Caribbean Market Overview - Q3 2018 - CIBC

 
Caribbean Market Overview - Q3 2018 - CIBC
Caribbean Market Overview
         Q3 2018
Caribbean Market Overview - Q3 2018 - CIBC
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Caribbean Market Overview - Q3 2018 - CIBC
Caribbean Market Overview – Q3 2018

Table of Contents

Caribbean Market Review ......................................................................................................... 2
Caribbean Economic Review .................................................................................................. 11
Anguilla .................................................................................................................................... 13
Antigua and Barbuda ............................................................................................................... 15
Aruba ....................................................................................................................................... 17
The Bahamas .......................................................................................................................... 19
Barbados ................................................................................................................................. 21
Belize ....................................................................................................................................... 23
Bermuda .................................................................................................................................. 25
Cayman Islands ....................................................................................................................... 27
Costa Rica ............................................................................................................................... 30
Curaçao ................................................................................................................................... 32
Dominica ................................................................................................................................. 34
Dominican Republic ................................................................................................................ 36
El Salvador .............................................................................................................................. 38
Grenada .................................................................................................................................. 40
Guyana .................................................................................................................................... 42
Jamaica ................................................................................................................................... 44
Panama ................................................................................................................................... 47
St. Kitts and Nevis ................................................................................................................... 49
St. Lucia .................................................................................................................................. 51
Sint Maarten ............................................................................................................................ 53
St. Vincent and the Grenadines .............................................................................................. 55
Suriname ................................................................................................................................. 57
Trinidad and Tobago ............................................................................................................... 59
Turks and Caicos .................................................................................................................... 62
About CIBC ............................................................................................................................. 64
About CIBC FirstCaribbean ..................................................................................................... 65
Notes ....................................................................................................................................... 66

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                   October 2018
Caribbean Market Overview - Q3 2018 - CIBC
Caribbean Market Overview – Q3 2018                                       1

Caribbean Market Review

CIBC Capital Markets & CIBC FirstCaribbean International Bank   October 2018
Caribbean Market Overview - Q3 2018 - CIBC
Caribbean Market Overview – Q3 2018                                                                                         2

Caribbean Market Review                                                                                     Luis Hurtado
                                                                                                           Macro Strategy
Summary

