Regional Research Articles
Dominican Republic Update - April 2019
Moody’s conducted a detailed credit assessment of the Dominican Republic, looked at four rating factors in isolation and comparatively with other Ba-rated sovereigns. The factors assessed were as follows: economic strength, institutional strength, fiscal strength and susceptibility to market risks.
Moody’s is of the opinion that the sovereign’s economic strength is “Moderate +.” This designation reflects expected real GDP growth of 5%-5.5% over the next two years, and is driven by the country’s reliance on tourism. The sovereign’s institutional strength is “Low (-)” which highlights corruption challenges, and is in part made visible by the Odebrecht scandal that has engulfed several Latin America countries. Moody’s rates the sovereign’s fiscal strength as “Very low (+)” due to the high proportion of foreign-debt relative to the total debt and low debt affordability. With respect to susceptibility to event risk, Moody’s deemed it to be “Low (+)”. This view is predicated on declining balance of payment risks and containment of government liquidity risks...Read more
Venezuela Update - March 2019
Since our last look at Venezuela in November-2018, the situation has deteriorated further. The opposition leader, Juan Guaidò, declared himself interim president on the 23rd of January-2019. Guaidò, the 35-year-old leader of Venezuela’s National Assembly, took the “oath of office” and promised to serve as interim leader and call for general elections. His declaration has been supported by the US, the OAS (Organization of American States) and the majority of Latin American countries. The declaration has been met with expected resistance by the incumbent, President Nicholas Maduro who has ordered US diplomats to leave the country.....Read more
Costa Rica Update - March 2019
On December 21, 2018, Standard & Poor’sdowngraded Costa Rica from “BB-” to “B+” on concerns of a persistently high fiscal deficit, poor debt management, an increasing share of debt denominated in hard currency and a consistently high level of dollarization in the financial sector. The rating agency’s ongoing concern is further underlined by the maintenance of its negative outlook which indicates a 33% chance of another downgrade in the next 6 to 24 months. Costa Rica has long been warned by the rating agencies of their concern regarding long term fiscal stability....Read more
The Jamaican Budget: Economic Stability and the Domestic Capital Market
The Government of Jamaica (GOJ) tabled the Estimate of Expenditure, the Fiscal Policy Paper (FPP) and the Medium-term Debt Strategy (MTDS) in mid-February in keeping with amendments to the Financial Administration and Audit (FAA) Act. At the macro level there is no surprise regarding the shift in the different line items in this year’s budget and expected expenditure over the medium term. As we have argued via this platform, the tabling of a medium-term expenditure framework is in keeping with good governance. It covers multiple fiscal cycles and allows for better planning by the constituents within the economy who are impacted by the budget....Read more
2018/2019 Trinidad and Tobago Budget Highlights: Pivoting to Economic Recovery
This was the theme for the FY 2018/2019 budget, presented by Finance Minister Colm Imbert on October 1, 2018. His address highlighted his continued optimism for the recovery of Trinidad and Tobago, expected projects for the energy sector and the Petrotrin story. In light of changing economic climate and wavering investor uncertainty, this review takes a closer look at the budget statement through the lens of the investor and discusses any associated implications...Read more
Jamaica Foreign Exchange Volatility: How long will it last? - September 2018
During the second half of 2017 high levels of domestic economic confidence coupled with elevated USD liquidity resulted in the Jamaica dollar (JMD) gaining strength against the US dollar (USD). As at May 2017 the 12-month depreciation rate for the JMD relative to the USD was 5.1%. However by year-end the JMD recovered and appreciated by 2.7% driven in part from increased USD flows. As at April 2018, the value of the JMD was relatively in line with the value as at end-December 2017. However, the local currency fluctuated over the period in line with expectations...Read more
Trinidad and Tobago Update - July 2018
The domestic economy in Trinidad and Tobago is slowing evolving with growth expected upward of 2% over the medium term due largely to activities in the petroleum sector. Owing to ongoing fiscal consolidation, further reduction is expected in the deficit and the debt. As a result of continued normalization of monetary policy in the US and the attendant impact on the sovereign’s financial accounts, the Central Bank of Trinidad and Tobago (CBTT) increased the repo rate in June. Further rate hikes are expected in in the future consistent with activities in the domestic economy, particularly the non-petroleum sector, and rate rise in the US....Read more
Jamaica Update - July 2018
Is there room for further reduction in domestic interest rates?
In June the Bank of Bank of Jamaica (BOJ) reduced the policy rate by 50 basis points (bps) or 0.5% to 2%. This marks the second time in 6 months that the central bank has lowered the signal rate. The central bank has indicated that, in its opinion, lending rates are too high, despite downward movements over the last 3 years. While demand and supply conditions to a large extent influence loan rates, there are other factors that feature prominently in the mix. Three such factors are: 1) expected inflation 2) credit risk and 3) liquidity premium.
