3. Caribbean Market Overview – 2015 Q2
CIBC Macro Strategy – Capital Markets Trading July 2015
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4. Caribbean Market Overview – 2015 Q2
CIBC Macro Strategy – Capital Markets Trading July 2015
Table of Contents
Caribbean Market Review......................................................................................................... 2
Caribbean Economic Review .................................................................................................... 9
Anguilla.................................................................................................................................... 11
Antigua and Barbuda............................................................................................................... 13
Aruba....................................................................................................................................... 15
The Bahamas .......................................................................................................................... 17
Barbados ................................................................................................................................. 19
Belize....................................................................................................................................... 21
Bermuda.................................................................................................................................. 23
Cayman Islands....................................................................................................................... 26
Costa Rica............................................................................................................................... 29
Curaçao................................................................................................................................... 31
Dominica ................................................................................................................................. 33
Dominican Republic ................................................................................................................ 35
Grenada .................................................................................................................................. 38
Jamaica ................................................................................................................................... 40
St. Kitts and Nevis................................................................................................................... 43
St. Lucia .................................................................................................................................. 45
Sint Maarten ............................................................................................................................ 47
St. Vincent and the Grenadines .............................................................................................. 49
Trinidad and Tobago ............................................................................................................... 51
Turks and Caicos .................................................................................................................... 54
About CIBC ............................................................................................................................. 56
About CIBC FirstCaribbean..................................................................................................... 57
Notes ....................................................................................................................................... 58
5. Caribbean Market Overview – 2015 Q2 1
CIBC Macro Strategy – Capital Markets Trading July 2015
Caribbean Market Review
6. Caribbean Market Overview – 2015 Q2 2
CIBC Macro Strategy – Capital Markets Trading July 2015
Caribbean Market Review John H. Welch
CIBC Macro Strategy
Summary
Better economic performance and outlook for the Caribbean region has helped the performance of sovereign bonds with
all credits tightening in Q2 2015. Significantly lower energy prices combined with continued US and UK recovery and
better prospects for European growth have driven a strong recovery in tourism, with Bermuda the only laggard. The better
performance is already showing up in a recovery in foreign exchange reserves. As we had thought, Caribbean bonds
recovered strongly after the large sell-off of late 2014 and they continue to perform with the exception of Costa Rica. We
remain constructive on Caribbean bonds. We see continued fiscal adjustment and the recent improvement should persist.
Barbados is finally seeing strong recovery in tourism and showed significant improvement in its fiscal accounts.
Nevertheless, Barbados is not yet out of the woods but is significantly closer than as recently as one year ago. The
Bahamas continues to put in decent growth numbers but faces a challenge with the Chapter 11 bankruptcy of the Baha
Mar resort project. Jamaica and the Dominican Republic continue to consolidate strong fiscal gains. We still like Barbados
despite its difficulties, especially the Barbados ‘22s. The Barbadian government’s fiscal initiatives have led to strong
buying and outperformance, even compared to the Dominican Republic. Jamaica continues to perform, keeping on track
with its IMF program. Our positive expectations have proven correct but we do not see major obstacles to continued good
performance despite the US Federal Reserve inching closer to tightening. Hence, we would recommend buying
ARUBA 4 5/8 09/14/23s, BAHAMA 6.95 11/20/29s, BARBAD 7 08/04/22s, BERMUD 4.854 02/06/24s,
CAYMAN 5.95 11/24/19, DOMREP 6.6 01/28/24, and JAMAN 7 5/8 10/17/25. Costa Rica’s fundamentals continue to
deteriorate and we keep our sell recommendation on COSTAR.
• Barbados: On June 15, 2015, the government presented the 2015/16 budget, gave a progress report on the
Fiscal Stabilization and Economic Revitalization programs, and sent the much-awaited budgetary proposal to
parliament. Finance Minister Christopher Sinckler listed as achievements: 1) the rise of foreign exchange
reserves at 16.1 weeks as of the end of March 2015 of imports of goods and services, up from 14.7 weeks at the
end of 2014; 2) fiscal deficit down to 6.6% of GDP from 11.8% of GDP in March 2014; 3) established foundation
for growth through key initiatives in the tourism, energy, agriculture, international business & financial services,
telecommunications, and housing sectors; 4) BBD30 million in projected expenditure savings; and
5) BBD204.7 million in additional revenue measures. The proposed measures are expected to result in a fiscal
deficit of 3.5% to 4% of GDP on an accrual basis. The budget proposal does not address a substantial and
meaningful reduction in expenditures but focuses on revenue growth measures. The presentation did not go into
detail about the expenditure targets coming from the proposed reforms for governance, and the merger of State
Owned Enterprises (SOE). The finance minister underscored Barbados’ good record of repaying its debt and that
they will continue to honour debt obligations. Moreover, he rejected the notion of debt restructuring, choosing to
focus on accessing lower cost alternatives. Although this is certainly an improvement, we are disappointed that
the budget proposal focuses mostly on the revenue side without mentioning a more substantial effort to reduce
expenditures. Moreover, while there were a couple of measures aimed at reducing the cost of doing business
such as cutting business license fees for some firms and subsidizing local milk production, our general thought is
that not enough was done to facilitate additional economic growth. Still, Barbados bonds have performed well,
with Barbados ‘21s tightening 120 bps since late April (Figure 3 below). Barbados ‘21s and ‘22s continue to
outperform since our last publication. We continue to like holding Barbados bonds, especially the ‘22s.
• Bahamas: On July 2, 2015, S&P put Bahamas’s long-term BBB rating on negative watch due to the June 29,
2015 Chapter 11 bankruptcy filing of the Baha Mar resort development. They noted that it was unclear if, and
when, the Baha Mar would reopen and sustain its more than 2000 employees. They give the odds at a 50/50
chance of a downgrade to BBB- in the next 90 days following their review this quarter. Although the delayed
opening of Baha Mar will inhibit growth in the short term, economic recovery away from the project continues. The
ongoing strong recovery in the USA bodes well for economic activity. Tourism has already picked up and should
continue to grow although at a slower pace than with the resort in place. Moreover, the government has enjoyed a
recovery in tax revenue while keeping growth in expenditure low. This was done through cutting expenditure on
goods and services as well capital expenditure while containing transfer payment growth. These developments
are welcome in our view and underlie the more bullish arguments we made in our report entitled “Bahamas:
7. Caribbean Market Overview – 2015 Q2 3
CIBC Macro Strategy – Capital Markets Trading July 2015
Worth Another Look” published on August 11, 2014. With the BAHAMA 5 3/4 01/16/24 trading at a 4.49% of yield
compared to BBB- Brazil 4 7/8 02/04/25 trading at a yield of 4.53%, we think Bahamas will still perform even with
a downgrade.
• Bermuda: S&P lowered Bermuda’s long-term rating to A+ from AA- with a stable outlook on poor economic
performance. This removes the split rating with Moody’s that has an A1 (stable) rating and Fitch with A+ (stable)
as well. Bermuda’s growth disappointed. S&P cites weak economic performance and weak public finances with
the six-year recession causing declining revenues and fiscal deficits in excess of 5% for the 2012 to 2015 period.
Interest costs have grown to 11% of revenues. The split rating along with Bermuda’s poor 2014 real GDP growth
made this decision by S&P not a surprise. It also removes the final negative outlook on Bermuda. The prospects
for 2015 and beyond look much better, however, especially since Bermuda was chosen to host America’s Cup in
2017. S&P included sinking fund payments and capital expenditure in primary spending. We now do the same,
increasing our estimates of fiscal deficits. The fiscal situation shows signs of future improvement but not yet.
Revised figures show that government nominal fiscal deficit was 5.4% in 2014/15, down slightly from 6.0% of
GDP in 2013/14. The primary deficit fell marginally from 4.1% of GDP in 2012 to 1.8% of GDP expected in 2015.
Ongoing mild fiscal austerity should turn the primary balance positive only in 2018 to 0.6% of GDP and shrink the
nominal deficit to 1.6% of GDP. Bermuda still trades wide to similarly rated credits despite the downgrade, and
because it cleared the air, we recommend BERMUD ‘20s and ‘24s which now trade historically cheap relative to
other Caribbean credits.
• Costa Rica: Economic growth slowed in Q1 2015, expanding 2.68% y/y and down from the 3% posted in Q4
2014. The Costa Rican economy has steadily decelerated since the start of Q1 2014 when growth reached 4.0%.
Looking at more recent indicators, economic prospects do not look encouraging. April economic activity growth
came in at 1.3% y/y, down from 1.48% in March and the lowest since July 2010. Most industries have shown
lower dynamics with manufacturing (down 3.3% in April), hit most by Intel’s manufacturing departure from the
country. Costa Rican fiscal accounts continued to deteriorate as central government spending increased 4.5% y/y
in May while revenues decreased 1.4%. With these numbers, the 2015 central government accumulated nominal
deficit widened 0.4 p.p. to 2.3% of GDP, while the primary deficit increased by the same amount to 1.4% of GDP.
Following the IMF’s article IV mission recommendations, the government announced a plan to convert the sales
tax into a value-added tax (VAT) along with a reform to expand the VAT base to include services. Moreover, it
proposed a bill that modifies the country’s income tax code. Nevertheless, the government now faces a significant
roadblock as an opposition-led congress demands further expense cuts before approving such bills. In the most
optimistic scenario, congress would discuss these measures in Q4 2015 and introduce them in early 2016.
Having said that, the government is expected to face further financing challenges in 2016 and delay its plans
towards fiscal sustainability. Hence, although the COSTAR curve has experienced a considerable steepening
since our last report, we remain short this credit.
• Dominican Republic: Economic growth slowed slightly to 6.2% y/y in Q1 2015 from 6.6% in Q4 2014. As with
the rest of the region, the decline in energy prices as well as the increase in tourism bode well for 2015 for both
economic activity and fiscal results. We expect 5.5% growth in 2015 and 4.9% in 2016. President Danilo Medina
(PLD Partido de la Liberación Dominicana) capitalized on his high approval ratings of above 80% to pass a
constitution amendment to allow for re-election with not only the last minute approval of former-president Leonel
Fernandez (PLD) but also the once opposition PRD (Partido Revolucionario Dominicano) party. Defections from
the PRD and resentment of the move have strengthened the newly formed PRM (Partido Revolucionario
Moderno) party under Luis Abinader. The most important news on the fiscal front was the buyback of PetroCaribe
debt by the government. This caused government debt to fall almost 2% of GDP but the cash outlay expanded
the government deficit as well by about 0.3% of GDP in Q1 2015 and has put off the expected improvement of the
primary balance to a significant surplus. However, the overall fiscal situation was improved by the operation.
