of the removal of the national social responsibility levy (NSRL). Specifically, higher prices were recorded for food and non-alcoholic beverages (up 3.0% y/y), housing, water, electricity and gas (up 1.1% y/y), and transport (up 18.7% y/y).

Developments in Financial Markets Deposit taking institutions’ (DTIs) credit to the non-financial private sector slipped 0.2% y/y, but the reclassification of loans restructured as part of government debt resulted in a 13.1% y/y fall-off in total loans and advances during H1 2019. In contrast, total deposits increased 3.6% y/y as a 5.5% y/y expansion in transferable deposits overshadowed a 4.8% y/y reduction in other (fixed deposits). Consequently, DTIs’ loan-to-deposit ratio fell from 78.9% at June 2018 to 66.2% at June 2019.

Chart 1 Key Economic Indicators (%)

Chart 2 Net Foreign Direct Investment (January - June US$mln)

Source: Central Bank of Barbados, Barbados Tourism Marketing Inc. and CIBC FirstCaribbean. Source: Central Bank of Barbados and CIBC FirstCaribbean.

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Commercial banks’ non-performing loan ratio improved to 7.1% in June 2019 from 7.7% one year earlier. However, the

erosion of capital due to the domestic debt restructuring and the implementation of IFRS9 reduced banks’ 12-month return

on average assets to -1.6% at June 2019, compared to 1.2% at June 2018, and banks’ capital adequacy ratio by 3.4

percentage points y/y to 12.7% at the end of the same period.

Gross international reserves increased by US$381.8mln y/y to US$601.8mln (15.3 weeks of import cover) at June 2019

compared to 5.6 weeks of import cover one year earlier, boosted by the second IMF drawdown of US$49mln in Q2 2019.

Government Debt The CBB reports that the government’s fiscal balance improved US$112.0mln to a US$91.5mln surplus during the first three months of FY2018/19 ended June 2019, largely resulting from reduced interest payments, which fell to 9.2% of revenue compared to 29.5% one year earlier. Further, the primary balance also declined US$46.5mln during the period.

Collections of tax revenue advanced US$32.4mln (10.3% y/y), mostly reflecting increased intake of direct taxes.

Personal income tax receipts increased US$19.7mln (34.6% y/y), while earlier-than-usual issuance of land tax

bills led to a US$15.4mln (302.0%) boost in property taxes. However, reduced net profits induced by the domestic

debt restructuring contributed to a US$5.0mln (11.0% y/y) fall-off in corporate taxes, while the financial institutions

asset tax fell US$3.0mln (9.0% y/y). Similarly, indirect taxes rose US$4.3mln (2.3% y/y) as increased collections

of VAT (up US$8.4mln), import duties (up US$5.9mln), and other indirect taxes (up US$11.0mln) overshadowed a

US$20.2mln decline in the repealed NSRL and US$1.3mln fall-off in excise taxes. However, non-tax revenue fell

US$5.7mln (24.3% y/y) during the period.

Savings on domestic interest payments were primarily responsible for the US$82.0mln reduction in current

spending. Spending on domestic interest payments, goods and services, and transfer and subsidies fell

US$70.1mln, US$4.0mln and US$20.2mln, respectively, but the government spent US$7.6mln and US$4.6mln

more in salaries and external interest payments. Government spending on capital works and net lending fell

US$3.4mln (33.3% y/y) for the period.

The government’s gross public sector debt declined to US$6.4bln (124.2% of GDP) at June 2019 from US$8.1bln (156.7% of GDP) one year earlier, mostly due to the domestic debt restructuring. On July 2, 2019, Moody’s upgraded Barbados’ foreign and local currency issuer ratings from Caa3 to Caa1, while the foreign currency senior unsecured bonds remained at Caa3, reflecting the continuing negotiations with external creditors.

Outlook The CBB expects economic growth to remain sluggish for the remainder of 2019. The projected outturn reflects the tighter fiscal stance, but this effect is likely to be moderated by the ongoing repayment of arrears and the repayment of 2018 tax refunds. Further, economic prospects have improved given the potential gains from the lowering of corporate tax rates and the recent relaxation of exchange controls, aimed at improving competitiveness and fostering greater economic activity. The CBB forecasts economic growth of between 0.75% and 1.25% in 2020 but acknowledges the need for the conclusion of the external debt restructuring to restore confidence and fully benefit from potential investor interests.


Chart 4 Developments in Credit Market Indicators (%)

Source: Central Bank of Barbados and CIBC FirstCaribbean. Source: Central Bank of Barbados and CIBC FirstCaribbean.

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Belize Tiffany Grosvenor-Drakes CIBC FirstCaribbean


Preliminary data from the Statistical Institute of Belize suggest that an expansion in the primary and tertiary sectors led to

a 5.2% y/y increase in real economic activity during Q1 2019; however, a fall-off in construction and utilities output

reduced production in the secondary sector.

Greater production of all major commodities, with the exception of citrus and conch, boosted output in the primary

sector by 13.8% y/y. Increased sugar (up 17.8% y/y) and banana production (up 24.0% y/y) and a 1.8% y/y rise in

livestock production contributed to higher output of agriculture, hunting and forestry (up 12.3% y/y). Fishing output

also expanded 34.0% y/y.

Output in the secondary sector fell 4.8% y/y largely because an almost 20% decline in electricity production

attributed to insufficient rainfall led to a 16.2% y/y reduction in the production of electricity and water, while

construction activity fell 3.0% y/y.

Tertiary activities expanded 5.0% y/y. Output in the hotel and restaurant sector rose 6.8% y/y supported by a

3.9% y/y rise in stay-over visitors and a 19.5% y/y surge in cruise-ship passengers, while output in the wholesale

and retail and transport, storage and communication sectors increased 9.9% y/y and 4.0% y/y, respectively.

Export revenue fell 10.9% y/y as all major commodities registered lower earnings, except for banana and marine

products. However, gross imports rose 8.6% y/y, reflecting growth in fuels, lubricants and crude materials (up 21.1% y/y),

manufactured goods (up 19.8% y/y), machinery and transport equipment (up 2.3% y/y), and commercial free zone goods

(up 14.5% y/y).

Consumer prices remained unchanged y/y at May 2019. The price of food and non-alcoholic beverages increased 0.5%

y/y, but the price of transport and housing, water, fuel, and power fell 1.0% y/y and 0.7% y/y, respectively.

Developments in Financial Markets

Loan growth outpaced deposit growth and constrained excess liquidity over the four quarters to April 2019.

A 6.5% y/y increase in personal loans coupled with a 9.2% expansion in all other lending lifted total loans 8.0%

higher y/y. Specifically, loans to the public utilities, tourism, building and construction, and real estate sectors rose

100.2% y/y, 30.4% y/y, 4.4% y/y, and 5.2% y/y, respectively. However, lending for agriculture declined 3.0% y/y.

Total deposits also advanced (5.1% y/y) as higher corporate and retail deposits (up 5.2% y/y and 4.9% y/y,

respectively) eclipsed an 11.2% y/y fall-off in non-resident deposits.



Source: Central Bank of Belize, Caribbean Tourism Organization and CIBC FirstCaribbean. Source: Central Bank of Belize and CIBC FirstCaribbean.

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Consequently, the loan-to-deposit ratio rose two percentage points y/y to 76.1% at April 2019. The weighted average lending rate rose 1bps y/y to 9.21%, but the weighted average deposit rate fell -3bps y/y to 1.19%, reducing the spread to 8.02%, at the end of the period. Gross official international reserves fell 9.4% y/y to US$538.5mln or 12.4 weeks of 2018 imports of goods and services at April 2019, just below the internationally accepted benchmark of three months.

Government Debt

Greater revenue collections outpaced increased spending and reduced the government’s overall deficit by US$10.8mln to

US$19.9mln during the FY2018/19 ended March 2019.

Tax receipts rose US$32.3mln (6.0% y/y) as taxes on income and profits, goods and services, and international

trade and transactions increased US$8.7mln (6.4% y/y), US$22.1mln (8.3% y/y), and US$3.0mln (3.8% y/y),

respectively. However, taxes on property declined US$0.4mln (13.5% y/y), moderating the increase in current

revenue to 6.0% y/y. Further, capital revenue and grants rose US$1.9mln (216.3% y/y) and US$3.6mln (23.9%

y/y), respectively, lifting total revenue 6.8% y/y.

Total expenditure grew US$27.1mln (4.6% y/y) as current spending increased US$18.8mln (3.7% y/y) while

capital outlays rose US$8.3mln (10.9% y/y). Increased expenditure on wages and salaries (up US$6.8mln or

3.2% y/y), pensions (up US$2.0mln or 4.3% y/y), goods and services (up US$7.2mln or 6.7% y/y), and interest

payments (up US$3.6mln or 6.4% y/y) overshadowed a US$0.8mln (1.0% y/y) reduction in subsidies and current

transfers.

Total public sector debt represented 93.9% of 2018 GDP at April 2019. The central government’s domestic debt increased

4.0% y/y to US$534.9mln (27.8% of 2018 GDP), while public sector external debt increased by 1.7% y/y to US$1.27bln

(66.2% of 2018 GDP).

Outlook

Following 3.0% real GDP growth in 2018, the IMF expects the economic recovery in Belize to be sustained over the

medium term. The ongoing fiscal adjustment remains crucial to reducing Belize’s high debt levels. However, the IMF

cautions that a stronger fiscal stance, than currently projected, is required to reduce the national debt to sustainable

levels. Further, on the current trajectory international reserves are likely to remain below the three-month benchmark over

the medium term.

Chart 3 Foreign Direct Investment (January–December)

Chart 4 Developments in Credit Market Indicators (y/y; %)

Source: Central Bank of Belize and CIBC FirstCaribbean. Source: Central Bank of Belize and CIBC FirstCaribbean.

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Bermuda Tiffany Grosvenor-Drakes CIBC FirstCaribbean

Production, Prices, and Employment Following a gain of between 0.5% and 1.0% during 2018 pillared by tourism and construction, preliminary indicators for tourism and retail sales suggest a mixed performance thus far in 2019.

Total air arrivals slipped 3.3% y/y during H1 2019, reflecting a 4.4% y/y fall-off in seating capacity. Higher air

arrivals from Canada (up 7.5% y/y), the UK (up 4.2% y/y), and Europe (up 8.4% y/y) were insufficient to offset

declines from all other markets. Specifically, arrivals from the US, the Caribbean, Asia, and all other markets fell

5.6% y/y, 4.5% y/y, 16.7% y/y, and 10.7% y/y, respectively. Accordingly, total air visitor expenditure fell 5.4% y/y,

but this decline was likely moderated by a greater average spending per person (up 9.0% y/y) and an increased

average length of stay (up 2.4% y/y). Further, the number of yacht visitors declined 33.5% y/y, but the number of

cruise passenger arrivals rose 15.1% y/y during the period.

Following an overall contraction in 2018, retail sales continued to slide during Q1 2019 with every sector recording

y/y declines. Since then, the volume of retail sales ticked upward by 0.5% y/y during April 2019 as increased

sales for food stores, liquor stores and other stores eclipsed declines for motor vehicle stores, service stations,

building material stores, and apparel stores. Additionally, goods imports advanced 10.4% y/y during January to

March 2019, largely reflecting higher imports of machinery and finished equipment.

The results of the November 2018 Labour Force Survey Report indicate that the overall unemployment rate fell from 5.2%

in May 2018 to 4.5% in November 2018. Specifically, the unemployment rate for Bermudians declined from 5.5% to 4.8%.

Consumer prices increased 1.2% y/y during March 2019. The prices of food and health and personal care both increased

2.9% y/y, but the prices of household goods, services and supplies and transport and foreign travel declined 0.6% y/y and

3.5% y/y, respectively.


Excess liquidity edged upward during 2018 due to a faster decline in loans compared to deposits, while capital adequacy

improved, but loan quality worsened during the period.

Total loans fell 7.0% y/y during December 2018, compared to 8.6% y/y during September 2018. Real estate-

related lending, loans to other financial institutions, and loans to other businesses and services increased to

55.6%, 15.9%, and 6.4% of total loans and advances, from 51.8%, 15.3% and 5.8%, respectively, one year

earlier. However, all other loans fell from 27.0% to 22.0% of total loans and advances, respectively.

Declines in savings (down 8.7% y/y) and demand deposits (down 9.7% y/y) eclipsed a build-up in time deposits

(up 12.8% y/y) and pushed total deposits 5.8% lower y/y.

Chart 1 Real GDP Growth (%)

Chart 2 Total Tourist Arrivals

Source: Government of Bermuda and CIBC FirstCaribbean. Source: Government of Bermuda and CIBC FirstCaribbean.

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Total Arrivals (L) Total Arrivals y/y% Growth (R)

4-qtr sum, 000s



Consequently, the loan-to-deposit ratio edged up 0.6 percentage points y/y to 44.5%. The Basel III Risk-to-Asset

ratio improved 3.1 percentage points to 24.1% y/y at the end of December 2018, but the non-performing loan ratio

edged upward from 6.0% to 6.3% and the annualized return on assets fell from 1.7% to 1.5% during the same

period.

Government Debt

The government of Bermuda reported a US$50mln deficit during the first eight months of FY2018/19 ended November

2018, compared to a US$71.9mln deficit one year earlier.

Total revenue increased US$29.8mln (4.2% y/y) to US$733.7mln as higher collections of pay-roll tax (up

US$13.0mln y/y), land tax (up US$7.9mln y/y), international company fees (up US$4.5mln y/y), and stamp duty

(up US$2.6mln y/y) more than offset lower receipts of customs duty (down US$3.0mln) and all other receipts.