Emerging market credits traded with a risk premium reflecting ongoing trade concerns as the US imposed tariffs on its
closest allies and China. This situation subsided somewhat in the weeks leading to this publication as the US, Mexico,
and Canada have reached a new trade agreement in principle, but it still has to be ratified by their respective legislatures.
Nonetheless, trade war fears remain front and centre, as further moves against China by the current US administration
could put EM credits under additional pressure, especially those credits highly dependent on commodity prices. On the
monetary policy front, advanced economies’ monetary tightening continued their course, signalling a similar pace of rate
increases into 2019. Still, not a fertile outlook for EM in general terms, but particularly adverse for those credits with
significant US$ funding needs.
In the Caribbean and Central America, with the exception of JAMAN and BERMUDA, all credits widened further. The
main story of the region was the deterioration of COSTAR, as the odds of an even diluted reform diminished. Moreover,
the market’s concerns regarding the government’s ability to find sources of financing at reasonable rates increased as the
Central Bank approved buying three month treasury notes from the Ministry of Finance during the last week of
September. Considering the overall widening of Central American and Caribbean credits, DOMREP and PANAMA held
up relatively well. In DOMREP, the government announced its 2019 Budget with a deficit of 1.7% of GDP (vs. 2.2% in
2018) an optimistic proposal calling for an improvement year-over-year. Regarding issuance for next year, DOMREP will
have to finance around US$4bln, of which we expect US$3bln to come from external markets. In Panama, despite the
deceleration in growth, the credit has not shown any signs of weakness. We do expect growth to pick up in 2019 and the
electoral process to not bring any big surprises with respect to the country’s macro fundamentals. For JAMAN, we expect
the credit to maintain a strong performance, supported by its ability to meet the IMF’s targets and expectations of higher
growth in the short-term.
In the midst of default and falling FX reserves, the Government of Barbados and the IMF reached an agreement on a 4-
                                                                                        st
year US$290mln financing programme under the Extended Fund Facility on October 1 2018. The government’s
associated fiscal consolidation programme will target an initial primary surplus of 6% of GDP from 2019/20, and in
conjunction with proposed debt restructuring, targets a debt-to-GDP ratio of 60% by 2033.
PANAMA widened 18 bps on average since our last publication while DOMREP remained relatively flat, only increasing
14 bps on average during the same period. As stated above, economic growth was disappointing in H1 2018 in Panama;
however, we expect economic activity to rebound in the latter part of this year as construction recovers the time lost
during the SUNTRAC strike in April/May. Moreover, we expect copper production to improve the country’s external
account and act as of one of the main economic drivers in 2019. DOMREP’s amazing growth during H1 2018 has put the
country on track for 6% growth in 2018. We expect solid growth to continue into 2019, supporting the good performance of
the credit.
In El Salvador, the Minister of Finance Nelson Fuentes confirmed a 2019 deficit of around US$600mln and debt issuance
of up to US$1.4bln in 2019, which includes US$800mln to pay the ELSALV 19s. We think liability management issuance
is unlikely to get approved before the elections. While the FMLN was pushing for it, ARENA will be reluctant to provide the
FMLN government with any additional resources to boost its popularity ahead of the presidential election. Moreover, with
Bukele maintaining momentum and looking competitive, both ARENA and the FMLN will likely be reluctant to help an
eventual Bukele’s presidency and risk losing their negotiating power in congress. Therefore, we expect volatility to
increase in late 2018 and into 2019 and maintain a high level of caution on ELSALV.
On the other side of the spectrum, COSTAR widened 100 bps on average as fiscal concerns rose. Reform discussion
delays, reform dilution, extraordinary budgets, non-procedural debt issuance, strikes, and now the sale of treasury notes
to the Central bank all materialized since our last quarterly report. Moreover, some of our concerns regarding the
procedure of the reform in Congress resurfaced during the last week of September. Judges of the Supreme Court of
Justice argued that the reform would alter the operations and functioning of the justice system. This statement is very
important and worrisome as the Sala IV of the Supreme Court will decide if the fiscal reform followed a proper procedure
in Congress. The issue with this latest development is that the government will need 2/3rds of the votes in Congress to

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                  October 2018
Caribbean Market Overview - Q3 2018 - CIBC
Caribbean Market Overview – Q3 2018                                                                                           3