Fiscal accounts should improve in 2015 with lower energy costs that should have important effects but that have
still not shown up explicitly in the numbers. Arrears to the electricity sector reached DOP758 million that do not
yet appear in the fiscal accounts. Subsidies allocated through the FETE (Fund for the Stabilization of Electricity
Tariffs) that usually comprise of about 40% of the total subsidies signal a subsidy of a mere 1%. With no large
improvement of the primary balance, there is speculation that the government is spending the money on
8. Caribbean Market Overview – 2015 Q2 4
CIBC Macro Strategy – Capital Markets Trading July 2015
investment. Still, we expect the primary balance to end 2015 at a now lower 0.1% of GDP surplus and a nominal
deficit of 2.74%. Because the outlays from the PetroCaribe deal are one-off, we expect improvement in 2016 to a
primary surplus of 1.1% of GDP and nominal deficit of 1.74%. Although we remain constructive on Dominican
Republic bonds, they have become expensive relative to their peers. Still, we recommend holding the whole
DOMREP curve, especially the DOMREP 6.6 01/28/24.
• Jamaica: On June 16, 2015, Jamaica passed its eighth review to again draw around US$39.3 million on its
US$932 million IMF Extended Fund Facility (EFF). The Article IV report once again contained an adjustment to
performance criteria for the primary surplus on lower-than-expected growth. The report is still quite strong. Real
growth however is slowing. Preliminary estimates from the Planning Institute of Jamaica suggest that economic
activity rebounded marginally by 0.3% in Q1 (calendar) 2015 after falling 0.3% y/y in Q4 2015. Real GDP grew
0.53% in 2014, this after peaking on a 4-quarter basis at 1.52 in Q2 2014 but fell to 0.17% in Q1 2015. Service
sector output expanded 0.6% due to growth across all sectors except electricity and water supply (down 2.8%)
and government services (down 0.2%). Specifically, real value-added in transport and storage and
communication benefitted from higher cruise and stay-over tourist arrivals. Further, the Bank of Jamaica (BoJ)
estimates that output in tourism increased between 3.5% and 4.5% during the first quarter of the year. Data from
the Jamaica Tourist Board suggest that during the first four months of 2015, stay-over and cruise arrivals
increased 4.9% and 11.2%. Stay-over arrivals from the USA, UK, and Latin America increased 9.1%, 9.1%, and
2.6%, but the number of passengers travelling from Canada and the Caribbean declined by 5.3% and 0.2%. All
this is encouraging. We expect growth to end 2015 at 1.6%, a little lower than the IMF’s 1.9% forecast. The 2014
primary surplus came in JMD3.8 billion below target at JMD117.2 billion or 7.5% of GDP. This is a rounding error.
The nominal deficit shrunk to 0.5% of GDP in 2014/15 better than the target of 0.7% and much better than 4.1%
of 2012/13. The government continues to successfully implement tax reform and growth-enhancing reforms
including a new Electricity Reform Bill submitted to parliament in January 2015. Moreover, we expect the
government to follow the Dominican Republic and refinance its PetroCaribe debt at a discount, something that
became clear in a recent nondeal roadshow by the government of Jamaica. Consequently, we remain long
Jamaican bonds, especially the ‘25s.
9. Caribbean Market Overview – 2015 Q2 5
CIBC Macro Strategy – Capital Markets Trading July 2015
Table 1
Public Sector Fiscal Accounts and Debt 2014/15
2014/15
Primary
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 -0.1% -2.7% 95.1% 95.1% 2.9%
Aruba -4.6% -8.5% 81.2% 81.2% 1.1%
The Bahamas -1.7% -4.3% 65.8% 65.8% 1.0%
Barbados 0.8% -6.8% 99.9% 84.6% 0.2%
Belize 0.1% -2.6% 77.3% 77.3% 3.6%
Bermuda -3.9% -5.4% 38.9% -6.1% -0.2%
Cayman Islands 5.4% 4.4% 19.0% 19.0% 2.1%
Costa Rica -2.7% -5.9% 44.5% 39.0% 3.2%
Dominica -2.0% -3.8% 74.1% 74.1% 2.0%
Dominican Republic -0.5% -3.0% 35.1% 35.1% 7.3%
Grenada -1.2% -4.8% 99.1% 99.1% 2.6%
Jamaica 7.5% -0.5% 136.9% 136.9% 0.4%
St. Kitts and Nevis 14.1% 10.7% 81.0% 81.0% 5.4%
St. Lucia 0.8% -3.1% 78.4% 78.4% -2.7%
St. Vincent and the Grenadines -1.6% -3.9% 79.4% 79.4% -1.3%
Trinidad and Tobago 0.1% -1.5% 40.0% 13.7% 0.9%
Source: IMF, Eastern Caribbean Central Bank, Bloomberg, World Economic Outlook Database October 2014, Central Bank of Barbados, National Economic Report of Bermuda 2011, PWC, Cayman Islands'
Economics and Statistics Office, and CIBC World Markets
Chart 1
Investment Grade
Chart 2
High Yield (BB+ and Below)
Source: Bloomberg and CIBC World Markets Inc. Source: Bloomberg and CIBC World Markets Inc.
Chart 3
Barbados ‘21s Against DOM REP ‘21s and JAMAM '25s
Source: Bloomberg and CIBC World Markets Inc.
ARUBA '23
BAHAMA '29
BAHAMA '38
BAHAMA '24
BERMUD '20
BERMUD '23
CAYMAN '19 TRITOB '20
TRITOB '27
TRITOB '24
BAHAMA' 33
BERMUD '24ARUBA '24
0
1
2
3
4
5
6
7
0 2 4 6 8 10 12 14
YTM
Modified Duration
BARBAD '21
BARBAD '22
BARBAD '35
DOMREP '18
DOMREP '21
DOMREP
4/18/24
DOMREP
1/28/24
DOMREP '27 DOMREP '44
JAMAN '17
JAMAN '19
JAMAN 7/9/25
JAMAN
10/17/25
JAMAN '36 JAMAN '39
DOMREP '45
DOMREP '25
0
1
2
3
4
5
6
7
8
0 2 4 6 8 10 12 14
YTM
Modified Duration
-300
-200
-100
0
100
200
300
400
1-Mar-12 1-Jun-12 1-Sep-12 1-Dec-12 1-Mar-13 1-Jun-13 1-Sep-13 1-Dec-13 1-Mar-14 1-Jun-14 1-Sep-14 1-Dec-14 1-Mar-15 1-Jun-15
BARBAD '21S - DOMREP '21s
BARBAD '21S - JAMAN '25s
10. Caribbean Market Overview – 2015 Q2 6
CIBC Macro Strategy – Capital Markets Trading July 2015
Chart 4
10Y Against Benchmark
Source: Bloomberg and CIBC World Markets Inc.
10Y bonds are: COSTAR 4 3/8 04/30/25 BARBAD 7 08/04/22 DOMREP 5 7/8 04/18/24 JAMAN 9 1/4 10/17/25 ARUBA 4 5/8 09/14/23 BAHAMA 5 3/4 01/16/24 BERMUD 4.854 02/06/24
TRITOB 4 3/8 01/16/24
Table 2
Ratings of Caribbean Sovereigns
2015 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
Antigua and Barbuda NA NA AA+ Aa1 BB Ba2
The Bahamas BBB *- Baa2 AA Aa2 BB- Ba3
Barbados B B3 AA- Aa3 B B2
Belize B- Caa2 A+ A1 B- B3
Bermuda A+ A1 A A2 CCC+ Caa1
Costa Rica BB Ba1 A- A3 CCC Caa2
Dominica NA NA BBB+ Baa1 CCC- Caa3
Dominican Republic BB- B1 BBB Baa2 CC Ca
Grenada NA NA BBB- Baa3 C C
Jamaica B Caa2 D
St. Kitts and Nevis NA NA
St. Lucia NA NA
St. Vincent and the Grenadines NA B3
Trinidad and Tobago A Baa2
Source for Tables 2 & 3: Bloomberg and CIBC World Markets Inc.