Current expenditure, excluding debt service, increased US$7.0mln to US$623.9mln due to higher outlays on

wages and salaries and higher professional services cost, partially offset by lower spending on other expenses,

grants, and contributions of material and supplies. Capital expenditure fell marginally during the period, while debt

service increased y/y as interest expense remained on par with the previous year, but sinking fund contributions

increased US$1.4mln due to higher debt levels.

Gross debt was US$2.68bln (US$2.47bln net of the sinking fund) and 42.7% of 2017 GDP at the end of November 2018.

Outlook

S&P’s latest outlook for Bermuda expects real GDP growth of 1.1% in 2019, to be propelled by the momentum of tourism

(though more modest) and construction, supported in particular by the airport reconstruction, hotel development and

renovation of the Bermuda Electric Light Co. Ltd. However, S&P cautioned that unexpected weakness in the tourism or

international financial services sectors could potentially derail the positive economic prospects. Further, the government of

Bermuda projects that the ongoing fiscal consolidation will likely result in a balanced budget in the current FY2019/20,

paving the way for improvements in the debt position.

Chart 3 Current Account Balance/GDP (%)

Source: Government of Bermuda and CIBC FirstCaribbean.

0

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25

2016Q2 2016Q4 2017Q2 2017Q4 2018Q2 2018Q4



Costa Rica Luis Hurtado CIBC Capital Markets

Production, Prices and Employment

Q1 2019 GDP growth came in at 2.2%y/y, pointing to a much lower pace of growth for this year. In line with this trend, the

Banco Central de Costa Rica (BCCR) revised its 2019 GDP growth estimate from 3.2% to 2.2% in its updated 2019-2020

Macroeconomic Program. The BCCR stated the revision reflected external uncertainties, a drop in important agricultural

good prices, low business and consumer confidence, and under-execution of public investments.

Looking at Q1 2019 GDP by expenditure, government and household consumption increased 2% y/y and 1.8%

y/y, respectively, decelerating from the 2.8% posted a year earlier. On the external front, exports increased 3%

y/y, down from the 7.8% posted a year earlier, while imports of goods and services increased 5.2% y/y,

significantly up from the 3% decline posted in Q1 2018. Meanwhile, gross fixed capital formation declined 4.7%

y/y, its worst reading since Q4 2017 (-6.0% y/y).

By industry, financial and insurance activities (+5.9% y/y), transportation and storage (+2.6% y/y), and

manufacturing (+2.2% y/y) led growth in Q1 2019. Nevertheless, most industries showed a deceleration with

respect to Q1 2019, while mining and quarrying, agriculture, forestry and fishing, and wholesale and retail trade

declined 3.1% y/y, 1.3% y/y, and 0.3% y/y, respectively.

More recent data point to a continuous deceleration of growth, with April, May and June economic activity growing 2.0%

y/y, 1.7% y/y, and 1.5% y/y, respectively. With these figures, the CB preliminary estimate for H1 2019 growth came in at

1.8% y/y, well below the 2.1% and 3.2% growth rates posted in H2 2018 and H1 2018, respectively. The Central Bank

stated this deceleration arose from both external and internal factors. On the external front, the precarious situation in

Nicaragua continues to negatively impact Costa Rica’s trade balance, while regional growth deceleration and the price

drop in some of the country’s main export products also added to this stance. Moreover, the presence of El Niño had

negative influence on agriculture sector production. On the local front, low business and consumer confidence continue to

drag on consumption and fixed capital investments.

July inflation came in at 2.9% y/y (+0.7% m/m), up from June’s 2.4% y/y and May’s 2.3% y/y but still below the Central

Bank’s 3% target. Of the 12 goods and services groups in the basket, eight increased and three dropped, while one group

showed no change month over month. Health (+2.1% m/m) and beverages and non-alcoholic beverages (1.8% m/m)

prices drove most of the monthly increase in prices in July.

In July the BCCR cut the overnight rate by 50 bps to 4.0%, making the fourth cut this year for a total for 125bps. In its

announcement, the Central Bank highlighted low economic growth, a high unemployment rate, and low credit and

monetary aggregates growth as the main reasons behind its decision.

The unemployment rate came in at 11.3% in Q1 2019, one percentage point above Q1 2018. The number of employed

people increased to 2,448,045 in Q1 2019, increasing 214,252 y/y, while the participation rate came in at 62.4%, above

the 57.7% posted in Q1 2018.

Table 1 Key Economic Indicators & Forecast

Chart 1 Real GDP (y/y; %)

Key Annual Indicators 2015 2016 2017 2018 2019F

Real GDP Growth 4.7% 4.2% 3.2% 2.7% 2.0%

Inflation (End of Period) -0.8% 0.8% 2.6% 2.0% 3.2%

Prim. Central Govt Fiscal Balance (% GDP) -3.1% -2.3% -3.1% -2.3% -2.5%

Nom. Central Govt Fiscal Balance (% GDP) -5.9% -5.1% -6.2% -5.9% -6.4%

Exchange Rate (USD/CRC) 537.0 553.0 566.0 603.0 600.0

Policy Interest Rate (End of Period) 1.75% 1.75% 4.75% 5.25% 3.75%

Current Account (% of GDP) -3.6% -2.6% -3.1% -3.1% -3.5%

Central Gov't Debt/GDP 41% 45% 49% 54% 60%

Source: Ministerio de Hacienda, IMF and CIBC Capital Markets Source: Bloomberg

0

1

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3

4

5

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Dec-11 Jun-13 Dec-14 Jun-16 Dec-17 Jun-19



Government Debt

July central government revenue came in at CRC368.6bln (3.9% y/y) and total expenses came in at CRC629.2bln (7.1%

y/y). With these numbers, central government revenues reached CRC2.9tln during the first seven months of 2019 or up

7.4% with respect to the same period last year, while January-July expenses reached CRC4.3tln, increasing 11.1% y/y.

The 12-month nominal deficit came in at 6.1% of GDP, improving from the 6.4% in July in 2018, but worsening with

respect to the 5.8% posted in December. The 12-month primary deficit also improved to 2.1% of GDP from the 2.9%

posted during the same period in 2018.

The numbers published by the Ministry of Finance up to July are yet to show a significant improvement in current

revenues as the government fully implements the VAT and other tax adjustments throughout the remainder of the year

and into 2020. Moreover, we note that the current trajectory, especially as the justice and health sectors fail to fully comply

with the salary changes as per the tax reform this year, suggests the nominal deficit could come in even higher than the

6.3% of GDP estimated by the CB in its revised 2019-2020 Macroeconomic Program.

Union Pressures and Government Concessions Go Against Fiscal Responsibility

Recent agreements with CCSS, the exclusion of some part of the fiscal reform in the justice sector, and the education

sector’s challenge of the fiscal rule all jeopardise the fiscal rule and goals set by the government after the approval of the

tax reform in November. Confrontational measures in congress increased after the CCSS agreement (exempting from the

new nominal calculation of bonuses) with the government in mid-August. The Finance Commission is now holding back

the approval of a US$50mln loan from the CAF. Although not a financing problem since there is space in local markets,

this creates further interest rate cost and puts at risk authorization for external debt issuance next year. Also, Finance

Minister Rocio Aguilar has mentioned she won’t be stepping down, but it seems that the PAC government is going behind

her back when signing agreements/complying with unions’ demands. With this in mind and considering that Aguilar is not

a member of the PAC, this creates a massive political risk for the remainder of 2019, and financing/fiscal rule for this year

and for the rest of President Alvarado’s mandate.

Moreover, the Ministry of Finance announced it would cut the 2020 justice sector budget by CRC2.5bln. Although in line

with the overall austerity rhetoric from Rocio Aguilar and in theory good for the country’s fiscal targets, this cut will likely

create further political noise as the justice sector argues interference in its independent operations. We expect the short-

end of the COSTAR curve to start reflecting political turmoil, increasing concerns about the government’s ability to meet

its fiscal targets this year, lower growth prospects and diminishing odds of external debt issuance approval in 2020.

Outlook

We have lowered our 2.8% growth forecast for 2019 to 2.0%, consistent with the latest economic data releases and our

previous publication’s downward bias. With regards to the fiscal deficit and financial needs for this year, with different

sectors’ reluctance to fully adhere to the fiscal rule, we see the return of financing concerns into 2020. The boost from the

higher-than-expected revenues from the tax reform, the full implementation of electronic receipts in the country, and the

new VAT (starting in July) are now being offset by the drop in revenues from lower GDP growth estimates. Hence, we

now see the nominal deficit at around 6.4% of GDP.


Chart 3 Government Debt and Deficits

Source: Central Bank of Costa Rica Source: IMF, CIBC Capital Markets

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Nominal Govt. Bal. (% GDP, L)

Govt. Debt (% GDP, R)



Curaçao Tiffany Grosvenor-Drakes CIBC FirstCaribbean


Despite a robust tourism outturn, the economic crisis in Venezuela weighed heavily on Curaçao’s economic performance

and led to a 2.2% contraction in 2018, representing the third consecutive year of negative growth.

Tourism output expanded 8.1% y/y as the number of stay-over tourists rose 8.1% y/y, primarily attributed to

increased seating capacity. The North American market advanced, reflecting greater arrivals from Canada (up

10.1% y/y) and the US (up 19.2% y/y), while an 11.2% y/y rise in the number of tourists from the Netherlands was

largely responsible for a 7.1% y/y expansion in arrivals from Europe. In contrast, arrivals from Latin America fell

4.2% y/y as an increased number of visitors from Brazil and Colombia only partially offset a 45.5% y/y slump in

arrivals from Venezuela. The Caribbean market also slipped during the period (down 3.6% y/y). Cruise-passenger

arrivals also rose (up 22.8% y/y) supported by a 10.4% increase in the number of cruise ship calls during 2018.

Since then, stay-over arrivals increased 16.7% y/y, but cruise-passenger arrivals fell 10.7% y/y during January to

May 2019.

The increased air-passenger traffic led to a slight rise in airport-related activity, but was insufficient to offset the

double-digit decline in harbour-related activity, resulting from a reduction in the number of freighters, cargo

movements and oil tankers entering the port of Curaçao. Consequently, value-added in the transport, storage and

communication sector fell 2.4% y/y. Meanwhile, lower domestic demand overshadowed increased tourism

spending and reduced wholesale and retail activity by 1.6% y/y.

Greater ship repair activity only moderated the decline in operations at the Isla refinery, leading to a 14.7% y/y

fall-off in manufacturing value-added. Further, construction output remained flat as reduced maintenance activity

at the refinery offset a small increase in private sector-led construction works.

Higher prices recorded for food (up 5.7% y/y), housing (up 5.9% y/y), and transport and communication (up 0.5% y/y)

were primarily responsible for 3.1% y/y consumer price inflation during May 2019.

The unemployment rate fell from 14.1% in 2017 to 13.4% in 2018 as the labour force declined 4.1% but the number of

unemployed persons fell by 8.6%.


Excess liquidity continued to decline, reflecting growing loan balances and falling deposits over the year to May 2019.

Total loans and advances increased 6.5% y/y as an 11.0% surge in lending to businesses pushed total corporate

lending 11.0% higher y/y. However, marginal movements in consumer loans and mortgages kept retail loans on

par with balances one year earlier.

A 1.8% y/y expansion in retail deposits partially offset declines of 5.0% y/y and 9.0% y/y in corporate and non-

resident deposits, respectively, lowering total deposits 2.7% y/y.



Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean. Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean.

-40

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Real GDP growth (L)

Tourist Arrivals (R)

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All Items Food



The loan-to-deposit ratio rose 6.9 percentage points y/y to 79.6% at May 2019 while the 3-month Treasury Bill

yield increased +12bps y/y to -0.61% over the same period.

The gross official reserves of the Centrale Bank van Curaçao en Sint Maarten, excluding gold, declined 8.7% y/y to

US$1.36bln (18.1 weeks of imports of goods and services) at April 2019.

Government Debt

The government’s current budget deficit improved 66.4% y/y to US$43.3mln during 2018 as a 6.0% y/y reduction in

expenditure outpaced a 1.7% y/y fall-off in revenue.

Revenue collections declined US$15.6mln (1.7% y/y) as a US$34.4mln (4.2% y/y) drop in tax receipts

overshadowed an US$18.8mln (17.9% y/y) rise in non-tax and other revenues. The reduced economic activity

during 2018 contributed to an US$8.0mln (2.6% y/y) fall in the taxes on goods and services, while taxes on

income and profits, property, and international trade and transactions dipped US$16.3mln (4.6% y/y), US$5.0mln

(13.9% y/y) and US$5.6mln (5.9% y/y), respectively.

Government expenditure also fell during the year. Spending on wages and salaries, goods and services and

transfers and subsidies declined US$2.0mln (0.5% y/y), US$20.1mln (16.8% y/y) and US$17.2mln (4.7% y/y),

respectively. Similarly, other expenditures were lower by US$20.8mln (28.7% y/y), but interest payments rose

US$1.2mln (3.6% y/y).

Domestic debt increased 14.1% y/y to US$345.9mln, but foreign debt fell 0.3% y/y to US$1.31bln. Consequently, total

public debt rose 2.4% y/y to US$1.65bln (52.8% of GDP) at the end of December 2018.

