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Trinidad and Tobago Country Risk Report Q3 2016

  • May 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views Trinidad & Tobago (T&T)'s economy will see weak economic activity growth in the coming years, as structurally lower oil prices weigh on consumption, investment and net exports. Low oil prices will weigh on the hydrocarbon sector's production outlook, while non-oil industries will struggle to become competitive. The government will post consistent fiscal deficits, as low oil prices weigh on revenue collection. Expenditure cuts will be limited, as the government seeks to support economic activity. Lower oil prices will place depreciatory pressure on the Trinidadian dollar over the coming quarters, resulting in a deterioration of the country's terms of trade and weaker investment inflows. Tight control over foreign exchange sales by the central bank will prevent a significant depreciation of the currency, although the bank will allow the unit to gradually depreciate.

Major Forecast Changes We have downwardly revised our real GDP forecast in 2016 from a 0.5% contraction to a 1.1% contraction in light of rising unemployment and falling hydrocarbons production. We have downwardly revised our current account forecast from a 1.0% of GDP surplus to a 2.1% deficit in 2016 due to the continued weakness of hydrocarbons exports. We forecast deficits to persist in the coming years. We have upwardly revised our fiscal deficit forecast to 4.4% of GDP, from 7.6%, in 2016 as the government's difficulties in securing adequate financing have led to a sharper-than-expected contraction of expenditures.

Table Of Contents

Trinidad and Tobago Country Risk Report Q3 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Improving Energy Prices Support Rebound In 20178
Trinidad and Tobago's recession will continue in 2016 due to weakness in the hydrocarbons sector amid persistently low oil prices Growth
will begin to rebound in 2017 as oil prices rise and new productive capacity comes online
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
Fiscal Deficits Constrained By Difficult Financing11
Trinidad and Tobago's will maintain a wide fiscal deficit in 2016, as low oil prices undermine the country's revenues With credit
downgrades and drying domestic liquidity undermining the government's ability to finance its deficits, a turn to the IMF is increasingly
likely
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES13
External Trade And Investment Outlook 14
Slumping Exports Drive Deteriorating External Position14
Trinidad and Tobago's current account balance will remain in deficit over the coming years, reversing more than a decade of surpluses
Structurally lower oil prices and a weak production outlook will undermine the country's exports and weigh on investment flows
Outlook On External Position 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE15
TABLE: TOP 5 GOODS IMPORTS IN 201515
TABLE: TOP 5 GOODS EXPORTS IN 201516
Monetary Policy 16
Hiking Cycle To Resume In H21616
The Central Bank of Trinidad and Tobago will hold its policy rate for the duration of H116 in response to a stabilising inflation and poor
liquidity in the banking sector In H216, an additional 50bps of hikes will help avoid capital flight in light of currency depreciation and rate
hikes in the US
TABLE: INTEREST RATE and INFLATION FORECASTS17
Monetary Policy Framework 18
Currency Forecast 19
TTD: External Account Pressure Will Force Depreciation19
The Central Bank of Trinidad and Tobago will manage a steady depreciation of the Trinidadian dollar over the coming months, as it seeks
to address external account imbalances without triggering capital flight and inflation Within the next two years, a more substantial
devaluation will be necessitated by the country's weakening exports and capital inflows in light of structurally lower oil prices
TABLE: BMI CURRENCY FORECAST19
Chapter 2: 10-Year Forecast 21
The Trinidad and Tobago Economy To 2025 21
Oil Dependence Will Weigh On Growth Outlook21
Trinidad and Tobago's hydrocarbon-dependent economy will experience a decade of modest growth in light of structurally lower energy
prices Diversification will be precluded by the government's weak fiscal position and challenging business environment
TABLE: LONG-TERM MACROECONOMIC FORECASTS21
Chapter 3: Political Outlook 25
SWOT Analysis 25
BMI Political Risk Index 25
Domestic Politics 26
Economic Reforms Will Elevate Political Risk26
Policymaking in Trinidad and Tobago will suffer in the coming year as the adjustment of economic policy to the country's ongoing
recession exacerbates an already contentious political environment Legislative opposition and the likelihood of public unrest will delay
the implementation of needed reforms, weighing on the business environment
TABLE: POLITICAL OVERVIEW 26
Long-Term Political Outlook 27
Economic Slowdown Will Challenge Institutional Capacity27
In light of structurally slower economic growth, Trinidad and Tobago's governing institutions will be challenged to address pressing social
and political issues, including poverty, crime and ethnic tensions Well-established democratic norms will underpin broad political
stability, though power is likely to continue to trade hands
Chapter 4: Operational Risk 31
SWOT Analysis 31
Operational Risk Index 31
Operational Risk 32
TABLE: CARIBBEAN - LABOUR MARKET RISK32
TABLE: CARIBBEAN - LOGISTICS RISK34
TABLE: CARIBBEAN - TRADE AND INVESTMENT RISK36
TABLE: CARIBBEAN - CRIME AND SECURITY RISK38
Chapter 5: BMI Global Macro Outlook 39
Global Macro Outlook 39
Tentative Stability, But New Risks Emerging39
TABLE: GLOBAL ASSUMPTIONS39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %41
TABLE: MACROECONOMIC DATA and FORECASTS43

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