0
1
2
3
4
5
6
7
Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15
bps COSTAR BARBAD DOMREP JAMAN
ARUBA BAHAMA BERMUD TRITOB
11. Caribbean Market Overview – 2015 Q2 7
CIBC Macro Strategy – Capital Markets Trading July 2015
Table 3
Caribbean Bonds and Indicative Prices/Spreads (July 14, 2015)
Aruba
Bond Price Yield Z-Spread S&P Moody’s Fitch
ARUBA 6 1/2 11/14/19 111.62 3.57% 187.82 BBB+ NR BBB-
ARUBA 4 5/8 09/14/23 101.50 4.40% 216.63 BBB+ NR BBB-
Bahamas
Bond Price Yield Z-Spread S&P Moody’s Fitch
BAHAMA 5 3/4 01/16/24 108.50 4.53% 219.52 BBB *- Baa2 NR
BAHAMA 6.95 11/20/29 119.00 5.07% 236.41 BBB *- Baa2 NR
BAHAMA 6 5/8 05/15/33 108.08 5.89% 312.93 BBB *- Baa2 NR
BAHAMA 7 1/8 04/02/38 112.50 6.10% 321.45 BBB *- Baa2 NR
Barbados
Bond Price Yield Z-Spread S&P Moody’s Fitch
BARBAD 7 1/4 12/15/21 105.00 6.29% 412.93 B B3 NR
BARBAD 7 08/04/22 102.75 6.51% 430.35 B B3 NR
BARBAD 6 5/8 12/05/35 91.00 7.49% 466.90 B B3 NR
Bermuda
Bond Price Yield Z-Spread S&P Moody’s Fitch
BERMUD 5.603 07/20/20 110.10 3.39% 159.84 A+ A1 WD
BERMUD 4.138 01/03/23 101.45 3.91% 169.51 A+ A1 WD
BERMUD 4.854 02/06/24 105.53 4.08% 174.40 A+ A1 WD
Cayman Islands
Bond Price Yield Z-Spread S&P Moody’s Fitch
CAYMAN 5.95 11/24/19 114.75 2.36% 60.62 NR Aa3 NR
Costa Rica
Bond Price Yield Z-Spread S&P Moody’s Fitch
COSTAR 9.995 08/01/20 126.50 4.12% 231.07 BB Ba1 NR
COSTAR 4 1/4 01/26/23 93.04 5.39% 312.32 BB Ba1 BB+
COSTAR 4 3/8 04/30/25 90.79 5.61% 313.01 BB Ba1 BB+
COSTAR 5 5/8 04/30/43 82.69 7.05% 424.09 BB Ba1 BB+
COSTAR 7 04/04/44 96.30 7.31% 448.18 BB Ba1 BB+
COSTAR 7.158 03/12/45 97.11 7.40% 457.35 BB Ba1 BB+
Dominican Republic
Bond Price Yield Z-Spread S&P Moody’s Fitch
DOMREP 7 1/2 05/06/21 113.25 4.85% 259.78 BB- B1 B+
DOMREP 5 7/8 04/18/24 103.98 5.30% 300.31 BB- B1 B+
DOMREP 6.6 01/28/24 108.58 5.33% 300.89 BB- B1 B+
DOMREP 5 1/2 01/27/25 101.75 5.26% 282.93 BB- B1 B+
DOMREP 8 5/8 04/20/27 121.50 6.04% 343.56 BB- B1 B+
DOMREP 7.45 04/30/44 110.50 6.63% 377.20 BB- B1 B+
DOMREP 6.85 01/27/45 103.50 6.58% 372.80 BB- B1 B+
Jamaica
Bond Price Yield Z-Spread S&P Moody’s Fitch
JAMAN 10 5/8 06/20/17 114.50 2.83% 185.48 B Caa2 B-
JAMAN 8 06/24/19 113.00 4.37% 188.38 B Caa2 B-
JAMAN 7 5/8 07/09/25 112.80 5.91% 346.13 B Caa2 B-
JAMAN 9 1/4 10/17/25 122.77 6.21% 369.62 B Caa2 B-
JAMAN 8 1/2 02/28/36 117.20 6.92% 413.15 B Caa2 B-
JAMAN 8 03/15/39 114.75 6.74% 390.07 B Caa2 B-
Trinidad and Tobago
Bond Price Yield Z-Spread S&P Moody’s Fitch
TRITOB 9 3/4 07/01/20 134.88 2.27% 41.45 A Baa2 NR
TRITOB 5 7/8 05/17/27 118.85 3.87% 124.39 A Baa2 NR
TRITOB 4 3/8 01/16/24 108.00 3.29% 92.40 A Baa2 NR
12. Caribbean Market Overview – 2015 Q2 8
CIBC Macro Strategy – Capital Markets Trading July 2015
Caribbean Economic Review
13. Caribbean Market Overview – 2015 Q2 9
CIBC Macro Strategy – Capital Markets Trading July 2015
Caribbean Economic Review Shane Lowe
CIBC FirstCaribbean International Bank
Overall economic performance remained mixed across the region. US and Canadian economic slowdowns, stubbornly
high Caribbean unemployment, and ongoing fiscal consolidation slowed the economic recovery in the Caribbean over the
first few months of 2015. Latest estimates suggest that having increased 2.2% y/y during Q4 2014, real US GDP
contracted 0.2% during Q1 2015 as unusually bad weather and a stronger dollar took their toll on the economy.
Annualised growth in personal consumption expenditures slowed to 2.1% from 4.4% one quarter earlier, while
nonresidential fixed investment and exports of goods and services declined 2.0% and 5.9%. Meanwhile, the Canadian
economy suffered a 0.6% decline in output during the same period as mining, quarrying, oil and gas, construction,
wholesale trade, and manufacturing all registered lower output relative to the same period 12 months earlier.
Nonetheless, during Q1 2015, the UK economy continued to expand, albeit at a slower pace than one quarter earlier.
The slowdown in North America limited the rate of growth in tourist arrivals during Q1 2015. Stay-over tourist arrivals grew
at a decelerated pace in more than half of the markets covered, with declines registered in Antigua and Barbuda, Belize,
Dominica, and St. Vincent and the Grenadines – all markets which experienced declines in the number of American
visitors. Aruba continued to register strong arrivals growth, benefitting from its close proximity to the South American
market, while Curaçao and Barbados have rebounded from modest performances in 2014 to register double-digit growth
in 2015 year-to-date.
Fiscal restraint, additional taxation, and stubbornly high unemployment continue to restrict robust growth in domestic
demand for goods and services. Despite higher public capital expenditure across most markets thus far in 2015,
consumer demand remains weak as economic growth has been unable to sufficiently increase employment opportunities,
and additional taxes have reduced disposable income. Further, while IMF or home-grown fiscal consolidation programs
have limited increases in current expenditure, falling nontax revenues and grant receipts have perpetuated high fiscal
deficits and still-rising debt burdens. Finally, construction performance remains mixed as slowing mortgage growth and
weaker residential construction offset some of the positive effects of tourism-related construction and the government’s
capital expenditure programs.
Weak domestic demand has limited growth in commercial bank lending and boosted excess liquidity. With the exception
of Dominica, Grenada, Jamaica, St Vincent and the Grenadines, and Trinidad and Tobago, all markets have registered
declines in total loans and advances year-to-date, and approximately half have grown at a slower rate than one year
earlier. In fact, excluding stronger public sector loan growth, all markets in the Eastern Caribbean Currency Union (ECCU)
would have registered negative or no growth over the period.
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, 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, the Bahamas, Barbados, Belize, Curaçao, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Maarten, St. Vincent and the Grenadines, and
Trinidad and Tobago.
-1%
0%
1%
2%
3%
4%
5%
Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14
(mln)12-mth moving
average
Total Stay-Over Arrivals (R)
Growth in Tourist Arrivals (L)
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14
Mortgages
Corporate Loans
Consumer Loans
14. Caribbean Market Overview – 2015 Q2 10
CIBC Macro Strategy – Capital Markets Trading July 2015
Deposits continue to expand, forcing banks to hold more liquid assets, but recent central bank initiatives to reduce and
remove the minimum interest rate payable on savings accounts in the ECCU and Barbados have reduced the cost of
excess liquidity. Further, asset quality has started to improve and capital buffers remain adequate across most markets.
Global energy prices remained depressed during Q1 2015 and exchange rates stabilised, keeping average consumer
prices low throughout the region and boosting external reserves. While rising food costs in Trinidad and Tobago pushed
regional inflation from 1.7% during 2013 to 1.9% 12 months later, initial estimates for 2015 suggest that lower costs of fuel
and transportation pushed consumer prices lower across most markets. Available data also suggest that higher tourist
expenditure, recovering foreign direct investment, and weak domestic demand supported lower fuel imports, driving
external reserves higher in 2015. Reserves in Barbados, Curacao, Jamaica, Sint Maarten, and Trinidad and Tobago have
all improved y/y, while reserve buffers in the Bahamas have increased relative to December 2014.
The US economy has started to show signs of recovery after a dip in the first quarter, while the IMF expects average
crude oil prices to remain below US$60 per barrel during 2015. These developments, including continued growth in the
UK economy, should boost tourism-dependent economies’ prospects for the remainder of 2015. Growth in stay-over
tourist arrivals should accelerate, particularly with increased airlift from North America and Europe, while average
consumer prices are likely to remain stable over the near future, notwithstanding higher taxes in some markets. However,
despite the gains made to-date, further fiscal consolidation is required in most markets, and this is likely to restrict growth
in domestic demand in highly indebted economies, limiting loan growth and increasing excess liquidity. Further, while
recent reductions in the minimum interest rate on savings accounts will likely ease the cost of rising deposit balances,
lending rates in most markets should continue to decline as the banks compete for a smaller pool of eligible borrowers.
Chart 3
Regional3
Inflation and Intl Commodity Prices (end of period)
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, Barbados, Belize, Cayman Islands, Curaçao, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Maarten, St. Vincent and the Grenadines
and Trinidad and Tobago.
-100%
-50%
0%
50%
0%
2%
4%
6%
May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15
Regional Inflation Rate (L)
Growth in International Oil Prices* (R)
Growth in International Food Prices+ (R)
15. Caribbean Market Overview – 2015 Q2 11
CIBC Macro Strategy – Capital Markets Trading July 2015
Anguilla Shane Lowe
CIBC FirstCaribbean International Bank
Production, Prices and Employment
The Eastern Caribbean Central Bank (ECCB) estimates that positive developments in construction, tourism, transport,
storage and communication, and real estate, renting and business activities boosted economic activity by 1.9% during
2014, compared to just 0.4% one year earlier.
• A 2.7% increase in stay-over tourists propelled tourism value-added higher 3.5% during 2014 and contributed to a
1.8% rise in real estate, renting and business activities value-added. Since then, available data from the
Caribbean Tourism Organisation (CTO) indicates that the number of stay-over visitors increased 4.3% during the
first four months of 2015, as improved outturns from the USA (up 7.8%) and markets other than Canada and
Europe (up 8.8%) eclipsed fewer tourists from Canada (down 6.4%) and Europe (down 14.0%).
• Notwithstanding reduced public construction activity, the completion of the Malliouhana Hotel and Spa and
continuing construction on The Reef, Solaire Hotel and Villas project, Zemi Beach, and Manoah boutique resorts
lifted total construction value-added 2.0% higher during 2014. The stronger tourism and construction activity
pushed transport, storage and communications higher by 4.0%.
• However, high nonperforming loans and lower profitability reduced output in financial intermediation by 1.1% in
2014 relative to the 4.1% contraction one year earlier.
The ECCB estimates that increased economic activity and additional public hiring reduced the number of unemployed
persons slightly in 2014 relative to one year earlier.
Consumer prices fell 0.6% during the 12 months ended March 2015 as prices for food and nonalcoholic beverages (down
0.4%), housing, utilities, gas and fuel (down 1.3%), and transportation (down 0.3%) all declined.
Developments in Financial Markets
Bank liquidity continued to rise over the two-month period ending February 2015.
• Declines in both retail and corporate credit reduced total loans and advances by 2.2% over the first two months of
2015. Business, public sector, and personal loans declined 0.9%, 96.5%, and 2.0%.
• Total banking sector deposits advanced 2.4% between December 2014 and February 2015. Retail and corporate
deposits increased 0.4% and 3.3%, eclipsing a 5.2% decline in nonresident balances.