Outlook

The Centrale Bank van Curaçao en Sint Maarten now expects the economy to remain in recession in 2019. On the

upside, tourism activity is expected to continue to strengthen, while economic dependence on this sector is likely to

gradually increase over time. However, the challenges faced by the Isla refinery are expected to continue to restrict

economic growth this year. Finding a new business partner remains crucial for the future of the refinery. Further, the

Centrale Bank notes that the government’s measures aimed at achieving a balanced budget, as well as the loss of

correspondent banking relations, could also likely weigh on growth in 2019.


Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean.

-5

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2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1

Loans

NPLs/Total Loans



Dominica Tiffany Grosvenor-Drakes CIBC FirstCaribbean


A rebound in tourism arrivals, along with the continued reconstruction work following the devastation of Hurricane Maria in

Q3 2017, likely sustained Dominica’s economic recovery in Q1 2019. However, agriculture and manufacturing output

likely remained subdued.

Total visitor arrivals to Dominica rebounded 423.0% y/y during Q1 2019 as the number of stay-over arrivals

surged 95.9% y/y while the number of excursionists (521.0% y/y), cruise-ship passengers (768.9% y/y) and yacht

passengers (32.4% y/y) also recovered during the period. Correspondingly, total visitor expenditure rose 147.2%

y/y during the period. Stay-over arrivals from the US, the UK, Canada, the Caribbean, and all other countries

advanced 68.6% y/y, 85.2% y/y, 59.6% y/y, 81.8% y/y, and 180.1% y/y, respectively. Relative to (pre-hurricane)

Q1 2017, stay-over arrival growth remained flat during the quarter, with increased tourists from the Caribbean

offsetting declines from all other markets.

Indicators of investment activity were mixed during January to March 2019. Government spending on

infrastructural work likely continued to advance, while imports of inedible crude material except fuel surged

253.0% y/y. However, imports of machinery and transport equipment dipped 43.7% y/y. Further, manufacturing

output and the production of bananas, non-banana crops and livestock likely experienced a weak performance,

as the exports of food and live animals, as well as chemicals and related products, declined 9.9% y/y and 8.3%

y/y, respectively. An overall 43.1% y/y slump in total exports combined with a 30.1% y/y expansion in total imports

worsened the merchandise trade deficit by US$17.9mln to US$64.2mln.

Consumer prices rose 1.6% y/y as higher prices of housing utilities and gas and fuels (up 5.4% y/y) and transport (up

0.1% y/y) overshadowed a 1.9% y/y decline in the price of food and alcoholic beverages.


Deposits continued to slide amid modest loan growth and reduced excess liquidity over the year ended March 2019, while

banks’ loan quality and profitability improved during the period.

Retail lending dipped 3.7% y/y, but an 11.2% y/y expansion in corporate lending pushed total loans 4.4% higher

y/y. Loans to the public sector surged 52.7% y/y, while business loans ticked upwards 0.3% y/y during the period.

Deposit balances were 16.8% lower y/y as retail, corporate, and non-resident deposits declined 4.8% y/y, 24.6%

y/y, and 28.3% y/y, respectively.

Consequently, the loan-to-deposit ratio rose 10.1 percentage points y/y to 50.0% at March 2019. Interest rate

spreads remained at 6% as the weighted average lending and deposit rates remained at 8% and 2%,

respectively.




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All Items (L)Food (L)Fuel and Light (R)



Banks’ financial stability indicators displayed signs of improvement during March 2019 relative to March 2018.

The non-performing loans-to-total loans ratio improved from 17.4% to 15.8%, while the annualised return on

assets increased from -1.75% to 0.22%.

Government Debt Despite an expansion in revenue collections, higher capital expenditure associated with rebuilding activities led to a US$23.3mln widening of the government’s fiscal deficit to 9.8% of GDP during 2018.

A US$7.3mln (6.7% y/y) expansion in non-tax revenue and a US$27.5mln (22.6% y/y) increase in tax revenue

pushed current revenue higher by 15.1% y/y. Taxes on domestic goods and services and taxes on international

trade transactions rose US$23.8mln (34.4% y/y) and US$11.1mln (44.6% y/y), respectively, largely reflecting

increased imports during the period. However, taxes on income and profits, and property fell US$6.8mln (28.0%

y/y) and US$0.7mln (20.9% y/y), respectively.

Expenditure on personal emoluments declined US$7.5mln (11.2% y/y) following a salary bonus in 2017, but

higher outlays for goods and services, interest payments, and transfers and subsidies of US$13.4mln (26.5% y/y),

US$1.3mln (16.4% y/y), and US$3.1mln (7.9% y/y), respectively, led to a US$10.4mln (6.3% y/y) rise in current

spending. When combined with a US$42.5mln (44.3% y/y) surge in capital outlays, total expenditure grew 20.3%

y/y.

The total debt stock of public sector debt rose 7.1% y/y to US$425.3mln, and 5.1 percentage points to 77.2% of GDP at the end of March 2019.

Outlook

Most recent ECCB estimates indicate a 2.2% recovery in economic value-added in 2018 following the destruction of

Hurricane Maria in Q3 2017. Even though the agriculture, manufacturing, and tourism sectors continued to slide, a surge

in construction and mining and quarrying associated with rebuilding work pushed economic growth into positive territory.

The Central Bank now projects the bulk of the recovery in 2019. Real GDP is forecasted to expand by 9.9%, boosted by a

rebound in tourism, agriculture and manufacturing activity, and supported by more modest growth in construction and

mining and quarrying.




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2015Q1 2016Q1 2017Q1 2018Q1 2019Q1

(US$mln)

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2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1

Loans

Deposits



Dominican Republic Luis Hurtado CIBC Capital Markets

Production, Prices and Employment

Q2 2019 GDP growth came in at 3.7% y/y, decelerating from the 5.7% y/y and 6.3% y/y posted in Q1 2019 and Q4 2018.

With these numbers H1 2019 growth landed at 4.7% y/y, below the Banco Central de la Republica Dominicana (BCRD)

revised 5.5% estimate for 2019. The slowdown in activity indicators was a response to the deterioration of the external

environment and to local uncertainties as the election cycle start delays consumption and investment decisions.

Preliminary numbers by industry, as published by the Banco Central de la Republica Dominicana (BCRD,)

showed utilities (up 8.3%% y/y), financial services (up 7.7% y/y), and construction (up 7.9% y/y) led growth in H1

2019. Private construction linked to the tourism sector (hotels) together with public road maintenance and

infrastructure investment drove the strong performance in construction in Q1. In line with the growth experience

by the overall economy, utilities benefited from the increase of energy consumption by industrial sector (up 12.1%

y/y).

On the other hand, communication services (-3.6% y/y) and free zone manufacturing (-1.1% y/y) were the only

sectors posting a contraction in H1 2019. The decline in communication services was driven by the drop of mobile

services volume (down 5.7% y/y), a decline in internet services (-1.2% y/y) and lower fixed telephone lines (-1.1%

y/y).

The Q1 2019 current account surplus came in at US$231.5mln, but deteriorated from the US$338.5mln posted a year

earlier. With this number, the 12-month current account deficit landed at 1.6% of GDP, slightly above the 1.5% deficit

posted at the end of 2018. Preliminary data showed a current account deficit of USD99mln in H1 2019 as exports

increase 2.8% y/y to US$5.6bln and imports rose 2.7% y/y to US$9.9bln. Moreover, July tourism data shows that non-

resident arrivals dropped 11.2% y/y, bringing year-to-date growth to 1.5%, well below the 5.9% posted in the January-July

2018 period. We expect this trend to continue during Q3 2019 as tourist deaths news take a toll in the sector.

July inflation came in at +1.4% y/y (0.5% m/m), remaining below the BCRD’s 4.0% +/- 1% target range nine months in a

row. Core prices reached +2.04% y/y (0.2% m/m), also below the Central Bank’s target for the 56th consecutive month.

Food and non-alcoholic beverage prices (up 1.5% m/m) and Transportation (up 0.3% m/m) drove July’s inflation increase.

On August 30, the BCRD dropped the overnight rate by 25bps to 4.5 %, accumulating 100bps in rate cuts this year. The

central bank cited below-target inflation, lower inflationary pressures, and consolidation of the fiscal accounts as the main

reasons to cut rates in August.




Real GDP Growth 7.0% 6.5% 4.6% 7.0% 5.5%

Inflation (End of Period) 2.3% 1.7% 3.3% 1.2% 3.0%

NFPS Fiscal Balance (% GDP) -0.7% -0.6% -0.9% 0.3% 0.7%

NFPS Fiscal Balance (% GDP) -3.1% -3.3% -3.5% -2.4% -2.5%

Exchange Rate (USD/DOP) 45.5 46.7 48.1 50.2 51.7

Policy Interest Rate (End of Period) 5.0% 5.50% 6.0% 5.5% 4.5%

Net Govt Debt (% of GDP) 34.4% 36.7% 38.0% 39.7% 40%

Source: Bloomberg, BCRD, Ministerio de Hacienda, and CIBC Capital Markets Source: Bloomberg

-4%

-2%

0%

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Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18



Government Debt

Q2 2019 central government total revenues reached DOP174.8bln, increasing 13.44% y/y and well above the 8.4% y/y

gain posted a year earlier. Looking at the breakdown of revenues in Q2 2019, tax revenue amounted to DOP159.2bln (up

12.6% y/y). Of this amount, DOP57.7bln (22.35% y/y) came from income taxes, while taxes on property increased 13.33%

y/y to DOP2.7bln, and taxes on goods and services reached DOP89.1bln (up 8.12% y/y). On the other hand, Q2 2019

expenses came in at DOP175.8bln or up 10.4% y/y, similar to the 10.5% increase in Q2 2018. Current expenditures rose

6.4% y/y to DOP156.9bln, driven by the 6.5% y/y, 1.7% y/y and 9.1% y/y increase in salaries, interest, and subsidies,

respectively. Capital expenditures increased 61.9% y/y to DOP18.9bln. With these numbers, the 12-month Non-Financial

Public Sector (NFPS) nominal deficit reached DOP119.3bln or 2.8% of GDP, while the NFPS primary deficit came in at

DOP-3.0bln or -0.1% of GDP.

Presidential Election Race

President Danilo Medina ran out of time to find consensus to approve a constitutional amendment in late July that would

have allowed him to run for a third consecutive time. Getting enough votes for a constitutional amendment could have

resurfaced corruption allegations, increased DOMREP volatility with rising electoral uncertainty, and ignited concerns of

further fiscal slippage on an already high fiscal nominal deficit (2.8% of GDP, 1.1 p.p. above the 2019 target). Moreover,

Medina’s candidacy could have accelerated the PLD’s breakdown, improving Luis Abinader's (PRM) odds ahead of the

2020 election. Although division within the PLD is evident, with Medina not supporting Leonel Fernandez’s candidacy, the

initial market impact was marginally positive as Fernandez leads the latest polls, signalling a continuation of

macroeconomic policies. Nevertheless, we expect volatility to resurface ahead given the fragmented support of

Fernandez’s candidacy within his own party. For now, we recommend reducing exposure to the belly of the curve as local

political turmoil increases. The DOMREP curve has already lagged the positive performance of similar credits in the

region since the start of June, reflecting fiscal concerns and tourist deaths that have impacted foreigner arrivals in Q3

2019. We expect this situation to continue for the remainder of the year.

Outlook

We expect growth to land close to 5.5% this year but with a downward bias as we reassess the overall impact of negative

news in the tourism sector. Remittances continued to show a positive performance, although we foresee them

decelerating below 6%, in line with slower growth across the globe. We maintain our expectations of the current account

deficit increasing above 1.5% in 2019 but still at low levels compared to recent history. Regarding the fiscal deficit, the

government expects to reduce the central government nominal deficit from 2.3% of GDP in 2018 to 1.7% in 2019. We

remain sceptical about the odds of it meeting this number, as the nominal deficit has come in approximately 0.2%-0.8% of

GDP higher than the targets set by the government over the last few years; a deficit reduction is difficult to attain

considering a lack of new income sources, the revenue trend over the last couple of years, and the start of the election

cycle.



Source: Bloomberg Source: BCRD, CIBC Capital Markets

-2%

-1%

0%

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2%

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4%

5%

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7%

Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19

-4%

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-1%

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0%

32.0%

33.0%

34.0%

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36.0%

37.0%

38.0%

39.0%

40.0%

41.0%

2014 2015 2016 2017 2018 2019

Total Debt (% of GDP,L)

NFPS Nominal deficit (% of GDP)



El Salvador Luis Hurtado CIBC Capital Markets

Production, Prices and Employment Q1 2019 GDP growth came in at 1.8% y/y, decelerating from the 2.1% y/y posted a quarter earlier and the 3.2% y/y in Q1 2018. With these numbers and in line with the deceleration in global growth the Banco Central de El Salvador estimates 2019 growth at 2.3%.

Looking at Q1 2019’s results by expenditure, private consumption and fixed capital formation increased 2% y/y

(-1% in Q1 2018) and 3.6% y/y (11.6% in Q1 2018), respectively, while public consumption dropped 0.6% y/y

(-3.5% in Q1 2018). On the external side of the equation, exports increased 1.5% y/y (7.5% in Q1 2018) while

imports jumped 7.4% (2% in Q1 2018).

By sectors, utilities (up 5.9% y/y), financial and insurance activities (up 5.4% y/y), and professional and scientific

activities (up 4.8% y/y) increased the most in Q1. Agriculture, fishing and farming (down 1.1% y/y) and

entertainment (down 3.9% y/y) were the only sectors to post declines.

