CARIBBEAN ECONOMIC REPORT June 2016

Venezuela : The Resource Curse at its Finest According to OPEC, has produced crude oil for over a century, but

still has proven reserves of roughly 300 billion barrels—the highest in the world. Commensurate with the magnitude of this natural resource endow- ment, is the extent of Venezuela’s punitive paradox of plenty. Several years

of spectacular macroeconomic mismanagement under the guise of socialism has wrought epic deterioration in living conditions not usually associated with

peacetime. Venezuela’s currency lost 99% of its value over the past 4.5 years Parallel Exchange Rate Depreciation : Venezuela according to Forbes, as the money supply doubled in the past twelve months alone. The IMF expects inflation to exceed 700% this year, as the economy contracts by a projected 8%, and the longstanding fiscal deficit expands to 24% of GDP. The 2015 Corruption Perceptions Index ranks Venezuela 158/167

countries. On the 2015/16 Global Competitiveness Index, Venezuela ranked 132/140, but placed last globally on institutional strength, goods market, and labour market efficiency. The World Bank’s 2016 Ease of Doing Business index

ranks Venezuela at 186/189 countries. The 2016 Index of Economic Freedom classifies Venezuela as ‘repressed’ at 176/178 countries. On the 2014 Human Development Index however, Venezuela ranked 71/188 countries, despite Source : Moody’s having the second highest homicide rate in the world, which has risen consist- ently since 1995. Also, latest data from the World Bank show that over 32% of the population lived below the poverty line in 2013. Despite this, the 2016

World Happiness Report ranked Venezuela as the 44th happiest country out of 157, recording the 5th biggest decline worldwide, in happiness since 2007. Venezuela’s spillover effects on the Caribbean transcend the economics of PetroCaribe, bilateral agreements, and trade. Venezuela’s tragic unravelling

has incentivized the rising informality and / or illegality of activities related

Source : Global News Matters to the growing emigration to, and trade with the Caribbean, the socio-

economic impact of which is not likely to be positive—for the latter at least.

Aruba — Deflation quickens to 1.8% in March 2016 y/y (CBA) reported deflation at 1.8% y/y in March, up from 0.6% in February 2016, due mainly to falling gasoline and electricity prices. CBA data

show a 6.3% y/y increase in stopover arrivals, on 12.2% more Latin American

Marla Dukharan (mostly Venezuelan) and 2.4% more North American visitors. This dynamic Group Economist saw visitor nights growing only 1.6% y/y, and the average length of stay fall- RBC Caribbean (868) 688-9845 ing to 6.6 nights in March 2016, down from 6.9 one year prior. CBA reserves [email protected] increased 28.4% y/y in March 2016 to USD809 million, which we estimate at roughly 4.5 months of imports.

Central Bank External Reserves : The Bahamas — 1.7% contraction in 2015, 0.5% in 2014 USD Millions

1025 The Central Bank (BCB) reported that in Q1 2016, there was a 5% y/y drop in 975 total room revenue, average occupancy fell 2.0 percentage points (pp) y/y to 925 73.7%, and the average daily room rate slipped by BSD10.46 or 3.7% y/y to 875

825 BSD275.33. BCB external reserves expanded 9.6% y/y to USD1,007.5 million— 775 the highest level since July 2014—which we estimate at 3 months of imports. 725

675 The Budget Communication for FY2016/17 outlined a deficit of BSD100 mil-

625 lion or 1.1% of GDP, down from BSD150 million in FY2015/16 (versus plan of

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May-15 May-14 Source: Central Bank of the Bahamas, RBC Financial (Caribbean) Limited BSD141 million or 1.5% of GDP, despite stronger VAT revenues than budget- Non-performing Loans : The Bahamas ed). The economy is now estimated to have contracted by 0.5% in 2014 and % Non-performing / Total Loans 17.5%

17.0% 1.7% in 2015, but growth of 0.5% is expected this year. 16.5% 16.0%

15.5% — Fiscal deterioration elicits warnings

15.0% The IMF expects 2.1% growth in 2016, mainly on tourism related investment, 14.5% following 0.8% growth in 2015 and 0.2% in 2014, on higher tourism activity 14.0% and employment. Net international reserves fell by USD57 million since the 13.5%

13.0% beginning of 2015, reflecting lower FDI and debt amortization, the IMF re-

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Source: Central Bank of the Bahamas, RBC Financial (Caribbean) Limited ported. The FY2015/16 deficit target was not met, public sector debt in-

Central Bank Total Claims on Central Government : Barbados creased to 105.5% of GDP, up from 98% in FY2013/14, and the “large cash BBD Millions 1,500,000 1,400,000 requirements of the government are a challenge increasingly met by the Cen- 1,300,000 1,200,000 tral Bank”, the IMF cautioned. Indeed, Central Bank (CBB) online data show 1,100,000 1,000,000 900,000 its total claims on central Government expanded by 57.3% y/y in April 2016 800,000 700,000 to BBD1.43 billion or 57% of CBB total assets, equivalent to 22% of gross Gov- 600,000 500,000 ernment domestic debt. The CBB’s May 2016 economic letter warned that the 400,000 300,000 fiscal adjustment is incomplete, and a downward trajectory in the fiscal defi- 200,000 100,000