approve any law affecting the operations of the justice system if the court is not in favour. Currently, the government does
not have such support.
       Bahamas: A rebound in tourism performance and preliminary indicators of construction activity suggest that y/y
        growth in economic activity continued to accelerate year-to-date 2018. During January – May 2018, total visitor
        arrivals to the Bahamas increased 3.1% y/y. Air arrivals rebounded 15.0% y/y as greater arrivals to New
        Providence (up 17.6% y/y) and the Family Islands (up 11.8% y/y) more than offset a 4.4% y/y fall in air arrivals to
        Grand Bahama. Preliminary construction indicators imply that construction activity likely improved y/y during Q2
        2018. During the first eleven months of the fiscal year ending May 2018, the government reduced its fiscal deficit
        by 29.2% y/y to US$211.9mln. Notwithstanding declines in domestic direct debt (down 3.8% y/y) and contingent
        liabilities (down 3.4% y/y), a 49.7% y/y surge in direct foreign currency debt increased the total national debt by
        9.2% y/y to US$7.95bln (about 65.3% of 2017 nominal GDP).
       Barbados: During its H1 2018 review of the Barbados economy, the Central Bank of Barbados (CBB) suggested
        that negative growth in the tourism, construction and distribution sectors reduced real GDP by 0.6% y/y. Real
        value-added in tourism activity fell 2.3% y/y. The number of stay-over arrivals increased 3.4% y/y as arrivals from
        the USA, Canada and the UK increased 8.9% y/y, 3% y/y and 3.6% y/y, respectively, but a persistent decline in
        the average length of stay reduced total output in the sector over the period. Construction activity declined by
        4.0% y/y and coincided with a 1.5% y/y fall in mining and quarrying output. While most other sectors recorded
        negative economic growth, output in sugar and non-sugar agriculture each rebounded 24.1% y/y and 9.4% y/y,
        respectively. The suspension of interest payments to external creditors and greater revenues from new and
        higher taxes substantially reduced the government’s fiscal deficit by 92.4% y/y to US$5.2mln during the April –
        June 2018 period. Latest CBB estimates suggest that gross public sector debt increased to 155.0% of GDP at Q2
        2018 from 146.6% of GDP one year prior.
       Bermuda: Notwithstanding strong growth in net external demand, the Government of Bermuda reported that
        weaker consumption and gross capital formation reduced real GDP by 0.4% y/y during Q1 2018. Stronger tourist
        arrivals likely further boosted services exports during the first eight months of 2018. A 5.3% y/y rise in airline
        capacity contributed to a 6.5% y/y increase in total air arrivals, while total cruise arrivals advanced 5.8% y/y.
        Aggregate consumption fell 0.5% y/y as a 1.5% y/y decline in household consumption more than offset a 3.2% y/y
        rise in government final consumption. For the fiscal year ending March 2018, the Government of Bermuda’s
        nominal fiscal deficit (including the contribution to the sinking fund) declined to US$119.2mln, down 34.5% y/y and
        11.5% less than originally budgeted. Excluding the sinking fund contribution, the deficit fell 53.8% y/y to
        US$57.1mln. Gross government debt increased 3.4% y/y to US$2.57bln as at March 2018. Furthermore, on April
        26, Standard and Poor’s (S&P) revised its outlook on Bermuda’s A+ sovereign debt rating to ‘positive’ from
        ‘stable’. The Government of Bermuda projects that real GDP will likely expand between 1.5% and 2.0% y/y during
        2018, while S&P projects growth at 1.8% during the same period.
       Costa Rica: Q2 2018 GDP growth came in at 3.5 % y/y, 0.7 percentage points above the 2.8% posted in Q1
        2018, but below Q1 2017’s 3.7% y/y increase. The sluggish growth experienced in H1 2018 was in line with the
        monetary tightening implemented by the Banco Central of Costa Rica (BCCR), the government’s efforts to reduce
        the precarious fiscal situation, and low consumer and business confidence in an uncertain environment driven by
        the presidential elections in February. On the fiscal front, August central government revenue came in at
        CRC311bln (up 3.43% y/y) and total expenses came in at CRC454bln (+12.7% y/y). With these numbers, the 12-
        month primary deficit also deteriorated from the 2.51% of GDP posted in August 2017 to 3.2% y/y of GDP as of
        August 2018. We maintain our 3.2% growth forecast, as the precarious fiscal situation keeps business and
        consumer confidence at low levels. For 2019, we do not expect a big rebound in economic activity, especially as
        households and firms adjust to higher taxes.
       Dominican Republic: H1 2018 GDP growth landed at 6.7% y/y maintaining the solid performance observed
        since Q4 2017. More recent data suggests the continuation of this solid growth performance in Q3, as August
        economic activity came in at 6.5% y/y, following the 7.3% y/y and 6.5% y/y growth posted in June and July. Q2
        2018 Non-financial Public Sector (NFPS) revenues reached DOP153.9bln, increasing 5.5% y/y, but well below
        the 16.6% y/y gain posted a year earlier. On the other hand, Q2 2018 expenses came in at DOP148.9bln, down
        1.2% y/y. The 12 month NFPS fiscal deficit reached DOP91.9bln or 2.5% of GDP while the primary deficit came in

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                 October 2018
Caribbean Market Overview - Q3 2018 - CIBC
Caribbean Market Overview – Q3 2018                                                                                       4