More recent data point to a rebound in Q2 2019, with April and May economic activity increasing 3.8% y/y and 2.6% y/y, respectively, up from the 1.7% and 2.5% posted during the same months last year. Looking at the demand components up to June 2019, remittances continued to show a significant deceleration, with year-to-date inflows at 3.5% y/y, well below the 9.0% posted during the same period a year earlier, while credit to consumers remained slightly above 4% y/y. Credit to firms increased 9.6% y/y in the January-June period; however, government consumption decelerated from 7.5% to 3.2% y/y. Moreover, exports and public investment dropped 0.4% y/y and 1.8% y/y during the same period, respectively.

H1 2019 remittances totalled US$3.2bln, up US$92mln with respect to the same period last year. The US was the

principal source of remittances, accounting for 94.8% of the total. As we said in previous publications, El

Salvador’s reliance on US growth remains one of the largest sources of risk to its economy, as total remittances

as a percentage of GDP came in at 20.1% in 2018.

H1 2019 export growth came in at US$3bln, dropping 0.4% y/y, driven by the 13.6% y/y and 2.5% y/y declines in

exports of sugar and manufacturing (Maquiladoras) products. On the other hand, imports increased 4.0% y/y to

US$6bln, driven by the 21.4% y/y increase in agriculture, fishing, and farming imports.

July inflation landed at 0.1% y/y (-0.3% m/m), decelerating after reaching 0.5% y/y, and 0.8% y/y in June and May. This

number was driven by the -0.7% m/m and 0.4% m/m declines in food and non-alcoholic beverages, and housing and

utilities prices, respectively.




Real GDP Growth 2.4% 2.6% 2.3% 2.5% 2.0%

Inflation (End of Period) 1.0% -0.9% 2.0% 0.4% 1.0%

Prim. NFPS Fiscal Balance (% GDP) -0.9% -0.2% 0.7% 0.3% 0%

Nom. NFPS(% GDP) -3.7% -3.1% -2.6% -3.2% -3.2%

Current Account (% of GDP) -3.6% -2.0% -1.8% -4.8% -4.8%

Public Sector Debt/GDP 67.6% 69.5% 70.6% 73.4% 73.0%

Source: IMF, Bloomberg, and CIBC Capital Markets Source: Bloomberg

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%




Government Debt

The numbers released by the Central Bank of El Salvador indicate that Non-Financial Public Sector (NFPS) revenue

(including donations) reached US$3.2bln in H1, increasing 2.0% y/y. Tax revenue increased 0.8%, driven by gains in VAT

(up 0.8% y/y), income tax (up 2.4% y/y), and consumption tax revenues (up 7.8% y/y). On the other hand, NFPS

expenses increased 1.9% in H1 2019. The increase in expenses was a response to the 2.4% y/y increase in current

expenses driven by higher interest (up 3.6% y/y), and consumption expenses (3.1% y/y). The 12-month NFPS nominal

deficit (excluding donations) came in at US$770.6mln (-2.9% of GDP) while the 12-month primary surplus came in at

US$170.9mln (0.6% of GDP).

NFPS debt increased 3.0% y/y or US$398.8mln. As a percentage of GDP, NFPS debt reached 50.4%, 0.1 percentage

points higher than a year earlier.

Political Alliances Should Keep Government Busy Ahead of 2020 Budget and Issuance Approval

With 2019 financing out of the way, we expect the market to focus on Bukele’s political alliances search ahead of the 2020

budget and issuance approval. According to the Fiscal Responsibility Law, the Finance Minister will have to present the

country’s fiscal plan for the next five years 90 days from the start of Bukele’s presidency (early September). At this time,

we expect Minister Nelson Fuentes to once again table his intention to do some liability management and convert around

US$800mln in Letes in external debt for which he will need a new authorization in congress. This authorization is very

unlikely given the fragmented and opposition-led congress. However, we do expect this proposal to be discussed once

again with the 2020 Budget in October/November.

As in the last few years, we expect discussions to drag into late December, with ELSALV volatility increasing as we

approach the end of the year. It is still unclear if Bukele will manage to secure any alliances; nevertheless, his current high

approval ratings and popularity may give him the upper hand during negotiations in congress. In the meantime, and given

the current search for yield environment, we remain neutral ELSALV.

Outlook

In line with the global economy deceleration, we expect 2019 GDP growth to come in at 2%, 0.3 percentage points lower

than our initial estimate. Remittances, as shown by recent numbers, should continue to decelerate after increasing 9.7%

y/y and 8.1% y/y in 2017 and 2018, respectively. As the US presidential race heats up, we could see increasing concerns

with respect to immigration and US trade restrictions in the Central American region, dampening consumers’ and

investors’ confidence. Moreover, we do not expect a significant lift in growth on the fiscal front as concerns regarding a

still-increasing nominal deficit resurface. On the political front, with Bukele still looking to secure alliances, we do not

expect any significant changes in the short term, and could certainly see a rise in volatility as 2020 budget discussions

approach later this year.



Source: Bloomberg Source: IMF, CIBC Capital Markets, Banco Central de El Salvador

-3.0%

-2.0%

-1.0%

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1.0%

2.0%

3.0%

Jul-12 Nov-13 Apr-15 Sep-16 Feb-18 Jul-19

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30

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-2.5

-2.0

2011 2012 2013 2014 2015 2016 2017 2018 2019

Nominal Deficit (% GDP, L)

Gov. Debt (%GDP, R)



Grenada Tiffany Grosvenor-Drakes CIBC FirstCaribbean

Production, Prices, and Employment Preliminary data from the Eastern Caribbean Central Bank (ECCB) suggest real GDP growth sustained its momentum during Q1 2019, led by greater tourism activity and the spin-off effects on related sectors.

Stay-over arrivals advanced 5.1% y/y, but a flat performance of yacht-passenger arrivals coupled with declines in

cruise-ship passenger arrivals (down 1.9% y/y) and excursionists (down 18.8% y/y) lowered total visitor arrivals

0.7% y/y during the period. The number of stay-over visitors from Canada, the UK, and other markets rose 40.1%

y/y, 11.4% y/y, and 3.5% y/y, respectively, but arrivals from the US and the Caribbean dipped 2.4% y/y and 5.7%

y/y. Total visitor expenditure increased 1.1% y/y.

Greater domestic exports of food and live animals (up 8.6% y/y) suggest a probable pick-up in agricultural

production, while a 16.6% y/y expansion in the domestic exports of manufactured goods implies improved

manufacturing output.

However, indicators of construction and investment activity suggest a mixed performance during the period.

Imports of inedible crude materials except fuels increased 2.4% y/y, but machinery and transport equipment

imports contracted 60.8% y/y. Further, loans to the construction sector advanced 4.0% during Q1 2019.

Higher prices for food and non-alcoholic beverages (up 1.2% y/y), housing, utilities gas and fuel (0.7% y/y), and transport (up 2.6% y/y) contributed to a 0.9% y/y uptick in consumer prices during March 2019.


Loan growth strengthened over the year to March 2019, but faster deposit growth continued to increase excess liquidity,

while interest spreads continued to narrow, primarily because of falling lending rates. Banks’ loan delinquency and capital

adequacy improved during the period.

A 9.6% y/y expansion in corporate loans coupled with a 1.4% y/y increase in retail lending increased total loans

by 4.4% y/y. Loans to the public sector surged 57.5% y/y while lending to businesses advanced 5.6% y/y.

Deposit funding rose 6.2% y/y, reflecting higher corporate deposits (up 18.9% y/y) and retail deposits (up 1.6%

y/y), which overshadowed a 9.1% y/y fall-off in non-resident deposits.

Consequently, the loan-to-deposit ratio fell 0.9 percentage points y/y to 53.5% at March 2019. Accordingly, the

average spread fell, as the weighted average lending fell from 8% to 7% over the year to March 2019, while the

weighted average deposit rate remained at 1% over the same period.




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All Items Food Fuel and Light



Banks’ non-performing loans to total loans ratio continued to decline, falling 1.2 percentage points y/y to 2.3% at

March 2019, while the capital adequacy ratio improved marginally to 13.5% at the end of the same period.

However, the annualised return on assets slipped from 1.16% at March 2018 to 1.11% at March 2019.

Government Debt

The government of Grenada’s fiscal surplus increased 49.4% y/y to US$50mln (4.2% of GDP). A better-than-expected

revenue performance, coupled with lower-than-budgeted capital spending, led to a 71.4% improvement in the fiscal

balance over the 2018 budget estimates.

Total current revenue rose 7.3% y/y to US$259.3mln, reflecting expansions in both tax and non-tax revenue. Tax

receipts advanced 7.1% y/y, reflecting increased collection of taxes on income and profits (up US$3.7mln),

property (up US$1.6mln), domestic goods and services (up US$4.7mln), and international trade transactions (up

US$7.5mln). Meanwhile, non-tax revenue increased US$1.3mln (12.1% y/y), despite a US$0.3mln fall-off in

Citizenship by Investment (CBI) receipts, and grant funding rose US$4.2mln to US$33.1mln during the period.

Total expenditure increased US$6.3mln (2.5% y/y), reflecting increased capital and current spending. Capital

expenditure expanded US$3.4mln (11.2% y/y) but fell short of budgeted estimates by 30%. Greater spending on

personal emoluments (up US$2.9mln) and transfers and subsidies (up US$7.1mln) eclipsed reduced outlays for

goods and services (down US$1.5mln), and interest payments (down US$5.6mln).

Public indebtedness fell 1.2% y/y to US$769.4mln or 65.8% of GDP in March 2019.

Outlook

The IMF indicates that real GDP will likely expand at a more moderate pace (3.5%) in 2019 as FDI-related construction

activity slows, and likely maintain a modest growth trajectory over the medium term. The external current account is

expected to improve very gradually as construction imports regularize. The Fund also expects that the government will

continue to produce large fiscal surpluses over the period 2019-2021, but projects an easing thereafter once debt falls

below 55% of GDP.




700

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2015Q1 2016Q1 2017Q1 2018Q1 2019Q1

(US$mln)

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2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1

Loans Deposits



Guyana Tiffany Grosvenor-Drakes CIBC FirstCaribbean


Following a 4.1% expansion during 2018, the Bank of Guyana reported a mixed economic performance for Q1 2019.

Output of sawnwood and roundwood increased 63.0% y/y and 12.7% y/y, respectively, but reduced demand led

to a 5.4% y/y contraction in log production. Output of fruits and vegetables advanced, while greater capacity from

a higher number of fishing vessels increased fish catches 15.5% y/y. However, rice production declined 9.3% y/y

due to an infestation of rice bugs and higher input costs, while the restructuring of the Guyana Sugar Corporation

(GUYSUCO) contributed to a 34.3% y/y slump in sugar production.

Declines in both gold and bauxite production reduced mining and quarrying output. Lower declarations by two

foreign gold mining companies (down 15.0% y/y) eclipsed the improved output of local miners (up 3.6% y/y),

lowering total output by 4.9% y/y. Further, bauxite production fell 24.4% y/y, attributed to industrial unrest at

RUSAL mining operations. Manufacturing output registered a mixed performance, as production of ice cream,

margarine and non-alcoholic beverages expanded but output of oxygen, liquid pharmaceuticals, acetylene and

nitrogen gas contracted during the period.

Greater public and private investment projects, along with petroleum activity, bolstered construction output, while

the latter also contributed to increased output in the services sector.

The overall balance of payments deficit narrowed to US$71.2mln compared to US$94.0mln one year earlier. Increased

foreign direct investment in the oil and gas sector boosted the surplus on the capital account from US$210.3mln to

US$337.7mln, but a larger trade deficit resulted in a US$129.1mln widening in the current account deficit.

Consumer prices rose 2.0% y/y, reflecting increased prices for food (up 5.0% y/y), housing (up 0.4% y/y), and

transportation and communication (up 1.7% y/y) during March 2019.

Developments in Financial Markets Faster deposit growth compared to loan growth coincided with greater excess liquidity and lower interest rates over the 12 months ended March 2019. Loan quality improved but capital adequacy slipped over the same period.

Public and private sector deposits advanced 16.9% y/y and 6.5% y/y, respectively, but deposits of non-bank

financial institutions fell 1.7% y/y, lifting total deposits of residents 7.1% higher y/y. Greater deposits of businesses

(up 10.9%) and consumers (up 5.1%) drove the increased balances of the private sector.

Chart 1 Key Economic Indicators (y/y; %)

Chart 2 Key Commodity Prices (US$)

Source: Bank of Guyana and CIBC FirstCaribbean. Source: Bank of Guyana, International Monetary Fund, Central Bank of Trinidad and Tobago and CIBC FirstCaribbean.

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A 6.4% y/y increase in loans to the private sector was largely responsible for a 6.4% y/y expansion in total lending

to residents, while loans to non-bank financial institutions rose 38.5% y/y but loans to the public sector fell 10.9%

y/y. A 3.5% increase in business loans and a 14.1% surge in consumer loans drove the private sector expansion.

The excess liquid assets to total liquid assets ratio increased from 30.2% at end-December 2018 to 32.6% y/y at

end-March 2019, while commercial banks’ weighted average lending rate and small savings rate declined 18bps

y/y and 10bps y/y to 10.03% and 1.00%, respectively, at March 2019. Further, banks’ return on assets fell from

0.60% during March 2018 to 0.56% during March 2019, while the capital adequacy ratio slipped y/y from 29.5% to

28.1%, but the non-performing loan ratio improved 0.95 percentage points y/y to 12.27% at March 2019.

The Bank of Guyana’s net international reserves increased 3.5% y/y to US$515.8mln (1.7 months of import cover) at the end of March 2019. Since then, the reserves increased to US$524.5mln at the end of May 2019, 8.1% above May 2018.