Consequently, the loan-to-deposit ratio declined from 87.3% at the end of 2014 to 83.4% two months later.
Chart 1
Stay-Over Tourist Arrivals
Chart 2
Inflation (y/y; %)
Source: Caribbean Tourism Organization, Eastern Caribbean Central Bank and CIBC FirstCaribbean Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean
50
55
60
65
70
75
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15
(000's)(US$/person) Visitor Expenditure/person (L)
Stay-Over Arrivals (R)
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
All Items
Food
Fuel and Light
16. Caribbean Market Overview – 2015 Q2 12
CIBC Macro Strategy – Capital Markets Trading July 2015
Government Debt
During the first three months of 2015, persistent growth in revenues outpaced a modest increase in expenditure, pushing
government fiscal surplus US$1.8 million (68.3%) higher to US$4.4 million relative to one year earlier.
• Broad-based improvements in tax revenue lifted current revenue US$2.0 million (10.7%) higher to
US$20.3 million. Taxes on domestic goods and services increased US$1.5 million (23.1%), buoyed by a
US$0.6 million improvement in accommodation taxes, while tax collections from income and profits, property, and
international trade and transactions increased US$0.2 million, US$0.2 million, and US$0.1 million. Nontax
revenues remained unchanged.
• Current expenditure increased modestly by US$0.2 million (1.4%) as the government spent more on personal
emoluments, and goods and services (each up US$0.1 million), but maintained the same expenditure levels for
interest payments, and transfers and subsidies as during the same period one year earlier. Having declined
US$1.8 million (58.5%) during calendar year 2014, Capital expenditure and net lending fell a further
US$0.1 million (30.4%).
Total public sector debt fell to US$82.2 million (approximately 26.8% of GDP) at the end of 2014, down from
US$85.8 million (29.6% of GDP) one year earlier.
Outlook
The ECCB projects that economic growth in the USA and UK, intensified marketing, and increased hotel and airline
capacities should bolster tourism and construction activity during 2015. Further, developments in these sectors should
positively affect the wholesale and retail trade, and real estate, renting and business activities sectors.
The central bank also expects the government to record another fiscal surplus as increased capital expenditures partially
offset higher tax receipts and no change in current expenditure. Further, consumer prices are likely to decline in light of
lower global energy prices.
Chart 3
Foreign Direct Investment
Chart 4
Growth in Key Balances
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean
$0
$20
$40
$60
$80
$100
$120
2008 2009 2010 2011 2012 2013 2014
(US$ mln) Equity Land Sales
Reinvested Earnings Other
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2009Q4 2010Q4 2011Q4 2012Q4 2013Q4 2014Q4
Loans
Deposits
17. Caribbean Market Overview – 2015 Q2 13
CIBC Macro Strategy – Capital Markets Trading July 2015
Antigua and Barbuda Shane Lowe
CIBC FirstCaribbean International Bank
Production, Prices and Employment
Preliminary estimates from the ECCB show that real economic activity expanded 2.9% during 2014 relative to 1.8% in
2013.
• Tourism value-added improved 2.9% during 2014 as a 2.5% increase in stay-over tourist arrivals eclipsed a 1.5%
reduction in cruise passenger arrivals. However, during the first five months of 2015, stay-over arrivals declined
4.2% as fewer tourists from the USA (down 3.7%), Canada (down 17.6%), and markets other than Europe (down
2.3%) more than offset a 0.1% increase in arrivals from Europe. On the other hand, cruise arrivals surged 18.6%
during the first quarter of the year.
• Both private and public sector activity boosted construction and mining and quarrying output by 6.0% and 20.0%
during 2014. Private activity benefitted from increased activity on tourism-related projects, while road and building
construction initiatives drove the increase in public output.
• Tourism and construction activity drove wholesale and retail trade, transport, storage and communications, and
real estate, renting and business activity higher by 8.0%, 2.9%, and 1.7%. Concurrently, a 21.2% fall in pension
and gratuity payments contributed to 1.4% lower output in public administration, defence and social security.
Despite declines in the prices of fuel and light (down 6.8%) and housing and utilities (down 0.5%), higher prices for food
(up 2.7%) and transportation and communication (up 1.5%) drove average consumer prices 1.4% higher between March
2014 and 2015.
Developments in Financial Markets
Declining loans and rising deposits increased total banking system liquidity during the first two months of 2015.
• Weak corporate and retail lending pushed bank loans 1.5% lower between December 2014 and February 2015.
Total retail loans declined 0.6%, while business and public sector balances fell 2.1% and 2.9%.
• Bank deposits advanced 2.3% over the first two months of 2015. Retail and corporate deposits increased 1.1%
and 4.8%, while nonresident balances remained virtually unchanged.
The loan-to-deposit ratio fell from 73.3% at the end of December 2014 to 70.6% at the end of February 2015.
Chart 1
Stay-Over Tourist Arrivals
Chart 2
Inflation (y/y; %)
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean, Caribbean Tourism Organization Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean
220
230
240
250
260
$500
$1,000
$1,500
$2,000
May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15
(000's)(US$/person) Visitor Expenditure/person (L)
Stay-Over Arrivals (R)
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
2%
4%
6%
8%
10%
12%
2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
All Items (L)
Food (L)
Fuel and Light (R)
18. Caribbean Market Overview – 2015 Q2 14
CIBC Macro Strategy – Capital Markets Trading July 2015
Government Debt
Despite additional spending, the government’s fiscal position continues to improve. During the first three months of 2015,
government fiscal surplus increased to US$10.5 million, up from US$1.4 million during the corresponding period one year
earlier.
• A US$8.1 million (255.6%) surge in nontax revenue lifted current revenue 16.7% higher to US$70.4 million. Tax
revenues also increased US$2.0 million (3.5%) as reduced receipts from taxes on income and profits (down
US$0.4 million) and domestic goods and services (down US$0.8 million) only partially offset higher revenue from
property taxes (up US$0.8 million) and taxes on international trade and transactions (up US$2.4 million).
• Total current expenditure increased US$1.9 million to US$58.5 million. Transfers and subsidies fell US$0.9 million
(6.6%), but personal emoluments, goods and services, and interest payments increased US$0.1 million,
US$0.4 million, and US$2.2 million. Capital expenditure fell US$0.7 million to US$1.6 million.
Total outstanding public sector debt increased 7.1% to US$1,223.5 million during 2014. Domestic obligations increased
15.1% to US$710.6 million, but external debt contracted 2.3% to US$512.9 million.
Outlook
In 2015, the central bank expects that positive growth in Antigua and Barbuda’s major trading partners and additional
airlift from the UK will boost prospects in tourism, while existing and upcoming public and private building projects should
boost construction real value-added. The general uplift in economic activity should provide a fillip to growth in wholesale
and retail trade, transport, storage and communications, and real estate, renting and business activity.
However, despite higher projected nontax and grant revenues and cuts to transfers and subsidies, the ECCB anticipates
that government fiscal deficit is likely to rise due to higher debt service and increased spending on personal emoluments.
Chart 3
Foreign Direct Investment
Chart 4
Growth in Key Balances
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
2008 2009 2010 2011 2012 2013 2014
(US$ mln) Equity Land Sales
Reinvested Earnings Other
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2009Q4 2010Q4 2011Q4 2012Q4 2013Q4 2014Q4
Loans
Deposits
19. Caribbean Market Overview – 2015 Q2 15
CIBC Macro Strategy – Capital Markets Trading July 2015
Aruba Shane Lowe
CIBC FirstCaribbean International Bank
Production, Prices and Employment
Preliminary data from the CTO suggest that economic activity continued to increase during the first four months of 2015
relative to the outturn one year earlier.
• During January–April 2015, stay-over arrivals advanced 19.7% as additional visitors from the USA (up 9.4%),
Canada (up 10.1%), and markets other than Europe (up 54.8%) eclipsed a 9.0% decline in European tourists.
However, cruise arrivals declined 16.8% over the first quarter of 2015.
Having declined 0.4% over the 12 months ended March 2014, average consumer prices expanded 1.3% over the same
period one year later.
The IMF estimates that unemployment fell from 7.6% to 7.4% during 2014.
Developments in Financial Markets
So far in 2015, weakened loan growth and rising deposits have improved bank liquidity. This follows improvement in asset
quality, strengthening in capital buffers, and contraction in interest rate spreads during 2014.
• Commercial bank total loans and advances contracted 0.4% over the first quarter of 2015 as higher mortgage
lending (up 1.4%) outstripped lower balances for consumer (down 2.4%) and business loans (down 2.0%).
• Total banking system deposits advanced 1.7% between December 2014 and March 2015, representing
expansions in demand (up 3.1%), savings (up 0.9%), and time (up 0.1%) deposit balances.
• Over the course of 2014, bank interest rate spreads narrowed 80 bps. Average lending rates fell 70 bps to 7.7%,
while deposit rates advanced from 2.1% to 2.2%.
• The nonperforming loans to gross loans ratio declined from 7.0% to 6.1%, while regulatory capital as a ratio of
risk-weighted assets increased from 22.7% to 24.2%, and remains significantly above the minimum requirement
of 14%.
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
0%
2%
4%
6%
8%
10%
12%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Real GDP Growth (L)
Unemployment Rate (R)
6
7
8
9
750
800
850
900
950
1000
1050
1100
1150
1200
Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15
(nights)12-month rolling
000's of
persons
Tourist Arrivals (L)
Length of Stay (R)
20. Caribbean Market Overview – 2015 Q2 16
CIBC Macro Strategy – Capital Markets Trading July 2015
Government Debt
During 2014, lower nontax revenues and higher spending pushed government fiscal deficit higher by
US$40.9 million to US$226.9 million.
• Total revenues contracted US$15.9 million to US$622.6 million as higher tax revenues (up US$30.7 million) only
partially offset a US$46.6 million reduction in nontax revenues. All tax categories increased over the period with
higher taxes on income and profit (up US$19.0 million), taxes on services (up US$5.0 million), and the foreign
exchange tax (up US$2.3 million) being the primary drivers. Further, the government received no grants during
the year compared to US$13.0 million during the previous year, while other nontax revenues fell 34.1% to
US$64.9 million.
