CARIBBEAN ECONOMIC REPORT June 2017

Venezuela’s Crisis Spills Over to the Caribbean The IMF reported that the Venezuelan economy is expected to remain in a

deep recession and on a path to hyperinflation. Real GDP is expected to fall by 7.4% in 2017, following an estimated 18% decline in 2016 and 6.2% in 2015. Wholesale price inflation is estimated at 470% in 2016, while consumer prices

rose 274% in 2016 and are expected to rise further by 1,134% in 2017. The IMF further stated “’s social conditions continue to deteriorate rapidly, with poverty in 2016 rising to 82% of households, 50% of which are classified

as being in extreme poverty...further aggravated by lack of medicines and the collapse of the health system...with the homicide rate increasing to 92 murders per 100,000 inhabitants in 2016, up from 79 in 2013.” It is possible

therefore, that Venezuela now has the highest homicide rate in the world. Could high and increasing levels of crime and violence in the Caribbean be related to similar trends in Venezuela? According to an IDB report, crime and

violence costs the Caribbean 3% of GDP, and “An average of 40% of the Carib- bean population identifies crime and security-related issues as the main prob- lem facing their country, even above poverty, the economy, or inequality. In

Central Bank Net Foreign Assets : several Caribbean countries, crime has increased over the last decade, with USD millions 950 homicide rates more than doubling and the countries concurrently becoming 900 more violent”. The report further states “Weapons manufactured in the Unit- 850 800 ed States, Venezuela, , , and the are both 750 sold legally (for domestic sale to law enforcement and to licensed owners) 700 and smuggled illegally into Caribbean countries”. The World Bank also report- 650 ed “Weapons manufactured or otherwise available in South America are 600

550 smuggled through Venezuela, and to T&T via fishing vessels

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May-15 May-16 May-14 and private pleasure boats”. Are our Caribbean leaders responding appropri- Source: of Aruba, RBC Financial (Caribbean) Limited ately to this serious and increasing threat, either individually or collectively?

Aruba — Economy contacted 0.6% in 2016 The Central Bank (CBA) reported that GDP contracted by 0.6% in 2016 but

growth of 3.4% is expected for 2017, driven mainly by upgrades to the refin-

ery. Overall visitor nights fell 4.3% in 2016 on lower Venezuelan stopover arri- vals, while US stopovers showed growth of 0.4% in 2016. In Q1 2017, stopover

arrivals fell 15% y/y, as a 55% drop in arrivals from ‘other’ markets pertains Marla Dukharan Group Economist mainly to travelers from Venezuela. In the first two months of this year, RBC Caribbean cruise passenger arrivals fell 1.1% y/y, Caribbean Tourism Organization (CTO) (868) 688-9845 [email protected] data show. CBA net foreign assets grew almost 15% y/y in March 2017 to USD929.5 million, which we estimate at roughly 5.2 months of import cover.

Central Bank External Reserves : The Bahamas — New Government, high expectations USD Millions 1100 Central Bank reports show external reserves declining 6.2% y/y at the end of 1050 April 2017 to USD951.75 million, which we estimate at 2.3 months of imports. 1000

950 According to the recent Budget announcement, zero growth is estimated for 900 2016, contributing to weaker fiscal revenues. This, combined with higher

850 spending than expected, resulted in a fiscal deficit of BSD500 million 800

750 (excluding arrears currently estimated at BSD300 million), versus BSD100 mil-

700 lion budgeted in FY2016/17. The fiscal deficit is budgeted at BSD323 million

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May-15 May-16 Source: Central Bank of the Bahamas, RBC Financial (Caribbean) Limited or 3.5% of GDP in FY2017/18, based on revenue and expenditure measures. International Reserves : USD '000 900,000 850,000 Barbados — Fiscal devaluation, steep adjustment ahead 800,000 750,000 Central Bank (CBB) data show reserves fell 25% y/y in March 2017 (22nd con- 700,000 650,000 secutive month of y/y declines) to USD353 million, which we estimate at 10.7 600,000 550,000 weeks of imports. CBB holdings of Central Government debt grew 58.4% y/y 500,000 450,000 in March 2017 to BBD2.11 billion, or 72% of CBB total assets. The FY2017/18 400,000 350,000 budget was revised from a projected deficit of BBD583.6 million or 6.3% of

300,000 GDP, to a surplus of BBD4.4 million. See here for a full report on the budget.