Government Debt The central government’s fiscal balance improved to a US$34.6mln surplus during the first three months of 2019 from an US$8.6mln deficit one year earlier as a 19.1% y/y expansion in revenue outpaced a 1.2% y/y increase in expenditure primarily because of increased capital spending.

Current revenue expanded US$29.3mln (13.2% y/y), largely on account of greater tax receipts (up 12.7% y/y),

while non-tax revenue also increased US$2.2mln (23.7% y/y). Collections of income tax, taxes on production and

consumption, taxes on international trade, and other tax revenues increased US$18.1mln (21.2% y/y), US$5.7mln

(5.8% y/y), US$2.7mln (12.4% y/y) and US$0.6mln (7.6% y/y), respectively. Capital receipts also advanced

US$16.9mln (86.8% y/y), resulting from grants and debt relief under the Enhanced HIPC initiative.

A US$26.1mln fall in transfer payments overshadowed higher spending on personal emoluments (up US$8.5mln),

goods and services (up US$11.5mln) and debt charges (up US$0.3mln), and lowered total current spending by

US$5.7mln (2.5% y/y). When combined with US$8.8mln more in capital outlays, total expenditure rose (1.2% y/y).

The total stock of public debt fell 1.1% y/y to 42.8% of 2018 GDP at March 2019, as domestic debt fell 8.7% y/y to US$392.4mln, but external debt rose 1.5% y/y to US$1.27bln.

Outlook

The IMF projects real GDP growth of 4.4% in 2019, ahead of oil production in 2020 buoyed by the construction and

services sectors, and a strong rebound in mining activity. Following an improvement in the fiscal deficit to 2.3% of GDP in

2018 attributed to the pick-up in economic activity, improved tax administration and slower capital spending, the IMF

projects a widening to 5.0% of GDP in 2019, driven by infrastructure and capacity development in preparation for oil

production. Further, despite a larger surplus expected on the capital account from greater foreign direct investment, the

Bank of Guyana now expects the overall balance of payments deficit to widen in 2019 as imports related to the emerging

oil and gas industry are expected to significantly widen merchandise trade deficit. Nonetheless, medium-term prospects

for Guyana continue to be very favourable.



Source: Bank of Guyana and CIBC FirstCaribbean. Source: Bank of Guyana and CIBC FirstCaribbean.

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Jamaica Tiffany Grosvenor-Drakes CIBC FirstCaribbean

Production, Prices, and Employment Following a 1.8% expansion during 2018, the Statistical Institute of Jamaica reports that real GDP advanced 1.7% during Q1 2019, buoyed in particular by mining, construction and tourism.

Greater production of alumina (up 12.6% y/y) and bauxite (up 4.6% y/y) increased mining and quarrying output by

11.1% y/y, while upgrades to road infrastructure and increased residential construction contributed to a 3.3%

expansion in construction output. Enhanced domestic crop production as well as poultry-meat and egg production

led to a 0.3% y/y uptick in agriculture forestry and fishing output. However, manufacturing activity declined 1.4%

y/y, as a 0.1% y/y increase in food, beverages and tobacco output could not offset a 25.8% y/y drop in the

production of refined petroleum products, attributed to the partial closure of the refinery for repairs and

maintenance.

Tourism output increased 1.8% y/y as a 13.3% y/y expansion in the number of stay-over tourists eclipsed a 6.3%

y/y fall-off in cruise arrivals and a 3.7% y/y decline in the average length-of-stay. Increased tourist arrivals,

combined with increased domestic cargo movement at the ports, led to a 1.2% y/y expansion in the transport

storage and communication sector, while output of electricity and water also increased (up 1.9% y/y) during the

period. Overall, growth in the services sectors advanced 1.8% y/y during Q1 2019.

Since then, the number of stay-over arrivals grew 10.9% y/y during January to June 2019 as the number of

tourists from all major markets increased during the period. Arrivals from the US, Canada, Europe, Latin America,

the Caribbean, Asia, and other markets increased 15.6% y/y, 0.8% y/y, 1.6% y/y, 12.2% y/y, 4.7% y/y, 10.9% y/y,

and 0.9% y/y, respectively. In contrast, cruise-arrivals declined 12.4% y/y, consistent with a 9.1% y/y fall-off in

cruise-ship calls.

The unemployment rate fell 1.9 percentage points y/y to 7.8% at April 2019, reflecting declines of 2.2 and 3.8 percentage

points y/y to 5.5% and 10.6% for males and females, respectively. The number of employed persons rose 2.5% y/y, while

the size of the labour force increased 0.7% y/y.

Consumer prices rose 4.3% y/y during July 2019 compared to 2.4% y/y during December 2018 as the price of all

categories of Jamaica’s basket of goods and services rose during the period. In particular, the prices of food and non-

alcoholic beverages increased 7.8% y/y, but housing, water, gas, electricity and other fuels, as well as transportation fell

0.7% y/y, and 0.2% y/y, respectively.

Developments in Financial Markets Faster growth in commercial bank loans compared to deposits reduced overall liquidity over the 12 months ended May 2019. However, interest rates continued to decline during the period.

Total commercial bank loans and advances increased 13.4% y/y. Personal lending balances to residents and

non-residents rose 13.5% and 39.2%, respectively, while loans to the corporate sector increased 10.2% y/y

during the period.

Slower deposit growth (up 2.4% y/y) reflected 1.4% y/y, 3.2% y/y and 2.2% y/y expansions in retail, corporate and

non-resident deposits, respectively.

The Bank of Jamaica reduced the cash reserve requirement by three percentage points to 9% in March 2019 and

further to 7% in June 2019, aimed at supporting credit expansion at lower interest rates. Further, after reducing its

policy rate (offered on overnight placements) by 50bps in May 2019 to 0.75%, the Bank of Jamaica (BOJ) decided

to hold the policy rate unchanged at June 2019, noting that conditions were suitable for the achievement of the

inflation target of 4.0% to 6.0%. By March 2019, the weighted average lending and deposit rates fell 102bps y/y

and 25bps y/y to 13.3% and 1.23%, respectively, in line with previous reductions in the policy rate.



FX reserves declined (6.3% y/y) to US$2.95bln or 22.1 weeks of imports of goods and services at the end of July 2019, following an 18.8% increase in the similar period one year earlier. Additionally, the JMD/US$ depreciated 0.9% y/y during the 12 months ended July 2019.

Commercial banks’ non-performing loan ratio improved 0.4 percentage points y/y to 2.3% at March 2019, while capital

adequacy fell from 14.6% to 14.0% during the same period.

Government Debt Greater spending across all categories of expenditure, except domestic interest payments, outpaced enhanced revenue collection and increased the government’s deficit to US$23.9mln during the first two months of FY2019/20 ended May 2019, from US$12.9mln one year earlier.

Tax, non-tax and capital revenue increased US$10.4mln (1.7% y/y), US$20.6mln (52.3% y/y) and US$4.9mln

(383.2% y/y), respectively. When combined with a marginal uptick in grants, total revenue advanced US$35.9mln

(5.4% y/y).

However, total expenditure rose US$46.9mln (6.9% y/y). Higher outlays on wages and salaries, programmes and

external interest, which rose US$4.3mln (1.5% y/y), US$12.4mln (5.6% y/y) and US$9.3mln (9.4% y/y),

respectively, overshadowed a US$7.5mln (19.5% y/y) reduction in domestic interest payments, increasing total

recurrent expenditure by US$18.5mln (2.9% y/y). Capital spending also grew (up US$28.4mln or 63.4% y/y)

during the period.

The Debt Management Unit of the Ministry of Finance and the Public Service estimates that total public sector debt fell 0.7% y/y to US$15.23bln at February 2019. Total central government domestic debt remained flat y/y at US$5.87bln but external debt declined 1.1% y/y to US$9.3mln, reducing total central government debt 0.9% y/y. Net public institutions debt fell 28.8% y/y during the same period.

Outlook

The IMF indicates that the BOJ’s five percentage points reduction in the cash reserve requirement and the successive

policy rate cuts to 0.75% are likely to contribute to greater private sector credit and strengthen economic activity in the

near term. Further, following the attainment of a primary surplus in excess of the 7% target during FY2018/19, the

government is expected to maintain a primary balance of 6.5% of GDP during FY2019/20, as a slightly more

accommodative fiscal stance is intended to boost growth. The BOJ now expects that inflation will likely fall to the bottom of

the target range by September 2019, before returning to the mid-point of the target by March 2020. Finally, the IMF

expects that public debt, estimated at 95% of GDP at March 2019, should continue to trend downward.



Source: Planning Institute of Jamaica, Bank of Jamaica, Caribbean Tourism Organization, Jamaica Tourist Board and CIBC FirstCaribbean.

Source: Bank of Jamaica and CIBC FirstCaribbean.

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2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1

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Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

All Items

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Chart 3 Foreign Direct Investment and Remittances


Source: Bank of Jamaica and CIBC FirstCaribbean. Source: Bank of Jamaica and CIBC FirstCaribbean.

Chart 5 US$JMD Exchange Rate

Chart 6 Developments in Capital Market Indicators

Source: Bank of Jamaica and CIBC FirstCaribbean. Source: Bank of Jamaica and CIBC FirstCaribbean.

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Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

USD/JMD Exchange…

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Index Value JSE Index (L)

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Panama Luis Hurtado CIBC Macro Strategy

Production, Prices, and Employment Q1 2019 GDP came in at 3.1% y/y, decelerating from the 4.0% y/y and 3.6% y/y increases in Q4 2018 and Q1 2019,

respectively. With these numbers, and given the recent economic update from new Finance Minister Hector Alexander,

we expect 2019 GDP growth to come in at 4.2% with a downward bias in line with fiscal consolidation and the increase of

external risks.

Utilities (up 5.6% y/y) increased the most in Q1 2019, accelerating from the 1.3% and 2.3% posted in Q3 2018

and Q4 2018, respectively. Financial intermediation, mining and quarrying, and construction followed closely with

4.7% y/y, 4.6% y/y, and 4.5% y/y gains, respectively. Mining and quarrying benefited from private and public

investment, including capital investment in Minera Panama, a cruise port in Panama City, and highway

construction.

On the other hand, manufacturing (down 0.9% y/y), community and social services (down 2.6% y/y), and fishing

(down 39.8% y/y) all posted declines during the first quarter.

More recent growth indicators signal the continuation of sluggish growth into Q2 2019. Economic activity came in at 2.9%

y/y, 2.4% y/y, and 2.9% in April, May and June, respectively. With these numbers, H1 2019 economic activity growth

came in at 3.1%. Despite the deceleration of growth and trade concerns, the Panama Canal continued to show a positive

performance as January-June toll revenues increased 3.5% y/y, despite a 0.7% y/y drop in the total number of ships going

through the Canal. We expect economic activity to rebound in H2 2019, in line with the increase in mining production and

copper exports as Minera Panama ramps up operations. Nevertheless, as the government implements fiscal adjustment

measures we expect the 2019 growth expectation to be contained in the 4%-4.5% range.

June exports increased 151.3% y/y, following the 15.6% y/y drop in May and 5.9% y/y increase in April, pushing exports

growth to 19.5% y/y in the January-June period. The extraordinary surge in exports stemmed from the 707% increase in

other exports, including copper, as Minera Panama started operations. Imports increased 12.2% y/y in June after

dropping 5.5% y/y in May and increasing 10.1% y/y in April. With these numbers, imports increased 1.8% during the

January-June period.

July inflation came in at 0.3% m/m or -0.3% y/y, remaining below 1% for the ninth consecutive month. By sector, housing

and utilities (up 0.9% m/m), transportation (up 0.5% m/m), and non-alcoholic beverages and food (up 0.4%) increased the

most in July, while furniture and other items declined 0.2% m/m.




Real GDP Growth 5.8% 5.0% 5.4% 3.7% 4.2%

Inflation (End of Period) 0.3% 1.5% 1.1% 0.2% 1.0%

Adjusted NFPS Fiscal Balance (% GDP) -1.0 -1.0% -1.0% -0.5% -0.9%

Nom. NFPS Fiscal Balance (% GDP) -2.8 -2.5% -1.7% -2.0% -3.0%

Public Sector Debt/GDP 39.1% 39.5% 39.9% 39.5% 41%

Source: Ministerio de Hacienda, IMF and CIBC Capital Markets Source: Bloomberg

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19



Government Debt

With the 2018 nominal deficit surprisingly landing at 2% of GDP, there were concerns that the government may have

incurred substantial arrears to comply with its 2018 fiscal target. This situation did not catch the attention of rating

agencies, as S&P upgraded the country’s credit rating to BBB+. In July the new administration unveiled that, without

adjustments, the nominal deficit would reach 3.8% of GDP at the end of 2019, higher than the 2.0% allowed by the Fiscal

Law and our initial 2.7% deficit estimate. In response, the new economic team made two bond placements in external

markets – a US$750mln 2060 bond, and another US$1.2bln in ‘30s. The proceeds would be used to clear most of the

non-registered payables by the previous administration, estimated at around US$1.5bln.

H1 2019 numbers are already reflecting arrears and the worsening of the fiscal accounts. H1 2019 total central

government revenues came in at US$3.5bln, dropping 5.3% y/y. Both tax and non-tax revenue contributed to this decline,

dropping 3.1% y/y and 14.3% y/y, respectively. On the expenditure front, total expenses increased 9.9% to US$6.0bln as

current and capital expenditures jumped 8.3% y/y and 13.0% y/y, respectively. With these numbers, H1 2019

Non-Financial Public Sector (NFPS) revenues landed at US$5.3bln, down 7.0% y/y, while total NFPS expenditures

increased 11.0% y/y to US$7.6bln. Hence, the 12-month nominal NFPS deficit came in at US$2.5bln or 3.6% of GDP,

while the 12-month primary deficit reached US$1.3bln or 1.8% of GDP.