0 cit must be maintained, stating “Government’s borrowing requirement still

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Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Source: Central Bank of Barbados, RBC Financial (Caribbean) Limited exceeds the surplus funds banks and insurance companies have available to

Monetary Base : Barabdos lend to Government.” The FY2015/16 cash deficit of BBD648.4 million or 7.4% BBD '000 2,100,000 of GDP (up from BBD600 million or 6.9% of GDP in FY2014/15) was financed 1,900,000 partly by BBD238 million “from additional liquidity which commercial banks 1,700,000 accumulated at Central Bank”, and BBD190 million of “newly created mon- 1,500,000 ey”, the CBB reported. The consequent expansion in the monetary base, av- 1,300,000 eraging 28% y/y every month since September 2014, appears to be putting

1,100,000 pressure on foreign reserves, which lost 18% y/y in April 2016 to reach

900,000 USD469 million or 14 weeks of imports, according to the CBB.

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Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Source: Central Bank of Barbados, RBC Financial (Caribbean) Limited Real GDP Growth : The % change y-o-y Cayman Islands — 2.8% deflation and stopover declines 4.3% 5.0% Prices declined for a fifth consecutive quarter, bringing deflation to 2.8% in

2.4% 3.0% Q1 2016 y/y, on lower fuel and electricity prices, which also drove total im- 1.7% 1.2% 1.2% 1.4% 1.0% ports down 6.3% in 2015, the Economics and Statistics Office (ESO) reported.

2007 2008 2009 2010 2011 2012 2013 2014e 2015f -1.0% Following 0.7% growth in stopover arrivals in 2015 on more travellers from -0.2% the USA and ‘other’ source markets, the Cayman Islands saw a 2.5% y/y drop -2.7% -3.0% in stopovers in Q1 2016, as less travellers came from Europe, Canada and -5.0% ‘other’ source markets, Caribbean Tourism Organization (CTO) data show. -6.3% -7.0%

Source: Cayman Islands Economics and Statistics Office, RBC Financial (Caribbean) Limited

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Cuba — 93% y/y growth in USA tourists to April 2016 Global News Matters (GNM) reported that 1.5 million tourists visited Cuba from January to April 2016, up 13.5% y/y, of which 6.3% were American and 7.7% Cuban-American—a 93% y/y increase in travellers from the USA. GNM reported that population growth fell to 0.06% or 727 persons in 2015, while 19.4% of the population is over 60 years old and 16.5% under 14 years old.

Curacao and — Lackluster growth persists The IMF reported investment driven growth in Curacao of 0.1%, and tourism driven growth in St. Maarten of 0.5% in 2015. The crisis in Venezuela, Cura- Net Official Reserves : Curacao and Sint Maarten NAf Millions 2,400 cao’s largest trading partner, is having a considerable negative impact on 2,300 trade balances and tourism in Curacao, but the economy is expected by the 2,200 IMF to expand by 0.5% in 2016, intensifying to 0.7% in 2017-18 and 0.9% in 2,100 2,000 P r 2021. St. Maarten’s growth is expected by the IMF to reach 0.9% in 2017, in- o 1,900 v i s 1,800 creasing steadily to 1.3% in 2021. Soft energy prices have kept inflation low, i o 1,700 n a but high unemployment persists especially among the youth, as reported by l 1,600

the IMF. Central Bank net official reserves is projected to post its fifth con- 1,500

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May-14 May-15 secutive month of decline in May 2016, to USD1.25 billion. Source: Central Bank of Curacao and Sint Maarten, RBC Financial (Caribbean) Limited Real GDP Growth : The % change y-o-y 7.8% 8% 7.3% 7.0% Dominican Republic — Incumbent secures second term 7% The ruling administration was successful in securing another term in office in 6% 5.3% 5.4% recently held general elections, with a voter turnout of about 70%. S&P af- 4.8% 5% 4.5%

4% firmed its BB- (stable) rating, citing a well diversified economy, above peer- 3.5% average growth, and fairly stable external debt and liquidity, tempered by 2.6% 3%

2% institutional weaknesses, and higher (48% of GDP by 2018) and more costly 1% debt expected on lower PetroCaribe funding. S&P estimates average real per 0% 2008 2009 2010 2011 2012 2013 2014 2015e 2016f capita GDP growth at 3.8% over the past five years, and expects 5% growth Source: IMF, RBC Financial (Caribbean) Limited between 2016-2018, following 7.3% in 2014 and 7% in 2015—the region’s high- Inflation Rate : The Dominican Republic % change y-o-y