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Mar-01 Mar-08 Mar-15

Feb-04 Feb-11

Aug-00 Aug-07 Aug-14

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May-02 May-09 May-16 Source: Central Bank of Barbados, RBC Financial (Caribbean) Limited — New coalition government installed CTO data show stopover arrivals fell 1.4% y/y in Q1 2017, as 24.5% less Euro- peans and 5.2% less tourists from ‘other’ markets, visited. Similarly, cruise passenger arrivals fell 6.5% y/y in Q1 2017, according to the CTO. A coalition Government was installed for the first time recently, and has inherited an economy that has grown for six consecutive years, while recording wider fis- cal surpluses for four consecutive years to 2016, bringing debt down for five years straight by an average of 3% per annum.

Cuba — Russia sends oil as Venezuela supply dwindles Reports indicate that shipments of crude oil from Venezuela have dropped by about 40% in the last year, so Russia has stepped in, sending an initial ship- ment of 249,000 barrels in May. Cuba produces roughly half its fuel needs, or an estimated 4 million tonnes per annum. Venezuela had provided an esti- mated 90,000 bpd or 60% of Cuba’s fuel needs over several years, and overall assistance had been estimated at USD10-12 billion per annum. Rosneft, Rus- sia’s state oil company, announced an agreement to supply 250,000 tonnes of oil and diesel fuel to Cuba, a deal estimated by some at USD100 million. Net Official Reserves : Curacao and NAf Millions 2,400 2,300 Curacao and Sint Maarten — Venezuela affects tourism 2,200 Following a 5.6% fall in stopovers to Curacao in 2016 based mainly on less 2,100 Venezuelan visitors, in January 2017 there was a further 7.1% y/y drop, this 2,000 P r o 1,900 v time on lower arrivals across all major source markets, CTO data show. i s 1,800 i Cruise passenger arrivals to St. Maarten expanded 15.5% y/y in Q1 2017. Re- o 1,700 n a l 1,600 serves are estimated by the Central Bank to have declined by 7.24% y/y in

1,500 May 2017 to NAf2,088 million, which we estimate at 5.9 months of reserves.

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Source: Central Bank of Curacao and Sint Maarten, RBC Financial (Caribbean) Limited

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Dominican Republic—Growth slows to 5.2% in Q1 2017 Inflation Rate : The Dominican Republic % change y/y

4.0 3.70

The Central Bank (BCRD) maintained its policy rate in May, citing April 2017 3.68

3.51

3.49 3.41

3.34 3.5

3.14 3.13

inflation at 3.51%, within 4% ± 1% target, and falling slightly to 3.11% y/y in 3.11

2.99 2.88

2.84 3.0

2.83

2.82

2.68

2.53 2.34

May. Growth is estimated by BCRD at 5.2% y/y in Q1 2017, and projected to 2.33 2.5 1.91

1.85 2.0

1.75

1.74 1.71

hit 5.0-5.5% for the full year. Credit growth reached 10.5% y/y in May 2017, 1.70

1.59

1.58

1.54 1.47

1.35 1.5

1.23 1.16

supporting economic expansion. The fiscal deficit is forecast at 2.3% of GDP, 1.02 0.91

0.88 1.0

0.64

0.62

0.50 0.43

and foreign reserves are expected to expand this year. CTO data show stopo- 0.39 0.5

0.23

0.04 -

ver arrivals grew 3.8% and cruise passenger arrivals by 32.9% y/y in Q1 2017. 0.0