The latter two factors we will refer to collectively as risks. As such, for interest rates to fall and remain subdued over the long-run two conditions must be satisfied in that inflation and the overall risk to the economy has to decline over time....Read more
Dominican Republic Update & Outlook- April 19 2018
The Banco Central de la Republic Dominica (BCRD) is projecting real economic growth in the Dominican Republic of 5.5% - 6.5% in 2018. The growth outlook is predicated on continued expansion in tourism, construction, exportation from the export zones, and the mining sector. We are forecasting growth of under 5% driven by higher levels of output in the aforementioned sectors. Higher GDP growth in the US buoyed by an increase in consumer spending will contribute to expansion in demand for tourism and goods from the free trade zones...Read More
Trinidad and Tobago Update & Outlook- April 19 2018
Real economic growth is expected to improve over the next two years driven in part by higher hydrocarbon output and prices. This is likely to have a positive impact on household income, the non-petroleum sector and government revenues. No major windfall is however expected in government revenues to facilitate continuation of high subsidies and transfers by the authorities relative to earlier periods. As a consequence of the fiscal consolidation measures being undertaken, the inflationary impulse resounding from increased household spending will be tempered. Thus, while inflation is expected to rise, it is expected to be bounded at the longterm average of around 5% per annum over the medium-term....Read More
Jamaica Update & Outlook- January 22 2018
Historically the Jamaican dollar has followed a path of depreciation since the challenges of the 1990’s. However, of late, improvements in the fiscal, reduced oil prices and its pass through effect to the balance of payments (BOP), the NIR and inflation have led to less aggressive depreciation and even appreciation. This piece takes a truncated view of recent happenings and seeks to highlight how the central bank has improved the process via improved information flow to the market...Read More
Dominican Republic Update & Outlook- January 19 2018
The Dominican Republic remains the fastest growing economy in Latin America and the Caribbean despite an expected slowdown in 2017. The growth momentum is tempered in part by slower Government spending to meet the fiscal target over the medium-term. Tourism and related construction activities remain the main drivers of the growth dynamics with aid from mining and exports from the free zones. Inflation is trending up in part due to an increase in crude oil prices. The domestic economy is heavily dependent on imported fossil fuels for transportation, electricity generation and domestic purposes. Thus a rise in oil prices is transmitted through these conduits to push inflation...Read More
Trinidad & Tobago Update & Outlook- January 4 2018
The economic condition in Trinidad and Tobago remains fluid with the risk of growth tilted toward the downside. The general outlook is that inflation will rise over the medium-term, but should remain relatively subdued in part due to low fiscal spending and slow upward adjustments in household income. Depreciatory pressures in the foreign currency market are likely to persist throughout 2018 if the authority maintains its current stance. It is our opinion however that at some point in the near future the Central Bank of Trinidad and Tobago (CBTT) will commence the cycle of rate increase, not necessarily on the accord of domestic economic factors, but rather to match the rate rise in the US to mitigate the risk of capital flight...Read More
Jamaica - October 2017
Jamaica’s debt-to-GDP ratio is expected to fall precipitously by end-FY2017/18 due in part to a change in the definition of debt which eliminates cross-holdings of securities by some public bodies. The debt ratio will continue to fall towards the targeted ratios at end-March 2020 and 2025, but may deviate because of non-realization of the growth rates envisaged by the authorities. It is expected that....Read more
Trinidad & Tobago Downgraded to BBB+/Stable-April-21-2017
The downgrade by S&P does not come as a surprise as the previous rating of “A-“ had a negative outlook.The negative outlook indicates that there was a 33.33% chance of a downgrade over the next 12 months if the external position were to deteriorate further. The debt ratios have been deteriorating and economic growth has been a challenge. Nonetheless Trinidad remains a relatively strong sovereign with good fundamentals and high external liquidity.
The recent upward movement in oil prices above US$50 per barrel is a good sign. The Heritage and Stabilization Fund does allow the sovereign to run counter-cyclical fiscal policies and while debt has risen sharply, the projection is for the ratio to decline going forward. Net International Reserves (NIR) are above US$9 billion and the interest coverage ratio, though climbing above 10% in recent times, is projected to decline and remains relatively manageable.
We remain confident in the T&T authorities and believe that it is a matter of implementation of policies, upgrade of of hydrocarbon facilities, some diversification of the economy and increasing the attractiveness of drilling tenders tore turn the sovereign over time to its more lofty “A” rated position.
Note also that while there has been a downgrade, Trinidad remains firmly in the investment grade category...Read more
Jamaica Taxation and Financing the Budget: FY 2017/18
Minister of Finance and the Public Service Audley Shaw opened the budget debate for the new fiscal administrative year on March 10, 2017 and announced revenue measures amounting to approximately $29 billion (1.7% of GDP) to help finance budgeted expenditure of $715.6 billion. Based on the measures announced, $19.0 billion represents new taxes on corporates and individuals. Of the $19 billion to be collected, $13.5 billion is to go to central government while the remaining amount is to go to the Municipal Councils. The remaining portion of $11.4 billion will be drawn from the National Housing Trust (NHT)...Read more
Trinidad and Tobago Update – March 2017
Sharp reductions in hydrocarbon prices since 2014 and supply side challenges in the petroleum sector are having a negative impact on the domestic economy. Consequently real output contracted in 2014 and 2015 by 1.2% cumulatively and is expected to fall by 4.5% in 2016. Data from Q2:16 indicate that real output fell for the period year-on-year by 8% due to reductions in output in the Petroleum and Non-Petroleum sector of 12.6% and 5.4%, respectively. All the major subsectors experienced declines in output with the exception of Agriculture where output increased by 2%...Read more
The Bank of Jamaica – February 2017
The Bank of Jamaica (BOJ) monitors the performance of deposit taking institutions as a part of its mandate to maintain stability in the domestic financial system. One of the tools that the BOJ uses to achieve this is a requirement for financial institutions to maintain certain ratios which the central bank has the power to do by law. From time to time and as the economic fundamentals allow, the BOJ adjusts these requirements to send a signal to the market…Read more