• Despite declines across most categorised expenditure items, total expenditure increased US$27.4 million to
US$830.8 million. Total employer contribution, wage subsidies, goods and services, development fund spending,
investment, and transfers to the General Health Insurance declined US$28.8 million, US$0.9 million,
US$20.4 million, US$6.6 million, US$15.4 million, and US$12.3 million, only partially offsetting higher expenditure
on wages (up US$3.2 million), interest (US$12.9 million), and items not classified (up US$95.8 million).
Between December 2013 and 2014, total public debt expanded from US$1,910.4 million (73.9% of GDP) to
US$2,162.6 million (81.2% of GDP). Domestic debt advanced 11.5% to US$1,111.3 million and foreign obligations grew
15.0% to US$1,051.2 million.
Outlook
The IMF expects economic activity to expand 2.25% during 2015 driven by stronger tourist arrivals and key public-private
investment projects. Further, despite falling global crude prices, inflation should rise to 0.75% as the recent introduction of
the health-care levy, already locked-in energy import prices above current market prices, and higher energy tariffs limit
reductions in consumer prices.
Chart 3
Inflation (y/y; %)
Chart 4
Growth in Key Balances
Source: Centrale Bank van Aruba and CIBC FirstCaribbean Source: Centrale Bank van Aruba and CIBC FirstCaribbean
-6%
-4%
-2%
0%
2%
4%
6%
8%
Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15
All Items
-8%
-4%
0%
4%
8%
12%
2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
Loans
Deposits
21. Caribbean Market Overview – 2015 Q2 17
CIBC Macro Strategy – Capital Markets Trading July 2015
The Bahamas Shane Lowe
CIBC FirstCaribbean International Bank
Production, Prices and Employment
Preliminary statistics from the Central Bank of the Bahamas suggest that economic activity continued to expand modestly
during the first five months of 2015, after growing 1.0% during 2014.
• During January–March 2015, tourist arrivals by air grew 8.9% relative to growth of 0.2% one year earlier, while
total hotel-room revenue expanded 5.0% during the first five months of the year, buoyed by a 6.6% rise in the
average daily room rate to US$275.40 and a 5.8 p.p. increase in the average occupancy rate to 75.1%. However,
total sea arrivals declined 1.2% during the first quarter as an increase in visitors to the Family Islands (up 3.3%)
and Grand Bahama (up 48.7%) only partially mitigated the 12.7% reduction in sea arrivals to New Providence.
• Further, despite weak mortgage lending, foreign investment-led construction activity continues to drive increased
construction real value-added.
Between April 2014 and 2015, average consumer prices increased 1.6% compared to a 1.1% increase over the
corresponding period one year earlier as the effects of lower global crude oil prices partially offset those of the 7.5% VAT
introduced on January 1, 2015.
Developments in Financial Markets
During the first five months of 2015, bank excess liquidity remained elevated as rising deposits exacerbated weak
domestic credit. However, consistently high private sector loan delinquency has started to edge downward.
• The banking system’s total domestic credit declined marginally by 0.4% between May 2014 and 2015 as a 23.0%
contraction in foreign currency domestic credit eclipsed a marginal 1.6% rise in Bahamian dollar domestic credit.
Despite a 1.2% increase in Bahamian dollar consumer credit, declines in local dollar mortgages (down 0.9%) and
Bahamian dollar commercial and other loans (down 14.3%) reduced total private sector credit by 3.0%.
Meanwhile, net credit to the central government increased 10.4%, but credit to the rest of the public sector fell
9.1% over the same period.
• Total resident deposits increased modestly by 0.1% during the 12 months ended May 2015 as a 23.1% surge in
demand deposits offset declines in savings (down 1.7%), fixed (down 8.5%), and foreign currency (down 15.9%)
deposits.
• During the first five months of 2015, commercial bank interest rate spreads widened 61 bps to 10.88%. The
average lending rate increased from 11.55% to 12.29% and deposit rates rose 13 bps to 1.41%.
• Private sector nonperforming loans (NPLs) as a percentage of total loans fell from 16.1% at the end of 2014 to
15.8% by May 2015.
Chart 1
Growth in Tourist Arrivals
Chart 2
Inflation (y/y; %)
Source: Caribbean Tourism Organization and CIBC FirstCaribbean Source: Central Bank of the Bahamas and CIBC FirstCaribbean
1,250
1,300
1,350
1,400
1,450
Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15
12-month rolling
000's of
persons
Tourist Arrivals
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15
All Items
Food
22. Caribbean Market Overview – 2015 Q2 18
CIBC Macro Strategy – Capital Markets Trading July 2015
• Between May 2014 and 2015, bank excess liquid assets declined 4.1% to US$1,285.1 million.
During 2014, the central bank’s external reserves worsened by US$14.9 million to US$787.7 million (14.9 weeks of nonoil
merchandise import cover). Since then, external reserves fell 6.0% y/y to US$942.7 million by May 2015.
The Bahamas International Securities Exchange All Share Index improved 4.3% over H1 2015, compared to 6.2% during
the same period one year earlier.
Government Debt
Government total fiscal deficit for the ten months ended April 2015 declined US$139.2 million to US$229.3 million as
higher revenue and lower capital expenditure outpaced an increase in current spending.
• Despite a US$4.4 million (2.7%) fall in nontax receipts, US$203.4 million (20.0%) more in tax collections drove
total revenue higher by 17.1% to US$1,348.1 million. Financial and realty-related stamp taxes, business and
professional fees, taxes on international trade, and selective taxes on services associated with the regularization
of the webshop industry increased US$27.0 million, US$7.8 million, US$2.9 million, and US$11.8 million, and the
VAT yielded US$143.9 million during its first four months of implementation.
• Current expenditures advanced US$68.0 million to US$1,374.1 million. Transfer payments (including interest
payments and subsidies and other transfers) and loans to public corporations increased US$66.5 million (12.2%)
and US$17.0 million (31.4%), while consumption spending expanded US$1.4 million (0.2%) to US$761.6 million,
as a 9.7% decline in spending on goods and services offset a 5.1% increase in wages and salaries. Capital
expenditure declined US$22.1 million to US$168.3 million, as reduced spending on asset acquisitions (down
US$43.4 million) eclipsed a US$22.6 million increase in capital formation outlays.
Between May 2014 and 2015, total national debt outstanding excluding contingent liabilities expanded 8.6% to
US$5,599.6 million. Total external debt increased 8.2% to US$1,612.9 million over the same period.
Outlook
In June 2015, the IMF predicted that the recovery in the USA and the opening of the Baha Mar resort would accelerate
the pace of economic activity in the Bahamas to 1.8% in 2015 and 2.8% one year later. However, since then, the Central
Bank of the Bahamas has indicated that delays in the opening of the resort are likely to dampen near-term growth
prospects and employment opportunities. As a result, current and expected economic activity is likely to remain
insufficient to reduce unemployment below 10%.
Further, both the Central Bank of the Bahamas and the IMF expect inflation to remain mild in the short term as the effects
of the VAT offset lower energy prices.
The central bank projects that improved revenue intake is likely to reduce the fiscal deficit by the end of the fiscal year,
while the IMF expects the public sector to produce a primary surplus by 2016 – the first in over five years.
Chart 3
Foreign Direct Investment (January–December)
Chart 4
Growth in Key Balances
Source: Central Bank of the Bahamas and CIBC FirstCaribbean Source: Central Bank of the Bahamas and CIBC FirstCaribbean
$0
$500
$1,000
$1,500
$2,000
$2,500
2009 2010 2011 2012 2013 2014
(US$ mln) Equity
Land Sales
-65%
-55%
-45%
-35%
-25%
-15%
-5%
5%
15%
Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15
Loan Growth
Deposit Growth
23. Caribbean Market Overview – 2015 Q2 19
CIBC Macro Strategy – Capital Markets Trading July 2015
Barbados Shane Lowe
CIBC FirstCaribbean International Bank
Production, Prices and Employment
Data from Barbados Tourism Marketing Inc. and the Central Bank of Barbados suggest that economic performance
remained mixed during the first four months of 2015.
• Revised data from Barbados Tourism Marketing Inc. indicate that during Q1 2015, 171,471 stay-over tourists
visited Barbados, 15.4% more than during the same period in 2014. Arrivals from the UK, USA, Canada, and
Latin America and the Caribbean increased 12.9%, 27.7%, 28.4%, and 10.6%. However, 6.1% fewer cruise
passengers visited during the period.
• Declines of 0.4% and 11.9% in the nominal values of imports of construction materials and imports of consumer
goods suggest that construction activity and wholesale and retail trade remained weak during the January–April
2015 period relative to one year earlier. Further, zero sugar exports and a 9.2% decline in the value of other
domestic goods exports point to declines in both sugar agriculture and manufacturing activity over the same
period.
Between March 2014 and 2015, average consumer prices declined 0.8% compared to a 1.2% increase over the same
period one year earlier. The prices of food (up 0.9%), and education, recreation and miscellaneous items (up 16.0%) both
increased, but the cost of fuel and light, housing, and transportation declined 21.9%, 1.6%, and 5.0%.
During Q4 2014, the unemployment rate declined, falling from 13.0% during the latter quarter of 2013 to 11.5% one year
later. Unemployment averaged 12.3% of the labour force in 2014 versus 11.6% during 2013.
Developments in Financial Markets
The Central Bank of Barbados’ removal of the minimum interest rate on savings accounts in April 2015 has since lowered
bank deposit rates and reduced the cost of rising excess liquidity.
• During the first four months of 2015, bank total loans and advances declined 0.3% relative to the end of 2014.
Lower lending to businesses (down 0.1%) and the public sector (down 7.1%) pushed total business and
government loans lower by 1.6%. Meanwhile, retail loans increased 0.4% as a 0.1% increase in mortgages
supported a 0.7% rise in consumer loans.
• Despite lower nonresident deposit balances (down 1.7%), total deposits increased 2.9% due to a 0.2% increase
in retail deposits and an 8.4% rise in corporate deposits.
