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East Caribbean Business Forecast Report Q4 2013

  • September 2013
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views

We anticipate a modest economic recovery in the East Caribbean region over the coming quarters, with the more diversified economies benefitting from slightly stronger global growth, while those which are heavily reliant on tourism and financial services will continue to struggle. Rising debt burdens, fixed exchange rate regimes, and modest growth prospects lead us to believe that Caribbean economies will face continued headwinds in the coming years. As such, we do not rule out additional credit events or major balance of payments corrections in some of the small island economies going forward. Moreover, following indications that the Venezuelan government could alter the terms of its Petrocaribe programme, which provides subsidised oil to many Caribbean economies, we note that a dismantling of these preferential terms would have major impacts on the region, sending import bills much higher and potentially causing some countries to default on their outstanding oil loans.

Major Forecast Changes

While we continue to expect T&T's real GDP growth to tick up to 2.5% in 2013, from 1.2% in 2012, we have revised down our real GDP forecast for 2014 to 2.6%, from 3.0% previously, as a mixed outlook for the country's energy sector will prevent faster economic growth over the coming years. We believe that St Lucia's fiscal consolidation drive will continue to gain momentum in the coming months, given signs that looming budget and debt crises have prompted the government to enact fiscal reforms. Key to our view for an improvement in St Lucia's fiscal position is the government's drive to broaden the tax base and bolster revenue inflows, foremost with the continued imposition of a Value Added Tax (VAT), successfully enacted in October 2012. As such, we now expect St Lucia's nominal fiscal balance to narrow to 2.2% of GDP in 2013, from 7.2% of GDP in 2012, before shifting into a small surplus of 0.2% of GDP in 2014.

Key Risk To Outlook

Upside Risks: A recently announced legislative agenda in the Barbadian parliament could jump-start efficient and renewable energy investment on the island, a move that would stem costly fuel imports, thereby reducing the energy drag on both the country's external accounts and real GDP growth. However, we note that the tax incentives designed to spur new investment may exacerbate an already weakened fiscal position, potentially undermining the government's goal of narrowing the sizeable budget deficit. Downside Risks: We note substantial downside risks to our current account and FX forecasts for Guyana on the back of a substantial drop in gold prices in recent months and still-weak sugar prices. Indeed, a significant deterioration of the current account could prompt the Bank of Guyana to allow for more weakness in the tightly managed Guyanese dollar, posing downside risks to our average and end-year exchange rate forecasts.

Table Of Contents

East Caribbean Business Forecast Report Q4 2013
BMI Risk Ratings - Barbados 6
BMI Risk Ratings - Guyana 7
BMI Risk Ratings - Trinidad and Tobago 8
BMI Ratings - East Caribbean Table 9
Caribbean SWOTS 10
Executive Summary 13
Core Views 13
Major Forecast Changes 13
Key Risk To Outlook 13
Chapter 1.1: Political Outlook - Barbados 15
Domestic Politics 15
Renewables Push Could Reduce Energy Import Bill 15
We believe that a recently announced legislative agenda in the Barbadian parliament could jump-starting efficient and renewable energy
investment on the island, a move that would stem costly fuel imports, thereby reducing the energy drag on both the country's external
accounts as well as real GDP growth.
Chapter 1.2: Economic Outlook - Barbados 17
Economic Activity 17
Fundamentals Threaten To Send Yields Higher 17
We are growing increasingly wary of Barbadian debt, as we believe weak macroeconomic fundamentals could lead to a re-pricing of the
country's sovereign risk. .
TABLE: ECONOMIC ACTIVITY 17
Chapter 2.1: Political Outlook - Guyana 19
Domestic Politics 19
External Factors To Continue Feeding Crime And Drug Trafficking 19
Guyana will continue to struggle with narcotics trafficking and gang crime in the coming years, spelling little upside for the country's
scores in our Short-Term Political Risk and Business Environment Ratings.
Chapter 2.2: Economic Outlook - Guyana 21
Economic Activity 21
Commodity Price Weakness Poses Downside Risks To Forecasts 21
Substantial declines in gold and sugar prices in recent months highlight downside risks to our current account forecasts for Guyana this
year and next.
TABLE: CURRENT ACCOUNT 21
Chapter 3.1: Political Outlook - Trinidad and Tobago 23
Domestic Politics 23
Warner's Return To Heighten Political Uncertainty 23
We believe that the decision by former Trinidadian National Security Minister Jack Warner to form a new political party will likely prompt
defections from the ruling coalition, creating uncertainty over the government's policy trajectory and heightening short-term political
risk.
TABLE: POLITICAL OVERVIEW 23
Chapter 3.2: Economic Outlook - Trinidad and Tobago 27
Economic Activity 27
Economic Recovery To Continue At Slow Pace 27
Trinidad and Tobago will see stronger economic growth in 2013 and 2014 on the back of a rise in non-energy output, and increasing
household and government consumption. Moreover, although the energy sector will be held back by ongoing maintenance delays, we
expect growth to remain in positive territory, bolstering the ongoing economic recovery. That said, stagnating production of oil and gas
over the long term will prevent growth from rapidly accelerating through 2017.
TABLE: MACROECONOMIC INDICATORS 27
Chapter 4: Regional 31
Exchange Rate Policy 31
Rising Risks To Exchange Rate Regimes 31
Precarious external positions pose substantial risks to existing exchange rate regimes in much of the Caribbean region over the medium
term. Although most economies have sufficiently large international reserves to maintain US dollar pegs for now, we caution that future
debt restructurings could see a decline in capital and financial account flows, which could force the hands of local central banks.
Balance Of Payments 34
End Of Petrocaribe Would Elevate Systemic Risk 34
Caribbean economies are highly vulnerable to a sharp spike in energy import costs as Venezuela is beginning to signal its growing
discontent with supplying much of the region with subsidised oil. In the event that a dismantling of the Petrocaribe programme by the
Venezuelan government occurs, already weak external positions would be further exacerbated and the risks of a number of balance of
payments crises across the region would rise.
TABLE: PETROCARIBE - OIL IMPORT DEPENDENCY PROFILE 35
Chapter 5: Country Summaries 39
St Lucia 39
Economic Activity 39
Government To Tread Steadier Fiscal Path 39
TABLE: SAINT LUCIA - MACROECONOMIC FORECASTS 39
Grenada 41
Economic Activity 41
Significant Roadblocks To Debt Restructuring 41
TABLE: GRENADA - MACROECONOMIC DATA AND FORECASTS 42
St Kitts And Nevis 43
Domestic Politics 43
Likelihood Of A Constitutional Crisis Growing 43
TABLE: ST KITTS AND NEVIS - MACROECONOMIC FORECASTS 43
Antigua and Barbuda 45
Domestic Politics 45
Fewer External Constraints Boosts Risk Profile 45
TABLE: ANTIGUA AND BARBUDA - MACROECONOMIC FORECASTS 45
Chapter 6: BMI Global Assumptions 47
Global Outlook 47
Risks Mounting For Emerging Markets 47
TABLE: GLOBAL ASSUMPTIONS 47
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 48
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 48
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 49

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