Amid the deterioration of the fiscal accounts and the recognition of arrears, the Finance Minister Hector Alexander

announced that the government would cut the operating budget and investment program by US$500mln and US$1bln,

respectively, bringing the expected nominal deficit closer to the 2% target. However, as growth prospects decline in line

with rising external uncertainties and lower government spending, we expect the nominal deficit to lander closer to 3% of

GDP, forcing the government to change its fiscal goals for 2019 and possibly 2020.

Outlook

Although the Panama Canal continues to see decent growth and the start of Minera Panama’s production is likely to

prompt a rebound in growth in H2 2019, we have reduced our 2019 GDP growth estimate to 4.5% as external

uncertainties increase and the government reduces expenditures in an effort to adjust its fiscal numbers back to target.

We expect concerns regarding fiscal accounts and slower economic growth to temper the recent strength of the PANAMA

curve for the remainder of 2019, providing excellent opportunities for those still hungry for yield in the investment grade

space.

Chart 2 Inflation (y-/y; %)


Source: Bloomberg Source: IMF, CIBC World Markets

-1.0%

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Aug-14 Apr-15 Jan-16 Sep-16 Jun-17 Feb-18 Nov-18 Jul-19

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2008 2010 2012 2014 2016 2018F

Nominal Govt. Bal. (%GDP, L)

Govt. Debt (% GDP, R)



St. Kitts and Nevis Tiffany Grosvenor-Drakes CIBC FirstCaribbean


Indicators of tourism activity point toward an improvement in economic output, but most other preliminary indicators

suggest a mixed performance during January to March 2019.

The number of stay-over arrivals to St. Kitts and Nevis surged 16.6% y/y, but declines in the number of

excursionists, cruise-ship passenger arrivals and yacht-passenger arrivals reduced the number of tourists visiting

the island by 3.6% y/y. Stay-over arrivals from all major markets grew, with tourists from the US, the UK, Canada,

the Caribbean, and other markets increasing 17.3% y/y, 17.5% y/y, 16.6% y/y, 13.3% y/y, and 17.4% y/y,

respectively. Total visitor expenditure rose 22.9% y/y.

Investment indicators suggest a mixed performance during the period. Imports of inedible crude material except

fuel increased 2.0% y/y, but imports of machinery and transport equipment fell 18.5% y/y. Further, respective

declines in the exports of beverages and tobacco and other manufactured goods of 14.9% y/y and 42.7% y/y

suggest a likely reduction in manufacturing output.

Despite the expansion in tourism activity, imports of food and live animals contracted 15.3% y/y. Further, the

merchandise trade balance improved 20.7% y/y to US$17.0mln, largely because of a 17.2% y/y fall-off in total

imports.


Moderate loan growth coincided with anemic deposit growth and reduced excess liquidity over the 12 months ended

March 2019. Loan quality and capital adequacy worsened, but banks’ profitability improved y/y during Q1 2019.

Increased corporate and retail lending lifted total loans 3.6% y/y higher during the period. A 20.6% y/y increase in

public sector lending more than offset a 1.0% y/y decline in business lending to increase corporate loans by 7.2%

y/y, while retail lending advanced 2.0% y/y.

Total deposits rose 0.4% y/y as retail and non-resident balances increased 1.7% y/y and 0.1% y/y, respectively,

but corporate deposits fell 0.1% y/y.

The loan-to-deposit ratio increased 1.2 percentage points y/y to 40.4% at the end of March 2019. However, the

weighted average lending and deposit rates remained around 8% and 2%, respectively, at March 2019 compared

to one year earlier.




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The non-performing loans to total loans ratio worsened to 24.6% at March 2019 from 20.9% in March 2018, while

the capital adequacy ratio declined 4.3 percentage points to 16.6% over the same period. However, banks’

annualised return on assets increased from 0.85% during Q1 2018 to 1.3% during Q1 2019.

Government Debt A surge in non-tax revenue, mostly associated with the Citizenship by Investment (CBI) programme, boosted government revenue and led to a US$50.8mln expansion in the fiscal surplus to US$69.8mln (6.7% of GDP) during 2018.

Non-tax revenue increased US$78.9mln (84.0% y/y), US$77.6mln of which represented a more than doubling of

CBI receipts attributed to the successful implementation of the Sustainable Growth Fund (previously the

Hurricane Relief Fund). Tax revenue advanced US$15.7mln (8.5% y/y), as taxes on income and profits, property,

domestic goods and services, and international trade and transactions rose US$6.6mln, US$1.3mln, US$3.2mln,

and US$4.5mln, respectively. Capital revenue and grants also grew by US$0.4mln (13.2% y/y) and US$3.6mln

(11.4% y/y), respectively, during the period.

Increased government spending on goods and services (up US$25.1mln or 45.5% y/y), personal emoluments (up

US$5.1mln or 4.7% y/y), and transfers and subsidies (up US$0.3mln or 0.4% y/y) overshadowed a US$0.7mln

(4.9% y/y) reduction in interest payments to increase current expenditure 12.3% y/y. Further, capital spending and

net lending rose 35.1% y/y to US$69.3mln.

The public sector debt stock declined 4.1% y/y to US$580.3mln, or 2.5 percentage points to 59.2% of GDP at March 2019. Central government debt fell 12.5% y/y to US$415.3mln, but public corporations’ debt rose 26.5% y/y to US$165.1mln.

Outlook

Latest ECCB estimates suggest that real economic growth accelerated to 4.6% in 2018, driven by the construction (up

3.7%), distribution (up 9.9%) and, to a lesser extent, tourism (up 1.3%) sectors. The ECCB now expects that a

strengthening of tourism activity (9.9%) will likely underpin 3.0% real GDP growth in 2019, supported by the distribution

and transport storage and communication output sectors.




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Deposits



St. Lucia Tiffany Grosvenor-Drakes CIBC FirstCaribbean

Production, Prices, and Employment Preliminary economic indicators imply a mixed performance, as tourism activity increased but other major economic sectors likely registered weak output during Q1 2019.

Total visitor spending advanced 62.5% y/y during the quarter. Greater arrivals from the UK (up 36.0% y/y) and all

other markets (up 13.7% y/y) eclipsed declines from the US (down 0.9% y/y), Canada (down 1.8% y/y), and the

Caribbean (down 3.2% y/y), lifting total stay-over arrivals 6.4% higher y/y. However, consistent with fewer cruise-

ship calls, respective declines of 7.6% y/y and 15.1% y/y in the number of cruise-ship and yacht-passenger

arrivals, along with a 15.9% y/y fall-off in the number of excursionists, lowered total visitor arrivals 0.4% during the

period.

Indicators of investment activity suggest a subdued performance, as imports of inedible crude materials except

fuels declined 40.4% y/y, while imports of machinery and transport equipment fell 12.1% y/y.

Domestic exports of food and live animals slumped 38.2% y/y, suggesting a likely downturn in agricultural output,

while domestic exports of beverages and tobacco and other manufactured goods fell 1.9% y/y and 32.1% y/y,

respectively, implying a likely slowdown in manufacturing production. Further, total exports contracted 14.2% y/y,

although when coupled with a 19.6% reduction in total imports, the merchandise trade deficit improved 21.3% y/y

to US$101.mln.

Consumer prices rose 2.1% y/y during March 2019, driven primarily by higher prices for food and non-alcoholic beverages (up 2.3% y/y), housing utilities gas and fuels (up 4.7% y/y) and transport (up 4.0% y/y).


Slow loan demand coupled with strong growth in deposits increased excess liquidity, while bank financial soundness

indicators displayed signs of improvement over the four quarters ended March 2019.

A 1.1% y/y fall-off in retail lending partially offset a 3.1% y/y expansion in corporate lending and led to a 0.8%

uptick in total loans. Loans to the public sector rose 25.0% y/y while lending to businesses slipped 0.3% y/y

during the period.

Deposit balances expanded 6.0% y/y as retail, corporate and non-resident deposits increased 2.3% y/y, 10.7%

y/y and 0.7% y/y, respectively.

Consequently, the loan-to-deposit ratio fell from 81.1% at March 2018 to 80.7% at March 2019. The weighted

average lending and deposit rates remained at 8% and 1%, respectively, over the four quarters to March 2019.




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Banks’ financial stability indicators improved in Q1 2019. The non-performing loan ratio fell to 9.9% in March 2019

from 12.6% one year earlier, while the capital adequacy ratio rose 1.3 percentage points y/y to 19.9% over the

same period. Further, the annualised return on assets increased from 1.24% in March 2018 to 1.69% in March

2019.

Government Debt

Lower capital outlays improved the government’s fiscal deficit by US$3.7mln to US$17.3mln (0.9% of GDP) during 2018,

but the current account surplus fell during the period.

A US$17.1mln (72.2% y/y) boost in non-tax revenue due to increased Citizenship by Investment inflows and a

US$15.1mln (4.2% y/y) expansion in tax revenue lifted current revenue 8.3% y/y. Taxes on income and profits,

taxes on domestic goods and services, and taxes on international trade transactions increased US$4.2mln (4.4%

y/y), US$2.6mln (1.8% y/y), and US$9.1mln (7.5% y/y), respectively, but property taxes fell US$0.7mln (14.8%

y/y). Total grants received declined 46.1% y/y to US$10.1mln.

Current spending increased US$45.4mln (13.0% y/y), reflecting increased expenditure in all categories. Spending

on personal emoluments, goods and services, interest payments, and transfers and subsidies increased

US$1.5mln (1.0% y/y), US$26.8mln (39.1% y/y), US$3.8mln (6.8% y/y), and US$13.3mln (15.8% y/y),

respectively. However, capital expenditure fell 33.8% y/y to US$53.1mln during the period.

Total public debt outstanding increased 5.2% y/y to US$1.26bln (66.4% of GDP) at the end of March 2019, from 63.2% one year earlier. Total public domestic debt rose 12.7% to US$650.1mln, but external debt fell 1.9% y/y to US$607.2mln.

Outlook

Most recent GDP estimates from the ECCB indicate real economic value-added in St. Lucia grew 1.5% in 2018 as a

21.2% contraction in construction output partially reversed the gains in most other sectors. The Central Bank now

forecasts that a modest (2.0%) recovery in construction activity, along with the strengthening of tourism and tourism-

related sectors, will lead to 2.0% growth in 2019.




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Sint Maarten Tiffany Grosvenor-Drakes CIBC FirstCaribbean


Hurricane Irma’s damage to tourism infrastructure and productive capacity reduced real economic activity in St. Maarten

by 6.6% during 2018, following a 4.8% contraction in 2017. However, construction and manufacturing output expanded

during the year.

Private reconstruction work on hotels and other commercial properties led to a 5.7% y/y expansion in the

construction sector. Further, manufacturing output advanced 3.1% y/y, largely reflecting greater yacht-repair

activity in light of the completion of renovations to much of the marine sector infrastructure.

However, tourism output slumped 27.9% y/y in 2018 as the prolonged closure of the airport’s main terminal

building impeded the ability to process multiple flights, and the damage to major hotels resulted in a shortage of

room stock. Stay-over arrivals plunged 55.8% y/y, with all major markets recording declines. Arrivals from North

America, Sint Maarten’s largest market, fell 69.0% y/y, while arrivals from Europe, Latin America and the

Caribbean contracted 34.4% y/y, 61.3% y/y, and 22.4% y/y, respectively. In contrast, cruise-passenger arrivals

rose 29.0% y/y, in line with a 15.3% y/y expansion in the number of cruise-ship calls. Since then, stay-over

arrivals rebounded 135.9% y/y during January to May 2019 as all major markets recovered, while cruise-

passenger arrivals continued to increase (up 47.4% y/y).

Real value-added in the utilities sector also contracted (up 11.0% y/y), reflecting fall-offs in both water and

electricity production that resulted from the closure of commercial infrastructure and damaged water tanks.

Further, the fall-off in domestic and tourism spending led to a 13.7% y/y contraction in wholesale and retail activity

while reduced harbour and airport-related activity resulted in 16.4% y/y decline in transport, storage and

communication output.

The unemployment rate rose to 9.9% in 2018 from 6.2% in 2019, as the number of persons seeking employment rose

3.7% and the number of persons employed fell 0.5%.

Developments in Financial Markets Declining loan and deposit balances reduced excess liquidity over the 12 months to May 2019.

Lending balances contracted 1.6% y/y as a 3.7% y/y fall-off in corporate loans overshadowed a 1% y/y expansion

in retail loans. Mortgages and loans to the public sector rose 1.9% y/y and 62.2% y/y, respectively, but consumer

lending and business loans fell 0.6% y/y and 4.5% y/y, respectively.

Similarly, total deposits fell 4.9% y/y as retail, corporate and non-resident deposits decreased 1.2% y/y, 3.6% y/y

and 14.8% y/y, respectively.



Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean. Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean.

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Consequently, the loan-to-deposit ratio increased 2.0 percentage points y/y to 65.4% at May 2019 and the

3-month Treasury Bill yield increased 12bps y/y to -0.61% over the same period.

The gross official reserves of the Centrale Bank van Curaçao en Sint Maarten, excluding gold, declined 8.7% y/y to

US$1.36bln (18.1 weeks of imports of goods and services) at April 2019.