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May-15 May-16 May-17 May-14 -0.5 Source: Central Bank of the Dominican Republic, RBC Financial (Caribbean) Limited Net International Reserves : Guyana Guyana—International reserves decline further USD Millions 850

Central Bank (BoG) reports show net international reserves declined for a 800 fourth consecutive month, by 2.29% y/y to USD589.5 million in April 2017, 750 which we estimate at 3.4 months of imports. This was due to a deficit of 700 USD8.7 million being recorded on the balance of payments in Q1 2017, down 650 600 159% y/y from a surplus of USD14.7 million in Q1 2016, primarily because the 550 merchandise trade deficit widened. Inflation increased to 0.6% in March 2017

500

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based mainly on higher food prices, BoG data show. Jul-12

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May-12 May-13 May-14 May-15 May-16 Source: Bank of Guyana, RBC Financial (Caribbean) Limited Monthly Average USD Selling Rate : JMD / USD JMD 132 Jamaica — International reserves exceed IMF target JMD 130 JMD 128 JMD 126 Notwithstanding persistent challenges, broad-based socio-economic progress JMD 124 JMD 122 JMD 120 continues apace in Jamaica as various reforms yield results. The IMF reported JMD 118 JMD 116 JMD 114 after a recent staff visit; declining debt on a primary fiscal surplus over 7% of JMD 112 JMD 110 JMD 108 GDP for four consecutive years, rising international reserves, but unemploy- JMD 106 JMD 104 JMD 102 ment remains high. The Central Bank (BoJ) lowered its policy rate by 25bps JMD 100 JMD 98 JMD 96 to 4.75% in April, although inflation increased to 4.78% (the highest since JMD 94 JMD 92

January 2015), and credit growth stood at 30.7% y/y in February 2017. The

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1-May-13 1-May-14 1-May-15 1-May-16 1-May-17 BoJ expects inflation to remain within their 4-6% target range in FY 2017/18. Source: Bank of Jamaica, RBC Financial (Caribbean) Limited Reserves expanded 16% y/y to USD2.7 billion or 21 weeks if imports in May Reserves in Weeks of Goods and Services Imports : Jamaica # weeks of import cover 2017. In Q4 2106, the current account deficit fell to USD38.1 million or 0.3% 24 of GDP—a 20-year low according to the BoJ. The last winter tourist season 22 was the best ever recorded, as tourism revenues reached USD1 billion in win- 20 18 ter alone, whereas tourism revenues usually average just over USD2 billion 16 per annum. A record 4.2 million visitors are expected in 2017, BoJ stated. 14 CTO data show 2.2 billion stopovers, up 2.8%, and 1.7 billion cruise passen- 12

gers, up 5.5%, visited Jamaica in 2016. Stopovers grew 2.1% y/y to February 10

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May-14 May-15 May-16 May-17 2017, while cruise passenger arrivals expanded 3.7% y/y, CTO data show. May-13 Source: Bank of Jamaica, RBC Financial (Caribbean) Limited

International reserves: Suriname Suriname—Reserves expand 81% y/y in May 2017 USD Millions Central Bank (CBvS) data show reserves expanded 81% y/y to USD384.9 mil- 800 700 lion in May, which we estimate at 2.2 months of imports. The IMF program 600 appears to have stalled, so the policy stance is unclear. A managed float is 500 the foreign exchange regime that appears to have been adopted, taking the 400 exchange rate from SRD4.00/USD1.00 in late 2015 to SRD7.58 at the time of 300 writing. The pass through effects of the SRD’s devaluation has seen inflation 200

100

peak at 79.2% in October 2016, subsiding steadily to 31% in April 2017.