Chart 1
Key Economic Indicators
Chart 2
Net Long-Term Private Capital Flows
(January–March US$ mln)
Source: Central Bank of Barbados, Barbados Statistical Service, Caribbean Tourism Organization and
CIBC FirstCaribbean
Source: Central Bank of Barbados and CIBC FirstCaribbean
-15%
-10%
-5%
0%
5%
10%
15%
20%
2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
Real GDP Growth
Tourist Arrivals
Unemployment Rate $0
$10
$20
$30
$40
$50
$60
$70
$80
2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
Net Long-Term Private
Capital Flows
24. Caribbean Market Overview – 2015 Q2 20
CIBC Macro Strategy – Capital Markets Trading July 2015
• Commercial bank interest rate spreads narrowed further between December 2014 and March 2015. The weighted
average lending rate fell 12 bps to 8.46%, while deposit rates edged upward just one basis point to 2.51%.
Subsequently, during April 2015, the Central Bank of Barbados removed the requirement for the banks to
maintain a minimum interest rate on savings accounts, and the banks have since reduced their quoted savings
rates to between 0.5% and 1.5%.
Initial data from the Central Bank of Barbados indicate that between May 2014 and 2015, the stock of international
reserves increased 0.8% to US$577.7 million.
Government Debt
In his June 15, 2015 presentation of the financial statement and budgetary proposals, the Minister of Finance and
Economic Affairs indicated that during the period April 2014–March 2015 government fiscal deficit declined to
US$296.1 million (6.8% of GDP) compared to US$492.3 million (11.6% of GDP) recorded one year earlier.
• Current revenue increased US$76.0 million (6.9%) to US$1,243.3 million. Higher taxes on incomes and profits (up
US$66.4 million), taxes on goods and services (up US$8.2 million), and import duties (up US$14.8 million) – the
main contributors to the increase – eclipsed lower collections from taxes on property (down US$4.2 million),
special receipts (down US$9.0 million), and nontax revenue (down US$2.3 million).
• Current expenditure declined US$108.5 million to US$1,453.7 million. The government spent less on wages and
salaries (down US$28.4 million), goods and services (down US$21.0 million), and current transfers (down
US$79.3 million), but higher debt levels pushed interest payments US$28.1 million higher to US$332.4 million.
Capital expenditure increased US$13.7 million to US$85.7 million.
During the 12 months ended March 2015, government amortisation payments increased US$43.7 million to
US$319.5 million compared to the outturn in the prior year.
At March 2015, the IMF estimated central government debt excluding securities held by the National Insurance Scheme at
101% of GDP. Including all disbursed and outstanding obligations, central government debt accounted for 134% of
nominal output.
Outlook
The IMF projects that while stronger tourism output should boost economic activity during 2015, ongoing fiscal
consolidation is likely to limit the overall expansion to 1.0%. Additionally, private sector credit is likely to remain weak in
2015 amidst an uncertain economic outlook.
Further, the government expects that additional revenue raising measures announced in the June 2015 budgetary
proposals will earn an additional US$100.1 in revenue and bring the fiscal deficit down to 3.5%–4.0% of GDP during
2015/2016.
Chart 3
Inflation (y/y; %)
Chart 4
Developments in Credit Market Indicators
Source: Central Bank of Barbados and CIBC FirstCaribbean Source: Central Bank of Barbados and CIBC FirstCaribbean
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-2%
0%
2%
4%
6%
8%
10%
12%
2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
All Items (L)
Food (L)
Fuel and Light (R)
-4%
0%
4%
8%
12%
16%
20%
2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
Loan Growth
NPLs/Total Loans
25. Caribbean Market Overview – 2015 Q2 21
CIBC Macro Strategy – Capital Markets Trading July 2015
Belize Shane Lowe
CIBC FirstCaribbean International Bank
Production, Prices and Employment
The Statistical Institute of Belize reports that during the first three months of 2015, overall economic activity expanded
7.0%, benefitting from positive developments in agriculture, manufacturing, and cruise tourism.
• Primary sector production advanced 18.7% as higher citrus (up 101.9%), banana (up more than 22%), and fishing
(up 16.5%) production eclipsed a small 2.7% contraction in sugarcane deliveries. However, output in the
secondary sector declined 0.1% as greater manufacturing output of orange concentrate (up over 100%) and
sugar (up 7.7% due to improved weather, more efficient operations and a better sugarcane crop) only partially
offset declines in electricity and water (down 26.7%) and construction (down 10.8%).
• Tertiary sector real economic value-added grew 4.7% over the first quarter of 2015 buoyed by 10.3% growth in
wholesale and retail trade and 6.0% growth in hotels and restaurants. Further, preliminary data from the CTO
suggest that while total stay-over arrivals declined 1.2% over the first four months of 2015, the number of cruise
passengers advanced 4.9%. Stay-over arrivals from the USA and Canada fell 1.3% and 11.7%, eclipsing growth
from Europe (up 1.7%) and other markets (up 4.9%).
Consumer prices fell 0.9% between May 2014 and 2015, compared to an increase of 1.7% one year earlier. The prices of
food and nonalcoholic beverages, housing, water, fuel and power, and transportation declined 0.2%, 0.4%, and 7.4%.
Developments in Financial Markets
During 2014, bank asset quality continued to improve and capital buffers remained healthy. However, since then, stalled
loan growth and higher deposits have exacerbated bank excess liquidity and reduced lending and deposit interest rates.
• Total banking sector loans and advances declined marginally by 0.1% between December 2014 and April 2015
as higher lending to the corporate sector (up 0.6%) offset lower retail loans (down 2.5%).
• Over the first four months of 2015, higher balances of retail (up 2.2%), corporate (up 5.0%), and nonresident (up
7.2%) deposits pushed total deposits 3.8% higher.
• Further, commercial bank average interest rate spreads narrowed eight bps between December 2014 and April
2015, as the weighted-average lending and deposit rates fell 22 bps and 14 bps to 10.44% and 1.59%.
• The Central Bank of Belize reports that the nonperforming loans to total loans ratio fell from 8.8% at December
2013 to 7.0% 12 months later.
Chart 1
Key Economic Indicators
Chart 2
Inflation (y/y; %)
Source: Central Bank of Belize, Caribbean Tourism Organization and CIBC FirstCaribbean Source: Central Bank of Belize and CIBC FirstCaribbean
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
Real GDP Growth (L)
Tourist Arrivals (R)
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15
All Items
26. Caribbean Market Overview – 2015 Q2 22
CIBC Macro Strategy – Capital Markets Trading July 2015
• Despite a 0.6% increase in the domestic banks’ total capital, a 4.8% rise in risk-weighted assets drove the total
capital adequacy ratio down from 24.5% at the end of 2013 to 23.5% by December 2014, still well above the
regulatory requirement of 9.0%.
Government Debt
Over the first four months of 2015, total government debt expanded 1.4% to US$1,330.6 million relative to December
2014. External debt outstanding increased US$7.9 million (0.7%) to US$1,132.7 million as higher obligations to bilateral
lenders (up US$10.3 million) eclipsed a decline in funds owed to multilateral creditors (down US$2.4 million). Domestic
debt rose 5.3% to US$198 million over the same period due to increased borrowing from the central bank and other
nonbank creditors.
On June 17, 2015, Moody’s affirmed Belize’s Caa2 sovereign credit rating and maintained a stable outlook citing the
mitigating effects of the recovering economy on negative trends in public finances and the considerable risk of losses to
bondholders over the next 2–3 years.
Outlook
The Central Bank of Belize expects that real GDP will expand between 2.0% and 2.5% in 2015, buoyed by continued
growth in citrus, sugar, banana, and papaya production and a 5.0% increase in stay-over tourist arrivals. These
developments are likely to positively affect the transportation and communication, and wholesale and retail sectors, but
falling petroleum extraction and a little change in electricity production are likely to dampen output in the secondary
sectors.
Chart 3
Foreign Direct Investment (January–March)
Chart 4
Developments in Credit Market Indicators
Source: Central Bank of Belize and CIBC FirstCaribbean Source: Central Bank of Belize and CIBC FirstCaribbean
$0
$5
$10
$15
$20
$25
$30
$35
2009 2010 2011 2012 2013 2014 2015
(US$ mln) FDI
-5%
0%
5%
10%
15%
20%
2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
Loans
NPLs/Total Loans
27. Caribbean Market Overview – 2015 Q2 23
CIBC Macro Strategy – Capital Markets Trading July 2015
Bermuda John H. Welch
CIBC Macro Strategy
Bermuda: Economy and Fiscal Stance Still Struggling to Improve
S&P lowered Bermuda’s long-term rating to A+ from AA- with a stable outlook on poor economic performance. This
removes the split rating with Moody’s that has an A1 (stable) rating and Fitch with A+ (stable) as well. Bermuda’s growth
disappointed. S&P cites weak economic performance and weak public finances with the six-year recession causing
declining revenues and fiscal deficits in excess of 5% for the 2012 to 2015 period. Interest costs have grown to 11% of
revenues. The split rating along with Bermuda’s poor 2014 real GDP growth made this decision by S&P not a surprise. It
also removes the final negative outlook on Bermuda. The prospects for 2015 and beyond look much better, however,
especially since Bermuda was chosen to host America’s Cup in 2017.
We expect real GDP to remain flat in 2015 (+0.3% growth), but then recover to 1.2% in 2016, 1.8% in 2017, and 2.2% in
2018 on better tourism, especially from the USA. Tourism continued to struggle. Total visitors rose a mere 0.7% in 2014
and fell 5.6% in Q1 2015. Long-stay visitors declined 5.1% in 2014 and fell another 7% in Q1 2015. We expect better
results later in 2015. On the other hand, Bermuda was chosen to host America’s Cup in 2017. This should provide a
US$250 million injection into the economy over the next three years and further bolster the construction sector that has
already showed significant activity concentrated in the hospital sector. Continuing growth in the USA and UK should, at
some point, help tourism.
The main difference we had with S&P stemmed from their forecast of a contraction of 1.5% in real GDP, the source they
attribute to the finance ministry. We have taken that forecast for our own. Moreover, we did not count capital expenditure
as primary expenditure and now we do, increasing our estimates. The fiscal situation shows signs of future improvement
but not yet. Revised figures show that government nominal fiscal deficit was 5.4% in 2014/15, down slightly from 6.0% of
GDP in 2013/14. The primary deficit fell marginally from 4.1% of GDP in 2012 to 1.8% of GDP expected in 2015. Ongoing
mild fiscal austerity should turn the primary balance positive only in 2018 to 0.6% of GDP and shrink the nominal deficit to
1.6% of GDP.