       at DOP22.5bln or 0.6% of GDP, both below the 3.0% and 1.1% deficits posted at the end of 2017. The solid
       growth performance earlier that year has extended beyond our initial calculations. Hence, we are revising our
       2018 growth forecast upward to 6.0%.
      El Salvador: Q2 GDP growth came in at 2.5% y/y, down from the 2.9% increase posted in Q1 2018, but in line
       with our growth estimate of 2.5% for 2018. Remittances continued to bode well for consumption growth as they
       reached US$3.6bln for the January-August period, increasing 9.5% y/y, while household credit increased 4.0%
       y/y during the same period. The numbers released by the Central Bank of El Salvador indicate that NFPS
       revenue (including donations) reached US$3.7bln year-to-date in July, increasing 5.2% from the same period last
       year. On the other hand, NFPS expenses increased 11.7%, reaching US$3.7bln year-to-date in July, while the
       12-month primary surplus came in at US$121.13mln (0.5% of GDP).
      Jamaica: The Statistical Institute of Jamaica estimates that real GDP growth accelerated to 2.2% y/y during Q2
       2018 compared to growth of 1.4% y/y one quarter prior. Despite lower interest costs, a surge in capital
       expenditure widened the Government of Jamaica’s fiscal deficit by 113.0% y/y to US$97.4mln during April –
       August 2018. On July 20th 2018, citing ongoing fiscal consolidation, and improved institutional capacity and policy
       effectiveness, Moody’s Investors Service improved their outlook on Jamaica’s ‘B3’ rated sovereign debt from
       stable to positive. Similarly, two months later S&P revised their outlook on Jamaica’s ‘B’ rated debt to positive,
       citing the sovereign’s greater progress in achieving macroeconomic stability and an improved external debt
       burden. The Planning Institute of Jamaica projects that real GDP growth will likely end calendar year 2018
       between 1.5% and 2.5% and accelerate to between 2.0% and 3.0% during the twelve months ended March 2019.
      Panama: Q2 2018 GDP numbers confirmed the deceleration in economic growth coming in at 3.8% y/y, below
       the 4.24% y/y posted in Q1 2018 and Q2 2017’s 5.2% y/y. More recent data suggests the extension of the
       decelerating trend into Q3 2018 as July economic activity posted a mere 2.0% y/y increase, below the 2.83% y/y
       rise in May and well below the 3.8% from July 2017. On the fiscal front, central government revenue for the H1
       2018 period came in at US$3.6bln (up 0.3% y/y), while total expenses reached US$5.3bln, increasing 20.7% y/y.
       With these numbers, Non-Financial Public sector (NFPS) revenues for the first half of 2018 came in at US$5.7bln,
       down 0.8% y/y. Total expenses increased US$1bln or 17.6% y/y to US$6.8bln, while current savings reached
       US$900mln (down 37.1% y/y). Hence, the nominal NFPS deficit came in at US$1.1bln or 1.6% of GDP, while the
       primary deficit reached US$521mln or 0.8% of GDP. The fiscal picture for the rest of 2018 does not look as good
       as in previous years. The government tried to get a waiver of US$500mln as it looks like it will not be able to meet
       its adjusted deficit of 0.5% of GDP this year. This of course would restrict the government’s expenditures into H2
       2018 and/or reduce market confidence in future targets.
      Suriname: While the net demand for domestic goods and services worsened y/y during H1 2018, rapid growth in
       investment goods imports and key commodity exports imply possible improvement in economic activity over the
       period. A combination of greater receipts and lower spending in US$ terms narrowed the fiscal deficit by 14.6%
       y/y to US$247.6mln (7.4% of GDP) during 2017. Data available as at June 2018 from the Suriname Bureau for
       the State Debt suggests that the government’s total debt declined 7.6% y/y to US$2.41bln. External debt
       increased 5.7% y/y to US$1.65bln, but domestic debt fell 27.5% y/y to US$756.1mln. Going forward, the IMF
       expects that real GDP will likely expand by 1.4% y/y by the end of the year.
      Trinidad and Tobago: Latest Central Bank of Trinidad and Tobago (CBTT) estimates suggest that, despite
       persistent weakness in non-energy output, a strong rebound in energy output increased real GDP by 3.1% y/y
       during Q1 2018. Since then, petroleum production continued to expand. Over the first nine months of the fiscal
       year ended June 2018, the government reduced its fiscal deficit by 54.5% y/y to US$661.3mln. Central
       government domestic debt and total contingent debt fell 3.6 percentage points y/y and 1.4 percentage points y/y
       to 43.1% of GDP and 18.1% of GDP, but the central government’s external debt-to-GDP ratio advanced 1.3
       percentage points y/y to 15.7% of GDP. Latest IMF projections suggest that, after likely rebounding by 1.0% y/y in
       2018, real GDP will likely expand marginally by 0.9% y/y in 2019.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                               October 2018
Caribbean Market Overview - Q3 2018 - CIBC
Caribbean Market Overview – Q3 2018                                                                                                                                               5