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Source: Central Bank of Suriname, RBC Financial (Caribbean)

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Net Official Reserves : T&T—Sub-investment grade now, adjustment continues USD Millions 11,500 11,300 Moody’s downgraded T&T’s sovereign credit rating to non-investment / spec- 11,100 10,900 ulative grade, assigning a stable outlook to the rating. Please see here for an 10,700 10,500 10,300 analysis of this rating action. There are now no remaining investment grade 10,100 9,900 sovereigns in the Caribbean. Central Bank (CBTT) Financial Stability Report 9,700 9,500 9,300 points to a stable financial sector despite macroeconomic pressures; overall 9,100 8,900 non-performing loans down from 3.7% of total loans in 2015, to 3.215% in 8,700

8,500 2016, alongside slower credit growth at 1.8% in 2016, down from 8.4% in

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May-14 May-15 May-16 May-17 Source: Central Bank of Trinidad and Tobago, RBC Financial (Caribbean) Limited 2015. The CBTT held the policy rate steady at 4.75% in May as inflation was fairly steady at 2.8% in March 2017, reflecting the slowing pace of TTD depre- Monthly Average USD Selling Rate : Trinidad and Tobago TTD / USD selling rate 6.90 ciation against the USD. The TTD slipped 1.72% y/y against the USD in May

2017, bringing the average USD selling rate to TTD6.7802. Total FX sales to

6.7802 6.7802

6.7801

6.7782 6.7777

6.7776 6.80

6.7754

6.7507

6.7421 6.7392

6.7025 Banks for the 12 months to May 2017, from the CBTT declined 5.85% y/y to

6.70

6.6656 6.6654

6.6315 USD2.045 billion, and from the public by 19% y/y to USD3.8 billion. As such, 6.5944 6.60

6.519 total FX sales to banks have declined 15% y/y over that period to USD5.85

6.50

6.4662

6.4593

6.4578

6.4529

6.4525

6.4493 6.4342

6.4329 billion. Meanwhile, foreign reserves fell 7.5% y/y in May 2017 to USD8.95 bil-

6.411 6.3839

6.3786 6.40

6.3736

6.3717

6.3706

6.3687

6.367

6.3657

6.365

6.3647 6.3647

6.3627

6.3625

6.3624 6.3607 6.3597 lion or 9.9 months of imports—the first time reserves have dipped below USD9

6.30

billion since March 2010, and below 10 months of imports since May 2008.

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May-14 May-15 May-16 May-17 Source: Central Bank of Trinidad and Tobago Online Statistics, RBC Financial (Caribbean) Limited

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 Aruba 107 2.8 24,402 BBB+ (Positive) -0.6% 7.6% 85.0% 5.2 -0.9% The Bahamas 347 8.5 22,754 BB+ (Stable) 0.0% 11.6% 85.0% 2.3 -0.4% Barbados 274 4.5 16,307 B- (Negative) 1.6% 10.0% 156.6% 2.0 -0.8% Cayman 58 3.6 54,338 Aa3 (Stable) 2.5% 3.9% 17.0% 1.8 0.6% Cuba 11,300 77.1 6,848 Caa2 (Positive) -0.9% 3.0% 22.3% n/a 1.2% Curacao 143 3.0 20,260 A- (Stable) 0.0% 11.7% 45.6% 5.9 -0.4% Dom Rep 10,400 60.8 7,000 BB- (Stable) 5.2% 5.7% 50.0% 3.9 3.1% ECCU 637 5.2 8,163 n/a 2.6% 20.0% 76.0% 5.4 -1.8% Guyana 756 2.7 3,596 Not rated 3.3% 11.0% 49.0% 3.4 0.6% Jamaica 2,751 15.3 5,526 B (Stable) 1.5% 12.9% 120.0% 4.8 4.8% St. Maarten 43 0.8 26,025 Baa2 (Stable) 0.1% 8.9% 36.5% 5.9 -0.2% Suriname 541 5.1 5,000 B1 (Stable) -10.4% 9.0% 47.5% 2.2 31.0% T&T 1,400 23.8 17,935 Ba1 (Stable) -10.8% 4.4% 82.4% 9.9 2.8%

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