We expect gross government debt to fall in absolute terms to US$2.185 billion or 38.7% of GDP in 2014/15 from
US$2.305 billion or 41.4% of GDP in 2013/14, mostly reflecting over-borrowing in the prior period. The government
remains a net creditor to the tune of 6.0% of GDP in 2014/15, down from 13.6% in 2013/14. The government’s net creditor
position should continue to decline and stabilize at 2.2% of GDP as of 2017.
Table 1
Key Economic Indicators & Forecasts
Chart 1
Net and Gross Public Sector Debt
Key Annual Indicators 2012 2013E 2014F 2015F 2016F 2017F
GDP per capita (US$) 87,706 85,747 86,290 88,076 90,884 94,524
Real GDP per capita (% change) -4.8% -1.2% 0.1% 0.3% 0.8% 0.8%
Real GDP (% change) -4.8% -2.5% -1.5% 0.3% 1.2% 1.8%
Gross Public Sector Debt/GDP (%) 29% 41% 39% 41% 41% 41%
Net Public Sector Debt/GDP (%) -9.2% -13.6% -6.1% -3.9% -2.7% -2.2%
Public Sector Nom. Fiscal Bal./GDP (%) -4.4% -6.0% -5.4% -3.9% -3.2% -2.4%
Public Sector Primary Fiscal Bal./GDP (%) -4.1% -3.3% -3.3% -1.8% -1.1% -0.2%
Inflation (% change) 2.4% 2.4% 2.1% 1.6% 1.8% 1.8%
Current Account Bal./GDP (%) 15.7% 16.8% 16.8% 15.5% 15.4% 15.4%
Current Account Bal./CAR (%) 26.5% 24.5% 28.2% 26.2% 26.1% 26.1%
Net ext. liabilities/CAR (%) -542% -583% -604% -621% -630% -635%
Net fin. sector ext. debt/CAR (%) -177% -177% -177% -177% -177% -182%
Net nonfin. private sector ext. debt/CAR (%) -566% -635% -683% -734% -777% -781%
Source: Gov’t of Bermuda, S&P, Bloomberg, and CIBC World Markets Source: Gov’t of Bermuda, S&P, Bloomberg, and CIBC World Markets
-40%
-20%
0%
20%
40%
60%
2005 2008 2011 2014E 2017F
Net GG debt/GDP (%)
GG debt/GDP (%)
Forecast
28. Caribbean Market Overview – 2015 Q2 24
CIBC Macro Strategy – Capital Markets Trading July 2015
Growth Continues to Sputter
Bermuda’s ongoing struggle with recovery continues. The main difference we had with S&P stemmed from their forecast
of a contraction of 1.5% in real GDP, the source they attribute to the finance ministry. The drop in tourism between Q2
and Q4 2014 continued in Q1 2015. Unfortunately, Bermuda is no longer seen as a prime tourism destination although the
America’s Cup may reverse that trend. Total visitors rose a mere 0.7% in 2014 and fell 5.6% in Q1 2015. Long-stay
visitors declined 5.0% in 2014 and fell another 7% in Q1 2015. We expect better results as we move later in 2015.
Bermuda was chosen to host America’s Cup in 2017. This should provide a US$250 million injection into the economy
over the next three years.
Construction activity recovered in 2014 mainly due to the KEMH hospital project. The construction of a new
US$200 million airport terminal along with the America’s Cup project and Phase 2 of the Hamilton Princess project should
give that continuity. International business grew 4.3% y/y in 2014 and provided significant employment. The hotel sector
continues to suffer along with tourism. Putting all this together, we expect real GDP to remain flat in 2015 (+0.3% growth),
but then recover to 1.2% in 2016, 1.8% in 2016, and 2.2% in 2017 on better tourism, especially from the USA.
Employment data followed economic activity. Total filled jobs fell for the sixth year in a row by 802 in 2014 and the
unemployment rate increased to 9.0%, a 2 p.p. rise. Financial intermediation, construction, and business services were
the only sectors that created jobs in 2014 but were still below expectations.
Bermuda Public Sector Fiscal Stance Needs More Adjustment
Bermuda’s strength as a credit stems from its net creditor position, both government and country. Chart 1 shows net and
gross public sector debt. The deterioration over the last couple of years continues and the government has brought its
creditor position to around 6.0% of GDP in 2014/15 which should continue to decline, first to 3.9% in 2015/16 and
expected to reach 2.2% in 2017/18 before stabilizing.
S&P included sinking fund payments and capital expenditure in primary spending. We now do the same, increasing our
estimates of fiscal deficits. The fiscal situation shows signs of future improvement but not yet. Revised figures show that
government nominal fiscal deficit was 5.4% in 2014/15, down slightly from 6.0% of GDP in 2013/14. The primary deficit
fell marginally from 4.1% of GDP to 3.33%. Ongoing mild fiscal austerity should turn the primary balance positive only in
2018 to 0.6% of GDP and shrink the nominal deficit to 1.6% of GDP. We say mild as the government has cut some
expenditure but not drastically and has raised a number of taxes.
The 2015/16 budget foresees cutting expenditure and enhancing revenues. The government plans to put a cap on
financial assistance saving US$5 million, saving US$1 million by consolidating schools, suspending the Agricultural
Exhibition for one year, amending bonuses from employed spouses, saving US$1.6 million, having ununiformed officers to
paying 50% of healthcare premiums saving US$2.6 million, and a number of other smaller initiatives. On the revenue side,
the government will increase payroll taxes by 0.5% to 14.5%, the fuel tax by 5 cents per litre, increase the land tax from
4.4% to 5.5%, the corporate services tax from 6% to 7%, increase the airport departure tax from US$35 to US$50, and
increase various fees on marine and port activity. The government expects to raise an additional US$374 million in tax
revenue.
Bermuda’s External Position Remains Strong
Although still lower than before the 2008/9 global financial crisis, Bermuda’s current account has shown steady
improvement with the surplus reaching US$942 million in 2014 or 16.8% of GDP. Consequently, Bermuda’s net creditor
position continues to strengthen. Chart 5 shows that Bermuda remains a strong net creditor on the external front as well.
Bermuda’s net foreign assets are around seven times CAR and should continue to rise. This is an extraordinary position
for a country.
29. Caribbean Market Overview – 2015 Q2 25
CIBC Macro Strategy – Capital Markets Trading July 2015
Chart 2
Visitors by Mode of Arrival (4-qtr sum)
Chart 3
Long-Stay Visitors vs. Total Visitors (4-qtr sum)
Source: Gov’t of Bermuda and CIBC World Markets Source: Gov’t of Bermuda and CIBC World Markets
Chart 4
Primary and Nominal Public Sector Balances
Chart 5
External Debt as a % Current Acct. Receipts (CAR)
Source: Gov’t of Bermuda, S&P, Bloomberg, and CIBC World Markets Source: Gov’t of Bermuda, S&P, Bloomberg, and CIBC World Markets
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2010Q4 2011Q2 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4
Cruise
Air
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2010Q4 2011Q2 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4
Long-Stay Total
Cruise+Air
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2005 2007 2009 2011 2013E 2015F 2017F
Nominal Balance
Primary Balance
Forecast
-900%
-800%
-700%
-600%
-500%
-400%
-300%
-200%
-100%
0%
2012 2013E 2014E 2015F 2016F 2017F
Net ext. liabilities/CAR (%)
Net fin. sector ext. debt/CAR (%)
Net nonfin. private sector ext. debt/CAR (%)
30. Caribbean Market Overview – 2015 Q2 26
CIBC Macro Strategy – Capital Markets Trading July 2015
Cayman Islands Shane Lowe
CIBC FirstCaribbean International Bank
Production, Prices and Employment
Preliminary indicators from the Cayman Islands government and Economic and Statistics Office suggest that economic
activity expanded 2.1% in the Cayman Islands during 2014 and continued to grow during Q1 2015.
• Real tourism value-added expanded 10.0% during 2014, driven by a 10.8% increase in stay-over tourist arrivals
and 17.0% more cruise visitors. Since then, stay-over arrivals expanded 4.4% during the first four months of
2015, suggesting that tourism GDP continues to grow. Arrivals from the USA, Canada, Europe, and other markets
increased 5.4%, 0.9%, 1.0%, and 1.6%. During the same period, the number of cruise passengers increased
6.1%. Meanwhile, output in transportation, storage and communication (up 4.6%) also benefitted from the
increase in airport and cruise port passengers between January and December 2014 relative to one year earlier.
• During 2014, activity in financing and insurance services remained mixed, growing just 0.2%. While the number of
new companies registered increased 16.7% to 11,010 companies, the number of banks and mutual funds fell
7.0% and 3.2%, and the number of insurance companies remained unchanged at 788. Since then, the number of
new companies registered rose 15.7% during January 2015 relative to the same outturn one year earlier, the
number of banks and mutual funds fell 1.5% and 2.3% during Q1 2015 relative to at December 2014, and the
number of insurance companies remained at 788 by the end of March 2015. Meanwhile, real estate, renting and
business activities output increased by 1.4% during 2014 as the real estate sector traded more properties and
business activities benefitted from the greater number of company registrations.
• Additionally, the total volume of cement imports increased 16.4% during 2014 relative to 2013, suggesting greater
construction activity, while manufacturing real value-added likely benefitted from a 42.7% increase in the value of
manufactured goods and miscellaneous manufactured articles exports over the same period. Meanwhile,
wholesale and retail trade increased 6.4% as evidenced by growth in consumption goods imports.
Developments in Financial Markets
Data from the Cayman Islands Monetary Authority suggest that domestic banking sector performance remained mixed
during Q1 2015.
• Despite a 1.0% increase in mortgages, commercial bank loans declined 3.5% between December 2014 and
March 2015. Consumer and corporate loans each declined 7.2%.
• Meanwhile, total resident deposits continued to decline, falling 0.5% during the first three months of 2015 after
contracting 4.0% over the same period one year earlier.
Chart 1
Key Economic Indicators
Chart 2
Tourism Indicators
Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean Source: Cayman Islands Economic and Statistics Office, Caribbean Tourism Organization and CIBC
FirstCaribbean
-8%
-6%
-4%
-2%
0%
2%
4%
2009Q4 2010Q4 2011Q4 2012Q4 2013Q4 2014Q4
Real GDP Growth 40%
50%
60%
70%
80%
250
270
290
310
330
350
370
390
2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
(000's of persons)
Tourist Arrivals (12-month rolling; L)
Hotel Occupancy Rates (R)
31. Caribbean Market Overview – 2015 Q2 27
CIBC Macro Strategy – Capital Markets Trading July 2015
Government Debt
Preliminary estimates from the Cayman Islands’ government suggest that its core government sector fiscal surplus was
expected to have increased US$25.8 million to US$145.8 million over the period July 2014–June 2015.