Government Debt Sint Maarten’s government budget deficit worsened 24.6% y/y to US$50.4mln during 2018. A 3.3% y/y fall-off in government spending was insufficient to offset an 8.2% y/y reduction in revenue collections.

Government revenue fell US$18.8mln (8.2% y/y). Specifically, tax revenue declined US$11.8mln (6.5% y/y) as

the reduced level of economic activity weighed on the performance of taxes on profits and goods and services,

while concessions and fees and other revenue also fell US$0.6mln (2.6% y/y) and US$7.3mln (44.1% y/y),

respectively, However, license revenue increased US$0.8mln (11.3% y/y).

Government spending also decreased during the year. Outlays on goods and services dipped US$19.0mln

(10.4% y/y) as waste collection and clean-up returned to normal levels following clean-up efforts, while

expenditure on subsidies, social security and interest payments fell US$0.9mln (1.6% y/y), US$3.2mln (17.2%

y/y), and US$0.1mln (1.5% y/y), respectively. In contrast, spending on wages and salaries advanced US$0.1mln

(1.5% y/y).

Total public debt grew 27.2% y/y to US$431.6mln (43.1% of GDP) at December 2018, from US$339.3mln (32.6% of GDP) at December 2017.

On June 7 2019, Moody’s downgraded the Government of Sint Maarten’s issuer rating from Baa2 to Baa3 citing the

increased debt that emerged following the passage of Hurricane Irma, but changed the outlook from negative to stable in

light of financial support from the Government of the Netherlands.

Outlook

The Centrale Bank van Curaçao en Sint Maarten expects real economic activity to rebound by 2.3% in 2019 as the

recovery of the tourism sector supports the ongoing expansions arising from reconstruction activity. Although

approximately two-thirds of the hotel capacity has been restored by the private sector, the pace of the recovery is

dependent on the further rehabilitation of tourism infrastructure. Further, now that financing has been secured, the

reconstruction of the Princess Juliana Airport is also anticipated to support this recovery. However, the Centrale Bank

underscored the need to balance the current budget and promote fiscal discipline.


Source: Central Bank of Curaçao and St. Maarten and CIBC FirstCaribbean.

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St. Vincent and the Grenadines Tiffany Grosvenor- Drakes CIBC FirstCaribbean


Preliminary data on tourism and investment activity suggest that economic activity likely expanded during Q1 2019;

however, indicators of manufacturing output suggest a potentially weak performance.

Greater arrivals from the US (up 7.3% y/y), the UK (up 9.2% y/y), Canada (up 19.9% y/y) and other markets (up

7.8% y/y) outpaced a 2.2% y/y fall-off in arrivals from the Caribbean and increased the total number of stay-over

arrivals by 7.2% y/y. Further, a 1.4% y/y increase in the number of cruise-ship calls supported a 0.6% expansion

in cruise-ship passenger arrivals, but the number of yacht-passenger arrivals and excursionists declined 21.0%

y/y and 5.3% y/y, respectively, reducing total visitor arrivals 1.7% y/y. Total visitor expenditure slipped 0.9% y/y

during the period.

Indicators of investment activity suggest an improved performance during the quarter. Imports of inedible crude

materials except fuels and imports of machinery and transport equipment advanced 22.1% y/y and 21.6%,

respectively. Further, domestic exports of food and live animals increased, implying greater agricultural output,

but exports of beverages and tobacco and manufactured goods declined 35.0% y/y and 61.8% y/y, suggesting

reduced manufacturing output.

Consumer prices rose 1.4% y/y during March 2019. The prices of housing utilities, gas and fuels, and transport increased 2.6% y/y and 1.4% y/y, respectively, but the price of food and non-alcoholic beverages fell 0.2% y/y.

Developments in Financial Markets Excess liquidity increased against the backdrop of increasing deposits and subdued loan demand over the 12 months ended March 2019. Banks’ loan quality, capital adequacy and profitability improved over the same period.

Total loans and advances dipped 0.5% y/y as a 7.9% reduction in corporate lending balances eclipsed a 2.6%

expansion in retail loans. Business loans declined 13.3% y/y but lending to the public sector rose 3.2% y/y.

A 9.7% y/y expansion in corporate deposits and a 0.1% y/y uptick in retail deposits overshadowed a 4.4% y/y

contraction in resident deposits, and increased total deposits 2.7% y/y.

The loan-to-deposit ratio fell 2.2 percentage points y/y to 67.4% at March 2019. The weighted average lending

rate declined from 9% in March 2018 to 8% in March 2019, but the weighted average deposit rate remained at 2%

over the same period.




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Indicators of financial stability improved over the four quarters to March 2019. The non-performing loan ratio fell to

6.3% in March 2019 from 7.7% one year earlier, while the regulatory capital-to-risk-weighted assets ratio rose 0.8

percentage points to 22.8% at the end of the period. Banks’ annualised return on assets increased from 0.03% in

March 2018 to 0.54% in March 2019.

Government Debt

A contraction in government spending on capital works was largely responsible for a narrowing of the fiscal deficit by

US$4.5mln to US$8.5mln (1.0% of GDP) during 2018.

A US$3.0mln (10.5% y/y) increase in non-tax revenue and a US$1.4mln (0.8% y/y) uptick in tax revenue lifted

total current revenue 2.0% y/y. Lower collections of property taxes (down US$4.9mln or 26.3% y/y) partially

mitigated a greater intake of taxes on income and profits (up US$1.2mln or 2.2% y/y), goods and services (up

US$8.2mln or 9.5% y/y), and international trade and transactions (up US$0.6mln or 2.1% y/y). Capital revenue

and grants declined US$3.7mln (29.1% y/y).

Government capital outlays fell 22.9% y/y to US$25.3mln, attributed to sluggish implementation of large projects.

In contrast, current expenditure rose US$3.7mln (1.8% y/y) to US$212.4mln. Spending on personal emoluments,

transfers and subsidies, and interest payments increased US$2.7mln (2.6% y/y), US$2.5mln (5.2% y/y), and

US$0.1mln (0.3% y/y), respectively, but expenditure on goods and services fell US$1.6mln (5.4% y/y).

Total public sector debt outstanding increased 6.5% y/y to US$610.0mln and 4.6 percentage points y/y to 75.2% of 2018 GDP at March 2019. Central government debt rose 8.1% to US$561.4mln, but public corporations’ debt fell 8.5% y/y to US$48.6mln.

Outlook

The ECCB’s latest data indicate that real GDP grew 2.2% in 2018, underpinned by an 8.1% y/y expansion in tourism

activity and supported by gains in wholesale and retail trade (up 5.6%) and construction (up 2.5%). The Central Bank now

projects that these sectors, along with a turnaround in agricultural production, will support economic growth in St. Vincent

and the Grenadines in 2019, forecasted at 2.5% for the year.




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Suriname Tiffany Grosvenor-Drakes CIBC FirstCaribbean

Production, Prices, and Employment Estimates from the Centrale Bank van Suriname indicate that real GDP strengthened to 1.9% in 2018; since then preliminary data on investment goods imports and key commodity exports suggest a mixed performance during Q1 2019.

The external current account deficit worsened to US$33.0mln from US$13.1mln one year earlier. The lower

surplus balance on goods (down US$6.6mln or 4.3% y/y) and net current transfers (down US$7.2mln or 25.4%

y/y) and the higher deficit on income (up US$12.8mln or 11.7% y/y) more than offset a US$6.7mln (7.7% y/y)

lower deficit on the balance of services.

Higher imports of investment goods (up US$24.4mln y/y) and transportation (up US$15.2mln y/y) contributed to a

12.7% y/y increase in total goods imports, implying greater investment during the period. To a lesser extent,

goods exports expanded US$19.1mln, as reduced exports of timber and rice (down US$1.9mln or 9.9% y/y and

US$1.2mln or 14.3% y/y, respectively) partially offset increased exports of crude oil (up US$6.3mln or 13.9% y/y)

and other exports (up US$17.7mln or 76.3% y/y). These movements suggest a likely improved output of mining

and quarrying, but a subdued performance for agriculture forestry and fishing.

Growth in consumer prices slowed to 4.6% y/y during April 2019, compared to 7.8% y/y one year earlier and 5.4% y/y during December 2018.


Strong growth in public sector lending (up 39.5% y/y) led to a 12.5% expansion in corporate loans in Q1 2019. When

combined with a 12.3% y/y increase in retail lending, total loans and advances increased 12.5% y/y.

Total loans and advances in local currency rose 17.4% y/y, as lending to businesses and the public sector

expanded 19.1% y/y and 15.4% y/y, respectively, while consumer loans and retail mortgages grew 24.6% y/y and

12.3% y/y, respectively, during the period.

Similarly, loans denominated in foreign currency rose 7.5% y/y, as 7.5% y/y declines in business loans and retail

mortgages partially offset a 75.5% y/y expansion in public sector loans and a 3.4% y/y increase in consumer

loans.

A 28.8% y/y expansion in local currency deposits eclipsed a 2.8% y/y fall-off in foreign currency deposits, pushing total

deposits 7.0% higher y/y during the 12 months to May 2019.

The weighted average lending rate increased 60bps y/y to 14.9%, while the weighted average deposit rate fell 30bps to

9.0%, increasing the average spread to 5.9% at May 2019.

Chart 1 Real GDP Growth (%)


Source: Centrale Bank van Suriname and CIBC FirstCaribbean. Source: Centrale Bank van Suriname and CIBC FirstCaribbean.

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Notwithstanding the deterioration of the external current account deficit during Q1 2019, increased foreign investment

contributed to a US$159.5mln y/y rise in the surplus on the financial account to US$190.5mln.

The Central Bank’s stock of FX reserves declined 20.5% y/y to US$605.4mln (equivalent to about 14.5 weeks of imports

of goods and services) at the end of May 2019, but increased 4.3% for the year to date. The SRD/US$ remained stable at

7.46:1 in June 2019, reflecting no change since December 2018 or June 2018.

Government Debt

The government’s deficit increased 29.1% y/y to US$403.9mln during 2018 as a 20.5% y/y increase in expenditure

outpaced a 16.7% expansion in revenues. Since then, the deficit has continued to widen as these trends persisted over

the first three months of 2019.

Total revenues increased US$42.3mln (29.0% y/y) during Q1 2019, reflecting expansions in both mining revenue

(up 36.2% y/y) and non-mining revenue (up 36.2% y/y) to US$56.3mln and US$132.1mln, respectively. Direct and

indirect tax revenues expanded US$23.0mln (55.2% y/y) and US$12.0mln (20.9% y/y), respectively, while non-tax

revenues rose US$7.3mln (15.6% y/y).

Current spending advanced 18.0% y/y to US$213.4mln, as greater spending on wages and salaries (up

US$24.4mln), subsidies (up US$12.4mln), and goods and services (up US$6.3mln) more than offset a US$4.7mln

(20.6% y/y) fall-off in interest payments. Further, capital expenditure rose US$35.7mln to US$50.6mln during the

quarter.

The Suriname Bureau for the State Debt indicates that the government’s total debt increased 5.2% y/y to US$2.61bln as

external and domestic debt increased 0.7% y/y and 15.7% y/y to US$1.74bln and US$864.9mln, respectively, at the end

of April 2019.

Outlook

In the latest World Economic Outlook, the IMF projects real GDP growth of 2.2% in 2019 and 2.5% in 2020 while

consumer price inflation is expected to continue to slow. S&P indicates that expansions in economic activity are likely to

be supported by improved domestic demand, further oil exploration, and development at the Merian and Rosebel mines

and other infrastructure projects. However, Suriname’s fiscal challenges persist. The fiscal deficit is expected to improve

only marginally in 2019 and 2020, but additional government spending ahead of elections in 2020 could likely worsen the

expected outcome.


Chart 4 Interest Rates (%)

Source: Centrale Bank van Suriname and CIBC FirstCaribbean. Source: Centrale Bank van Suriname and CIBC FirstCaribbean.

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Trinidad and Tobago Tiffany Grosvenor-Drakes CIBC FirstCaribbean


Latest Central Bank of Trinidad and Tobago (CBTT) estimates suggest modest growth in energy output likely slowed in

Q1 2019, while non-energy indicators suggest a mixed performance.

Output of natural gas, liquefied natural gas, methanol and ammonia increased 2.2% y/y, 3.3% y/y, 3.5% y/y and

4.2%, respectively, but the production of crude oil slumped 13.3% y/y, reflecting the continued challenges

associated with the mature acreage. Further, total depth drilled and the number of rig days declined to 7.4% y/y

and 21.3% y/y, respectively. Since then, the production of natural gas, liquefied natural gas and methanol slowed

to 1.0% y/y, 1.4% y/y and 2.6% y/y, respectively, during January to May 2019, but ammonia output accelerated to

8.9% y/y. Crude oil production, total depth drilled and the number of rig days continued their declines, down

12.8% y/y, 7.8% y/y and 16.3% y/y, respectively, through the same period.

Domestic production and local sales of cement increased 3.8% y/y and 2.9% y/y during Q1 2019, suggesting a

likely uptick in manufacturing and construction output, but a 7.4% y/y decline in the number of new motor vehicles

implies a subdued performance in the distribution sector. However, since then, domestic production and local

sales of cement fell 3.8% y/y and 0.6% y/y, respectively, during January to June 2019, while the number of new

motor vehicles sold continued to decline, falling 5.6% y/y over the same period.

