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Trinidad and Tobago Country Risk Report Q4 2016

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

Core Views

Trinidad & Tobago (T&T)'s economy will see weak economic activitygrowth in the coming years, as structurally lower oil prices weigh onconsumption, investment and net exports. Low oil prices will weigh onthe hydrocarbon sector's production outlook, while non-oil industrieswill struggle to become competitive.The government will post consistent fiscal deficits, as low oil pricesweigh on revenue collection. Expenditure cuts will be limited, as thegovernment seeks to support economic activity.Lower oil prices will place depreciatory pressure on the Trinidadiandollar (TTD) over the coming quarters, resulting in a deteriorationof the country's terms of trade and weaker investment inflows. Tightcontrol over foreign exchange sales by the central bank will prevent asignificant depreciation of the currency, although the bank will allowthe unit to gradually depreciate.

Major Forecast Changes
We have downwardly revised our real GDP forecast in 2017 to 2.5%growth, from 3.1% previously, amid signs of weak investment andconsumption.We have downwardly revised our current account forecast in 2016to a 6.9% deficit, from 2.1% previously, due to the continued weaknessof hydrocarbons exports. We forecast deficits to persist in thecoming years.We do not expect additional interest rate hikes in 2016, due in largepart to an anticipated rate hold in the US.

Table Of Contents

Trinidad and Tobago Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Major Forecast Changes.5
Key Risks.5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook 8
Modest Gas Production Gains Will Support Growth Rebound...8
Economic growth in TandT will pick up in 2017 as energy prices average higher and new natural gas production capacity comes on line.
However, growth will remain weak in the coming years in light of the country's weak business environment and ongoing structural
adjustments.
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS..9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS.9
TABLE: FIXED INVESTMENT FORECASTS9
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook.. 10
Debt Issuances Will Cover Revenue Shortfalls..10
TandT will rely on debt issuance and drawdowns from its sovereign wealth fund to support its operations over the coming quarters. Amid
persistently weak revenues, the administration will remain under acute pressure to cut expenditures in order to close its wide budget
gap.
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.12
External Trade And Investment Outlook 13
Wide C/A Deficits Will Weigh On Sovereign Credentials...13
TandT's current account deficit will remain wide over the coming two years, placing depreciatory pressure on the currency. A weakening
external position will further undermine the country's sovereign credentials, raising risks of additional credit rating downgrades in the
coming quarters.
Outlook On External Position.. 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.14
TABLE: TOP 5 GOODS IMPORTS IN 201515
TABLE: TOP 5 GOODS EXPORTS IN 2015...15
Monetary Policy 16
CBTT Will Wait Until 2017 To Hike Rates16
The CBTT will hold their policy rate steady through the end of 2016 in light of low inflation, weak economic growth and renewed
expectations of a Fed rate hold. In 2017, the bank will raise rates, spurred by rising inflation and likely hikes in the US policy
rate.
Monetary Policy Framework 17
TABLE: MONETARY POLICY FORECASTS..17
Currency Forecast 18
TTD: Steady Depreciation Set To Continue18
The CBTT will continue a steady depreciation of the TTD over the coming quarters in light of its wide external account deficit and falling
foreign exchange reserves. Nonetheless, a more substantial depreciation will be required within the next two years.
TABLE: BMI CURRENCY FORECAST18
Chapter 2: 10-Year Forecast... 21
The Trinidad and Tobago Economy To 2025. 21
Oil Dependence Will Weigh On Growth Outlook21
TandT'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 FORECASTS.21
Chapter 3: Political Outlook... 25
SWOT Analysis. 25
BMI Political Risk Index... 25
Domestic Politics. 26
Economic And Security Reform To Progress Slowly26
Political gridlock will slow the enactment of reforms aimed at addressi ng TandT's fiscal and current account deficits. With the opposition
likely to make gains in upcoming local elections, policy implementation will remain weak, keeping the business environment
poor.
TABLE: POLITICAL OVERVIEW.26
Long-Term Political Outlook... 27
Economic Slowdown Will Challenge Institutional Capacity..27
In light of structurally slower economic growth, TandT'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 RISK...32
TABLE: CARIBBEAN - LOGISTICS RISK...33
TABLE: CARIBBEAN - TRADE AND INVESTMENT RISK.35
TABLE: CARIBBEAN - CRIME AND SECURITY RISK..37
Chapter 5: BMI Global Macro Outlook... 39
Global Macro Outlook.. 39
Brexit To Hit Global Growth.39
TABLE: GLOBAL ASSUMPTIONS..39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...41
TABLE: MACROECONOMIC DATA and FORECASTS..43

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