Chart 1                                                                                         Chart 2
High Yield - 10Y Against Benchmark                                                              Investment Grade - 10Y Against Benchmark
3170 bps                                                                                        390 bps                  PANAMA                 ARUBA               BAHAMA
                                       DOMREP              BARBAD                                                        BERMUD                 TRITOB
2670                                                                                            340
                                       COSTAR              JAMAN
2170                                   SURINM              ELSALV                               290

                                                                                                240
1670
                                                                                                190
1170
                                                                                                140
  670                                                                                            90

  170                                                                                            40
    Aug-17       Sep-17        Nov-17      Jan-18   Mar-18     May-18   Jul-18         Sep-18     Aug-17    Sep-17   Nov-17         Jan-18   Mar-18   May-18    Jul-18   Sep-18

Source: Bloomberg and CIBC Capital Markets – Macro Strategy.
10Y bonds are: COSTAR 4 3/8 04/30/25 BARBAD 7 08/04/22 DOMREP 5.95 01/25/27 JAMAN 6 3/4 04/28/28 ARUBA 4 5/8 09/14/23 BAHAMA 5 3/4 01/16/24 BERMUD 4.854 02/06/24
TRITOB 4 1/2 08/04/26 PANAMA 3 7/8 03/17/28 SURINM 9 ¼ 10/26/26 ELSALV 6 3/8 01/18/27

Chart 3
Caribbean Bonds Change in Yields Since Last Publication (July 19, 2018)
           BARBAD 7 1/4 12/15/21
            ELSALV 7 3/8 12/01/19
               BARBAD 7 08/04/22
           COSTAR 4 1/4 01/26/23
           BARBAD 6 5/8 12/05/35
           COSTAR 4 3/8 04/30/25
          COSTAR 7.158 03/12/45
               COSTAR 7 04/04/44
            ELSALV 5 7/8 01/30/25
            ELSALV 6 3/8 01/18/27
           COSTAR 5 5/8 04/30/43
            ELSALV 8 5/8 02/28/29
            ELSALV 7 3/4 01/24/23
            ELSALV 7.65 06/15/35
          COSTAR 9.995 08/01/20
            ELSALV 7 5/8 02/01/41
            TRITOB 4 1/2 08/04/26
          DOMREP 7 1/2 05/06/21
             ARUBA 4 5/8 09/14/23
            TRITOB 9 3/4 07/01/20
            TRITOB 4 3/8 01/16/24
             PANAMA 5.2 01/30/20
            ELSALV 7 5/8 09/21/34
           PANAMA 3 7/8 03/17/28
           PANAMA 7 1/8 01/29/26
             PANAMA 4.3 04/29/53
           PANAMA 3 3/4 03/16/25
           DOMREP 7.45 04/30/44
              PANAMA 4 09/22/24
             JAMAN 9 1/4 10/17/25
           PANAMA 4 1/2 05/15/47
           DOMREP 6.85 01/27/45
           CAYMAN 5.95 11/24/19
          BERMUD 5.603 07/20/20
           BAHAMA 6.95 11/20/29
          DOMREP 6 7/8 01/29/26
           PANAMA 8 7/8 09/30/27
          DOMREP 5 1/2 01/27/25
           PANAMA 9 3/8 04/01/29
           BAHAMA 5 3/4 01/16/24
            DOMREP 6.6 01/28/24
          DOMREP 8 5/8 04/20/27
          DOMREP 5 7/8 04/18/24
          BERMUD 4.138 01/03/23
             JAMAN 8 1/2 02/28/36
             JAMAN 7 7/8 07/28/45
          BERMUD 4.854 02/06/24
           BAHAMA 6 5/8 05/15/33
             JAMAN 7 5/8 07/09/25
                JAMAN 8 03/15/39
             JAMAN 6 3/4 04/28/28
           BAHAMA 7 1/8 04/02/38
           SURINM 9 1/4 10/26/26
                JAMAN 8 06/24/19
                                    -100                  0                      100                  200                     300                     400                 500