A decline in the net balance of primary income partially offset a significant improvement in the net goods and services

trading position and led to a 45.1% improvement in the external current account surplus to US$1.61bln (6.9% of GDP)

during 2018. The value of merchandise imports increased 2.6% y/y, constrained by a sharp reduction in fuel imports

during Q4 2018 attributed to the closure of the Petrotrin refinery, while merchandise energy exports rose 15.5% y/y but

non-energy exports declined 18.1% y/y.

Retail prices increased 1.2% y/y in May 2019 compared to a 0.8% y/y expansion one year earlier.


Faster loan growth compared to deposit growth reduced excess liquidity over the 12 months ended April 2019. Loan

quality worsened marginally, but the non-performing loan ratio remains low relative to other regional markets.

A 6.8% y/y expansion in retail loans joined with a 0.8% increase in corporate loans to lift total loans and advances

by 3.6% y/y. Mortgages and consumer loans advanced 7.6% y/y and 5.4% y/y, respectively, while lending to

businesses and to the public sector loans rose 0.8% y/y and 1.4% y/y, respectively.

A 2.4% y/y reduction in time deposits partially offset expansions in the balances of demand (up 3.5% y/y), savings

(up 4.1% y/y) and foreign currency deposits (up 1.9% y/y), increasing total deposits 3.0% y/y.

Chart 1 Key Economic Indicators (y/y; %)

Chart 2 Key Commodity Prices (US$)

Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean. Source: International Monetary Fund, Central Bank of Trinidad and Tobago and CIBC FirstCaribbean.

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Consequently, commercial banks’ loan-to-deposit ratio increased 0.4 percentage points y/y to 66.2% at April

2019. The non-performing loans to gross loans ratio increased 0.1 percentage points y/y to 3.2% at the end of the

same period.

The Trinidad and Tobago composite stock price index expanded 8.7% y/y during May 2019, compared to a 2.5% y/y rise

in May 2018.

The CBTT’s net official FX reserves continued to trend downward at June 2019. Net reserves fell 10.7% y/y to

US$6.98bln (7.9 months of import cover) compared to US$7.82bln (8.6 months of import cover) at June 2018. The

TTD/US$ exchange rate remained unchanged y/y and year to date at 6.78:1 at the end of June 2019.

Government Debt

During the first eight months of FY2018/19 ended May 2019, the government’s fiscal balance improved 18.5% y/y to

US$607.1mln as a US$192.3mln boost in capital receipts supported an expansion in revenue collections, which outpaced

increased spending during the period.

A US$183.2mln boost in capital revenue and a US$203.0mln expansion in current revenue advanced total

revenue 90.0% y/y to US$4.05bln. Energy receipts rose 17.9% y/y to US$1.13bln, largely reflecting higher natural

gas prices during the period. Further, increased collections of taxes on income and profits (up US$171.2mln),

taxes on international trade (up US$9.1mln) and non-tax revenue (up US$184.6mln) more than offset a lower

intake of taxes on goods and services (down US$161.8mln) to push non-energy revenue higher by 1.1% y/y to

US$2.77bln.

Total spending increased US$198.1mln (4.4% y/y) to US$4.66bln. Higher current spending on transfers and

subsidies (up US$185.2mln), due partly to costs associated with the closure of the Petrotrin refinery, and to a

lesser extent on goods and services (up US$8.7mln) and on interest payments (up US$3.4mln) overshadowed a

small decline in spending on wages and salaries (down US$1.8mln), increasing the total spending by 3.2% y/y.

Further, capital spending grew US$2.5mln (0.9% y/y).

Gross public sector debt-to-GDP increased 1.6 percentage points y/y to 78.2% of GDP as central government debt rose

1.8 percentage points y/y to 60.1% of GDP and contingent liabilities remained at 18.2% of GDP y/y at the end of March

2019. Central government domestic debt and external debt grew 0.6 percentage points y/y and 1.2 percentage points y/y

to 43.3% of GDP and 16.3% of GDP, respectively.

On July 9 2019, S&P lowered its long-term foreign and local currency sovereign credit rating of Trinidad and Tobago from

BBB+ to BBB, with a stable outlook, citing lower-than-expected energy output and economic growth, which is expected to

weaken revenue collection and postpone plans to balance the fiscal budget by FY2020/21.

Outlook

The Central Bank of Trinidad and Tobago expects short-term gains in energy production given the additional capacity

from the Angelin field from February 2019, but expects crude oil production to continue to slide, reflecting the mature

acreage in the domestic basin. However, S&P indicates that lower natural gas production, given a recent announcement

of a likely drop in production by the largest natural gas producer, will restrict economic growth, projected to be 0.4% in

2019. S&P also notes that while the fiscal deficit is expected to benefit from one-off revenues in the current fiscal year, it

will likely increase again from FY2019/20 onward, on its current path.





Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean. Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean.

Chart 5 US$/TTD Exchange Rate

Chart 6 Capital Market Indicators

Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean. Source: Central Bank of Trinidad and Tobago and CIBC FirstCaribbean.

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Turks and Caicos Tiffany Grosvenor-Drakes CIBC FirstCaribbean


The recovery of tourism and increased construction activity led to a 2.5% rebound in real economic activity during 2018.

Stay-over arrivals increased 5.0% y/y, while cruise-passenger arrivals advanced 22.8%, supported by a 22.1%

increase in the number of cruise-ship calls.

Loans to companies for construction and land development increased 1.2% y/y, but lending to households for

home construction and renovation declined 4.7% y/y. The total value of imports increased 11.8% y/y during 2018,

led by higher purchases of construction materials. Since then, loans to companies for construction and land

development fell 28.3% over the first three months of 2019.

The Companies Registry Department’s latest statistics indicate that company registrations and incorporations

generally declined y/y during 2018. Additionally, the number of business names, patents, and trademarks

registered declined 3.5% y/y, 35% y/y, and 31.8% y/y, respectively.

The unemployment rate increased from 6% in 2017 to 7% during 2018.

The Turks and Caicos Statistical Department indicates that consumer prices rose 2.2% in 2018, compared to 2.1% in

2017.


Deposit funding continued to grow, but loan balances fell over the four quarters ended March 2019. Loan quality and

capital adequacy improved during the same period.

Total loan balances declined 1.2% y/y as the number of both retail and corporate loans slipped during the period.

Retail lending fell 0.6% y/y, while reduced lending to businesses (down 1.3% y/y) and the public sector (down

12.5% y/y) pushed corporate lending 1.8% lower y/y.

Total deposits expanded 8.9% y/y as retail, corporate and non-residents deposits increased 4.8% y/y, 12.8% y/y

and 2.3% y/y, respectively.

Consequently, the loan-to-deposit ratio fell 3.5 percentage points y/y to 60.5% at March 2019.

The non-performing loan ratio dipped 3.6 percentage points y/y to 5.8% and the capital adequacy ratio improved

to 26.4% at March 2019 from 24.3% one year earlier

Chart 1 Key Economic Indicators (GDP Growth; %)


Source: Turks and Caicos Statistical Office, S&P and CIBC FirstCaribbean. Source: Turks and Caicos Statistical Office, S&P and CIBC FirstCaribbean.

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The Turks and Caicos Islands’ government reports that preliminary data suggest a 42.0% y/y improvement in the

operating surplus to US$90.1mln during FY2018/19, which surpassed the budgeted estimate by US$55.9mln (163%).

Total revenue increased 12.4% y/y to US$318.1mln or US$38.5mln (14.0%) above the budget. Recurrent

revenue rose to US$306.9mln. Specifically, import duties and the hotel and restaurant tax advanced US$8.6mln

and US$8.0mln, respectively, while collections of stamp duty, work permits and fuel tax rose US$2.4mln,

US$4.7mln and US$1.8mln, respectively. Further, returns from statutory bodies totalling US$11.0mln contributed

to the higher outturn. Non-recurrent receipts largely comprised civil recovery income (US$2.3mln) and EU grants

(US$7.7mln).

Total spending advanced US$9.1mln (4.2% y/y), but fell below budget by US$17.4mln (7.1% y/y). Personnel

costs, subventions, grants and contributions, and operating expenses increased US$3.1mln, US$1.9mln,

US1.8mln and US$1.9mln, respectively, pushing total recurrent expenditure to US$222.0mln. Capital outlays

amounted to US$17.6mln during the period.

Total government debt fell to US$9.4mln at March 2019 from US$19.8mln at the end of March 2018.

Outlook

The Turks and Caicos Statistical Department projects real GDP growth of 3.8% during 2019, and sustained growth over

the medium term. The government expects that foreign direct investment in large-scale tourism-related and other projects,

complemented by increased public sector spending on capital works, will boost construction activity. Further, the ongoing

work with Carnival to further develop the Grand Turk Cruise Center berth to accommodate Carnival’s XL Class ships is

expected to improve tourism activity in 2020. Despite the US$36.6mln allocation to capital spending, the government

continues to expect a fiscal surplus (US$11.5mln) for the 2019/20 fiscal year, US$6.3mln of which is dedicated to the

continued reduction of its debt.


Source: Turks and Caicos Financial Services Commission and CIBC FirstCaribbean.

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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

$70mln 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.

Canadian Personal and Small Business Banking

Canadian Personal and Small Business Banking provides personal and small business clients across Canada with

financial advice, products and services through a team of advisors in our banking centres, as well as through our direct,

mobile and remote channels.

We have been focused on building a strong, innovative, relationship-oriented bank. To accelerate our transformation and

deliver on our objective to be the best retail and small business bank in Canada, we maintain two strategic priorities:

Enhancing the client experience by making it easier for our clients to bank when, where and how they want.

Profitable revenue growth achieved by helping our clients through deeper relationships and advice.

Canadian Commercial Banking and Wealth Management

Canadian Commercial Banking and Wealth Management provides high-touch, relationship-oriented commercial and

private banking, as well as wealth management services to meet the needs of middle-market companies, entrepreneurs,

high-net-worth individuals and families, along with institutional clients across Canada.

Our goal is to be the leading relationship bank in Canada for our commercial and wealth clients by delivering best-in-class

advisory capabilities, value and long-term growth.

U.S. Commercial Banking and Wealth Management

U.S. Commercial Banking and Wealth Management provides high-touch, relationship-oriented commercial, personal and

small business banking, as well as wealth management services to meet the needs of middle-market companies,

executives, entrepreneurs, high-net-worth individuals and families in the markets we serve in the U.S.

Our goal is to build the go-to commercial and wealth management bank for our chosen client segments and markets with

a focus on developing deep, profitable relationships leveraging the full complement of CIBC’s products and services

across our North American platform.

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

collaborate with our partners across our bank to deepen and enhance client relationships.



About CIBC FirstCaribbean

CIBC FirstCaribbean International Bank is a relationship bank offering a range of market-leading financial services through

our Corporate Investment Banking, Wealth Management, and Retail Banking segments.

Headquartered in Warrens, Barbados, we provide banking services to our clients through approximately 3,100 employees,

in 100 branches and offices. We are one of the largest, regionally listed financial services institution in the English and

Dutch-speaking Caribbean.

As a member of the CIBC Group of companies, we share with them an organizational culture based on core values of

Trust, Teamwork, and Accountability.

CIBC FirstCaribbean operates within a well regulated environment, under the supervision of the ten banking regulators

across our 16 markets, including Antigua and Barbuda, Aruba, The Bahamas, Barbados, British Virgin Islands, Cayman

Islands, Curaçao, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Maarten, St. Vincent and the

Grenadines, Trinidad and Tobago and Turks and Caicos Islands.

CIBC FirstCaribbean is traded on the stock exchanges of Barbados, Trinidad and Tobago, The Bahamas and Eastern

Caribbean.

A full service institution, we lead the market in providing innovative solutions for our clients, including:

State-of-the-art branch banking which is currently being rolled out across the region, featuring a functional,

ergonomic environment with electronic, seated queuing systems for service identification and prioritization;

dedicated corporate banking facilities and wealth management services in an upscale, lounge-type setting

A range of electronic banking solutions for full service in quick time, including an enhanced internet and mobile

banking service.

Enhanced private banking service for Domestic Wealth Management clients, including Platinum Service priority

access in branches, dedicated wealth management centres, financial advice by certified financial planning experts

and Platinum cards services for the discerning customer.

Support for corporate clients with best-in-class relationship management products and services.

CIBC FirstCaribbean is focused on developing strong relationships with its clients and is committed to being a best

practice institution, with a focus on listening to and working closely with our clients to help them achieve what matters to

them.

Caribbean Market Overview – Q1 2019


Notes

FCIB LEGAL DISCLAIMER

Canadian Imperial Bank of Commerce has a controlling interest in FCIB.

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Luis HurtadoDirector

FICC Strategy Fixed Income Currencies & Distribution

CIBC Capital Markets Brookfield Place

161 Bay Street, 5th Floor Toronto, ON M5J 2S8 Tel. +1 416 594-8284

[email protected]

Paul DouglasExecutive Director

Global Markets Caribbean and Latin America

CIBC Capital Markets Brookfield Place

161 Bay Street, 5th Floor Toronto, ON M5J 2S8 Tel. +1 416 594-8506

[email protected]

Dean ChangExecutive Director & Head

Client Solutions Group CIBC FirstCaribbean International Bank

Head Office Warrens, St. Michael BB22026 Barbados Tel: +1 246 367-2845

[email protected]

Tiffany Grosvenor-DrakesSenior Manager,

Strategy and Economics CIBC FirstCaribbean International Bank

Head Office Warrens, St. Michael BB22026 Barbados Tel: +1 246 367-2227

[email protected]

caribbean market overview - q3 2019 · caribbean market overview – q3 2019 2 cibc capital markets...

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