4.0 3.70

est. S&P does not expect Cuba’s greater openness to American travelers to 3.68 3.49

3.41 3.5 3.13

meaningfully affect tourism in the Dominican Republic in the next three to 2.99

2.88

2.84 2.83

2.82 3.0

2.68 2.53 four years. Following 8.9% growth in stopover arrivals to 5.6 million in 2015 2.34 2.5

2.0

1.75

1.74

1.59 1.58

according to the CTO, Q1 2016 saw a 0.4% y/y contraction in stopovers, driv- 1.54

1.5

1.23

1.16 1.02

en by a 17.2% y/y decline in stopovers from ‘other’ markets, however. 1.0

0.64

0.62

0.50 0.43

0.39 0.5 0.23

0.04 - 0.0 — IMF commends economic resilience & growth

-0.5

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May-14 May-15 The IMF estimates 3% growth in 2015 and expects 4% growth this year, on Source: Central Bank of the Dominican Republic, RBC Financial (Caribbean) Limited public investment and two new large gold mines. In two years, the NPL ratio Net International Reserves : Guyana USD Millions 850 has almost doubled to 11.5% of total loans in December 2015, the IMF report- 800 ed. Reserves declined 0.53% y/y in April 2016 to USD603 million, which we 750 estimate at 3.65 months of imports. 700

650 — IMF driven reforms on track but growth weak 600 Two years into an IMF supported economic reform program, macroeconomic 550

stability has been restored, fiscal deficits and debt has been reduced, infla- 500

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May-12 May-13 May-14 May-15 tion is at historical lows, and USD reserves have doubled, the IMF reported. Source: Bank of Guyana, RBC Financial (Caribbean) Limited

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International reserves: Suriname — USD478MM two-year IMF Stand-by program USD Millions 800 Central Bank data show the USD selling rate at SRD6.76 on May 30th—a depre-

700 ciation of over 100% since November 2015, as international reserves plum- 600 meted 61% y/y to USD231 million in April 2016, which we estimate at just

500 over one month of imports. The IMF’s two-year USD478 million stand-by ar- 400 rangement will support the Government’s home-grown economic reforms, 300

200 including fiscal consolidation, changes to the exchange rate and monetary

100 policy frameworks, and reforms to support a private sector led growth strate-

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Nov-14 Nov-15 May-14 May-15 gy. The IMF expects a 2% contraction in 2016, following 0.1% growth in 2015. Source: Central Bank of Suriname, RBC Financial (Caribbean)

T&T — IMF expects 2.7% contraction in 2016 The Central Bank’s (CBTT) release shows inflation (April 2016) and unemployment (December 2015) both inching up slightly to 3.5%. The report indicated that the IMF’s 2016 growth projection was revised from –1.1% in March to –2.7% in May 2016. CBTT estimates between 2010 and 2015, every USD1.00 change in crude oil prices affected export earnings by USD50 million. The quantum of USD being sold to FX dealers declined 13% y/y in April 2016 to USD456 million, with CBTT injections alone down 33% y/y. Net official reserved declined 14.6% y/y in April 2016 to 11 months of imports.

Caribbean Economic Indicators

Nominal GDP Import Popl'n GDP (USD Per capita Credit Rating change Unemplo Gross Public cover Inflation (000) Billions) GDP (USD) & (outlook) y/y yment Debt / GDP (months) y/y 107 2.6 24,402 BBB+ (Stable) 0.1% 7.6% 80.1% 4.5 -1.8% The Bahamas 347 8.5 23,417 BBB- (Negative) -1.7% 14.8% 76.5% 3.0 1.6% Barbados 274 4.5 16,307 B (Negative) 0.8% 11.3% 107.0% 3.3 -1.1% Cayman 58 3.0 54,338 Aa3 (Stable) 1.9% 4.7% 21.0% n/a -2.8% Cuba 11,300 77.1 6,848 Caa2 (Positive) 4.7% 3.0% 22.3% n/a 1.2% Curacao 143 3.0 20,260 A- (Stable) 0.1% 11.7% 44.3% 6.7 -0.5% Dom Rep 10,400 60.8 7,000 BB- (Stable) 6.1% 5.7% 48.5% 3.5 1.8% ECCU 605 5.7 8,922 n/a 2.2% 20.0% 81.0% 8.0 -1.0% Guyana 756 2.7 3,596 Not rated 3.0% 11.0% 65.0% 3.7 -1.8% Jamaica 2,751 15.3 5,526 B (Stable) 1.5% 13.3% 125.0% 5.3 3.7% St. Maarten 43 0.8 26,025 Baa2 (Stable) 0.5% 8.9% 36.5% 2.8 0.3% Suriname 541 5.1 9,339 B+ (Negative) 0.1% 9.5% 46.1% 1.2 36.6% T&T 1,328 23.8 17,935 A- (Negative) -2.0% 3.5% 68.4% 10.9 3.5%

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