• Estimated total revenue expanded US$15.5 million to US$792.3 million. Coercive revenue and receipts from the
sale of goods and services increased US$13.3 million and US$2.4 million, but donations received declined
US$0.2 million. Investment revenues and other revenue remained virtually unchanged.
• Total estimated expenditure declined US$10.3 million to US$646.5 million. Spending on personnel costs, finance
costs, outputs from statutory authorities and government companies, other gains/losses, and other operating
expenses declined US$7.0 million, US$2.4 million, US$9.7 million, US$1.7 million, and US$1.1 million, while
spending on litigation costs remained virtually unchanged. All other expenditure items, including supplies and
consumables (up US$3.1 million), depreciation and amortisation (up US$4.5 million), outputs from
nongovernmental suppliers (up US$3.7 million), and transfer payments (up US$0.2 million) increased.
Gross public debt is expected to have declined from US$658.7 million at the end of June 2014 to US$628.1 million at
June 2015.
Outlook
The Cayman Islands government and Economic and Statistics Office project that the Cayman Islands economy will likely
expand 2.1% during 2015, while consumer price inflation should remain modest at 1.5%. Further, unemployment is likely
to remain low at 4.7% during the same period, falling marginally to 4.6% one year later.
Chart 3
Inflation (y/y; %)
Chart 4
Growth in Key Balances
Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2009Q4 2010Q4 2011Q4 2012Q4 2013Q4 2014Q4
All Items (L)
Food (L)
Fuel and Light (R)
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1
Growth in Loans
Growth in Deposits
32. Caribbean Market Overview – 2015 Q2 28
CIBC Macro Strategy – Capital Markets Trading July 2015
Chart 5
Growth in Corporate Loans and Mortgages
Chart 6
Interest Rates
Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean Source: Cayman Islands Economic and Statistics Office and CIBC FirstCaribbean
-40%
-30%
-20%
-10%
0%
10%
20%
2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
Growth in Corporate Loans
Growth in Mortgages
0%
2%
4%
6%
8%
2009Q4 2010Q4 2011Q4 2012Q4 2013Q4 2014Q4
Weighted Average Lending Rate
Prime Lending Rate
33. Caribbean Market Overview – 2015 Q2 29
CIBC Macro Strategy – Capital Markets Trading July 2015
Costa Rica Luis Hurtado
CIBC Macro Strategy
Production, Prices and Employment
Q1 2015 GDP growth expanded 2.68% y/y, down from the 3% posted in Q4 2014. The Costa Rican economy has steadily
decelerated since the start of Q1 2014 when growth reached 4.0%.
• Q1 2015 final consumption increased 4.3%, slightly above the 4.1% registered in Q1 2014, while gross capital
formation decelerated 0.6 p.p. to 1.1% during the same period. Exports remained the main drag on growth in Q1
dropping 9.85% y/y (its third consecutive decline) whereas imports dropped 9.1%.
Moreover, economic activity growth continued to decelerate in May, increasing 1.3% y/y, down from 1.4% in April and the
lowest since August 2009.
• The economic activity deceleration during the first five months of 2015 is explained by the 1.4% and 3.0% year-to-
date declines in manufacturing and farming, representing around 36.2% of the activity index. The negative
performance in these two sectors was driven by the departure of Intel’s operations from the country and lower
crops of pineapple, banana, and melon. Moreover, although the services sector positively contributed to economic
activity, it continued to decelerate.
Since our last publication, inflation continued its steep downward trend, coming in at 1.02% y/y (0.43% m/m) in June. On
the back of lower oil prices, the appreciation of the CRC since June 2014, and domestic growth moderation, inflation is
now 3 p.p. lower than the Costa Rican 4% inflation target and 2 p.p. below the floor of the target range.
• In June, transportation prices (up 1.78% m/m) led the increase, while the price of clothing and shoes (down
0.09% m/m) and communication (down 0.01% m/m) declined.
The Banco Central of Costa Rica (BCCR) cut its benchmark interest rate by 25 bps to 3.50% in June, reducing the rate by
175 bps since January. The announcement cited the current slack in aggregate demand, weak economic indicators, and
below-target inflation as the main reasons for this decision.
The unemployment rate came in at 10.1% in Q1 2015, above the 9.8% posted during the same period in 2014 and the
9.7% posted in Q4 2014. Employment increased by 14,218 (1.6% y/y) with most gains concentrated in social and health
services (up 9.1% y/y) and construction (up 7.6% y/y). On the other hand, the agriculture (down 2.7% y/y) and
manufacturing (down 1.1%) sectors presented declines.
Table 1
Key Economic Indicators & Forecast
Chart 1
Real GDP (y/y; %)
Key Annual Indicators 2012 2013E 2014F 2015F 2016F
GDP Growth 5.2% 3.4% 3.6% 3.2% 3.5%
Inflation (period average) 4.5% 5.2% 4.5% 2.0% 2.5%
Prim. Central Govt Fiscal Balance (% GDP) -2.3% -2.8% -3.1% -2.7% -1.8%
Nom. Central Govt Fiscal Balance (% GDP) -4.6% -5.4% -5.6% -5.9% -5.5%
Exchange Rate (USD/CRC) 508.2 501.4 539.4 533.0 545.0
Policy Interest Rate (End of Period) 5.0% 3.75% 5.25% 3.0% 4.0%
Trade Balance (US$ bln) -5.38 -5.62 -5.93 -4.85 -5.69
Exports (US$ bln) 11.43 11.60 11.25 10.06 11.01
y/y growth 9.85% 1.49% -3.03% -10.55% 9.38%
Imports (US$ bln) 17.59 18.01 17.19 14.91 16.06
y/y growth 8.45 2.41% -4.60% -13.23% 7.71%
Current Account (US$ bln) -2.42 -2.45 -2.52 -2.25 -2.19
Current Account (% of GDP) -5.3% -4.9% -5.0% -4.2% -3.9%
GDP (US$ bln) 45.38 49.62 50.21 53.49 56.2
Gov't External Debt (% of GDP) 7.5% 8.9% 11.0% 12.8% 14.4%
Gov't Debt/GDP 38.5% 41.9% 44.5% 46.6% 47.6%
Source: Ministerio de Hacienda, IMF and CIBC World Markets Source: Bloomberg
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2009Q1 2009Q4 2010Q3 2011Q2 2012Q1 2012Q4 2013Q3 2014Q2 2015Q1
Real GDP Growth
34. Caribbean Market Overview – 2015 Q2 30
CIBC Macro Strategy – Capital Markets Trading July 2015
Developments in Financial Markets
The monetary base increased by CRC19.2 billion in May, supported by the central bank’s net purchase of USD and the
government’s withdrawal of deposits in local currency. Furthermore, total liquidity in the financial system increased 10.7%
or around 0.5 p.p. above the growth rate registered in May 2014, while private sector credit grew 11.6% y/y (15.2% in May
2014) with credit in CRC and USD increasing by 12.9% y/y (17.4% in May 2014) and 9.9% y/y (12.3% in May 2014).
In the first 6 months of 2015, USD/CRC (538 at the end of June) presented a relative stability with a tendency towards the
downside, similar to the trend experienced in H2 2014 and below the high of 552.5 in May 2014. This stability was a result
of a combination of factors, in particular the private sector FX operating surplus of US$1.6 billion (as of June 16), the
US$1.0 billion sovereign debt issued in March, and lower oil prices. Subsequently, international reserves increased from
US$7.2 billion in December 2014 to US$8.7 billion in June 2015.
Government Debt
Costa Rican fiscal accounts continued to deteriorate as central government spending increased 4.5% y/y in May while
revenues decreased 1.4%. The central government salary expense increased 4.5% y/y in May, while government
transfers jumped 9.8% y/y. On a positive note, income tax revenue increased 13.8% y/y in May, accumulating a year-to-
date gain of 18.1% with respect to the same period last year. With these numbers, 2015 central government accumulated
nominal deficit widened 0.4 p.p. to 2.3% of GDP, while the primary deficit increased by the same amount to 1.4% of GDP.
Following the IMF’s recommendation of a permanent improvement in the primary balance of around 3.75% of GDP, the
government announced two major revenue measures late in 2014. These measures included converting the sales tax into
a VAT, a reform to expand the VAT base to include services, and an income tax bill that establishes a 30% tax on
medium/large companies and taxes of 10% to 30% for small companies and individuals depending on their tax bracket.
Nevertheless, the opposition took control of congress in May after an alliance was formed to block the proposed revenue
bills without any reduction in government spending. Moreover, the opposition now holds 35 out of the 57 votes in
congress (61.4%), thus, controlling the bill discussion agenda. In the most optimistic scenario, congress would discuss
these measures in Q4 2015 and introduce them in early 2016. Having said that, the government is expected to face
further financing challenges in 2016 and delay its plans towards fiscal sustainability.
Outlook
As growth prospects moderate, we expect GDP to rise by 3.2% in 2015 with growth increasing to an average of 4% for
the 2016–2019 period. With fiscal consolidation of around 2.2% of GDP over the medium term but with some delays this
year, we see central government deficit increasing to 5.9% of GDP in 2015 with the public debt ratio moving closer to 51%
of GDP by 2019. Moreover, we expect inflation to come in well below the 4% target as crude prices decline and aggregate
demand pressures remain calmed. Nevertheless, the persistence of large fiscal deficits and the government’s inaction
could worsen Costa Rica’s vulnerabilities to sudden changes in financial market sentiment this year.
Chart 2
Inflation (y/y; %)
Chart 3
Government Debt and Deficits
Source: Central Bank of Costa Rica Source: IMF, CIBC World Markets
0%
1%
2%
3%
4%
5%
6%
7%
Dec-09 Aug-10 Apr-11 Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15
CPI Inflation
25%
30%
35%
40%
45%
50%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2002 2004 2006 2008 2010 2012 2014E 2016F
Nominal Gov. Bal. (% GDP, L)
Govt Debt (% GDP, R)