Source: Bloomberg and CIBC Capital Markets – Macro Strategy.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                                                  October 2018
Caribbean Market Overview - Q3 2018 - CIBC
Caribbean Market Overview – Q3 2018                                                                                                                                                                                                  6

Chart 4                                                                                                                 Chart 5
Caribbean – Investment Grade                                                                                            Caribbean – High Yield

7 YTM                                                                                                                   10 YTM
                                                                                                                                                                      SURINM '26
                                                                                                           BAHAMA '38
                                                                                                                          9
                                                                       BAHAMA '29       BAHAMA' 33
6
                                                                                                                          8
                                                                                                                                                                                                     DOMREP '44
                                                              TRITOB '27                                                                                        DOMREP 4/20/27                                     DOMREP '45
                                     BAHAMA '24                                                                           7                                                            JAMAN '36
5                                                                                                                                  DOMREP '21                                                                      JAMAN '45
                                     TRITOB '24                                                                                                                   DOMREP '25
                                   ARUBA '23                     BERMUD '27                                               6                         DOMREP 1/28/24
                                                                                                                                                                           DOMREP 1/25/27           JAMAN '39
                                                                                                                                                                    DOMREP '26
4                                    BERMUD '24
                                                                                                                          5
                               BERMUD '23                                                                                                       DOMREP 4/18/24        JAMAN 10/17/25
                                                                                                                                                             JAMAN 7/9/25
                                                                                                                          4
3
                                                                                                                                    JAMAN '19
                                                                                                                          3
                                                                                            Modified Duration                                                                                        Modified Duration
2                                                                                                                         2
     2                     4                     6                    8                      10                  12           0            2              4           6            8           10           12            14

Source: Bloomberg and CIBC Capital Markets – Macro Strategy.                                                            Source: Bloomberg and CIBC Capital Markets – Macro Strategy.

Chart 6                                                                                                                 Chart 7
Central America – Panama, Costa Rica, and El                                                                            ELSALV ‘23s vs. COSTAR ‘23s
Salvador
         YTM                                                                                                              350                                                                                                  5.0
 9
                                                          ELSALV '35        ELSALV '41                                                                                                                                         4.0
                                         ELSALV '29
                                                                                COSTAR '45                                300
 8                    ELSALV '25                                              COSTAR '44
                                             ELSALV '27                                                                   250                                                                                                  3.0
 7       COSTAR '20             ELSALV '23
                                                               ELSALV '34         COSTAR '43
                                                                                                                                                                                                                               2.0
                                             COSTAR '25                                                                   200
 6                      COSTAR '23                                                                                                                                                                                             1.0
 5                                                                                                                        150
           ELSALV '19                   PANAMA '27
                                                       PANAMA '29
                                                                                  PANAMA '47                                                                                                                                   0.0
 4                                                       PANAMA '28                                                       100
                  PANAMA 01/30/20                                                                                                                                                                                              -1.0
                                    PANAMA '25                                                           PANAMA '53                                                                                                      0.5
 3
                                PANAMA '26                                                                                    50
                                                                                                                                                                                                                               -2.0
                          PANAMA '24
                                                                                                                                                                                        Spread                  -2.26
 2                                                                                                                             0                                                                                               -3.0
                                                                                                                                                                                        Z-Score (RHS)
 1                                                                                                                         -50                                                                                                 -4.0
                                                                                         Modified Duration
 0                                                                                                                       -100                                                                                                  -5.0
     0           2             4         6            8          10          12        14           16         18           Sep-17                  Dec-17            Mar-18             Jun-18                 Sep-18

Source: Bloomberg and CIBC Capital Markets – Macro Strategy.                                                            Source: Bloomberg and CIBC Capital Markets – Macro Strategy.

Chart 8                                                                                                                 Chart 9
COSTAR ‘44s vs. DOMREP ‘44s                                                                                             PANAMA ‘24s vs. BAHAMA ‘24s and BERMUD ‘24s
    150                                      COSTAR 44 - DOMREP 44                                             5.0             0
                                                                                                               4.0
                                                                                                    99.1                   -50
    100
                                                                                                               3.0
                                                                                                              2.40                                       PANAMA '24s - BAHAMA '24s
                                                                                                               2.0       -100
     50                                                                                                                                                  PANAMA '24s - BERMUD '24s
                                                                                                               1.0       -150
      0                    Spread                                                                              0.0
                           Z-Score (RHS)                                                                                 -200
                                                                                                               -1.0
    -50
                                                                                                               -2.0      -250

 -100                                                                                                          -3.0
                                                                                                                         -300
    Sep-17                     Dec-17                Mar-18                Jun-18                 Sep-18
                                                                                                                            Sep-17                  Dec-17            Mar-18              Jun-18                Sep-18

Source: Bloomberg and CIBC Capital Markets – Macro Strategy.                                                            Source: Bloomberg and CIBC Capital Markets – Macro Strategy.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                                                                                           October 2018
Caribbean Market Overview – Q3 2018                                                                                                                                            7

Table 1
Public Sector Fiscal Accounts and Debt 2018/19
                                                     Primary/Adjusted                     Nominal                 Gross Government            Net Public Sector       Real
  2017/18                                                Balance                          Balance                        Debt                        Debt         GDP Growth
                                                         % of GDP                         % of GDP                    % of GDP                    % of GDP         % of GDP
  Antigua and Barbuda                                     -2.7%                            -5.9%                        88.2%                        n.a.             3.9%
  Aruba                                                    3.1%                            -1.6%                        74.7%                      26.5%              0.3%
  The Bahamas                                              0.2%                            -2.3%                        53.9%                      49.9%              2.5%
  Barbados                                                 3.3%                            -1.3%                       123.6%                      111.7%            -0.5%
  Belize                                                   2.0%                            -1.5%                        97.5%                      93.1%              1.8%
  Bermuda                                                  0.6%                            -1.3%                        40.7%                       -2.9%             1.8%
  Cayman Islands                                           2.4%                             1.5%                        14.3%                        n.a.             2.2%
  Costa Rica                                              -3.5%                            -7.0%                         54%                         n.a.             3.2%
  Dominica                                                -2.1%                            -5.5%                        87.7%                        n.a.           -14.1%
  Dominican Republic                                      -0.1%                            -2.5%                        38.6%                      27.5%              6.0%
  El Salvador                                              0.1%                             -3.1                        63.5%                        n.a.             2.5%
  Grenada                                                  5.6%                             3.4%                        65.0%                        n.a.             3.2%
  Jamaica                                                  7.0%                            -0.2%                        98.3%                      90.8%              1.4%
  Panama                                                  -0.5%                            -2.0%                         39%                       35.0%              4.0%
  St. Kitts and Nevis                                      0.9%                            -0.8%                        60.3%                        n.a.             2.4%
  St. Lucia                                               -1.0%                            -4.6%                        72.2%                        n.a.             2.1%
  St. Vincent and the Grenadines                           0.1%                            -2.0%                        81.4%                      78.1%              1.2%
  Suriname                                                -2.7%                            -5.0%                        68.5%                      66.1%              1.4%
  Trinidad and Tobago                                     -1.7%                            -4.6%                        63.5%                        n.a.             0.9%
Sources: IMF, Bloomberg, CIBC Capital Markets - Macro Strategy, Cayman Islands' Economics and Statistics Office (ESO), Standard and Poor's.
NA: Not available.

Table 2
Ratings of Caribbean Sovereigns
                                                                                                                                        Ratings Key
  2017 Ratings                                                                                                      Investment Grade                     High Yield
                                                        S&P                    Moody’s                           S&P             Moody’s             S&P            Moody’s
  Aruba                                                BBB+                      NA                              AAA               Aaa               BB+             Ba1
  The Bahamas                                           BB+                     Baa3                              AA+              Aa1                BB             Ba2
  Barbados                                              SD                      Caa3                              AA               Aa2               BB-             Ba3
  Bermuda                                                A+                      A2                               AA-              Aa3                B               B2
  Cayman                                                NA                      Aa3                               A+               A1                 B-              B3
  Costa Rica                                            BB-                     Ba2                                A               A2               CCC+             Caa1
  Dominican Republic                                    BB-                     Ba3                                A-              A3               CCC              Caa2
  El Salvador                                          CCC+                      B3                              BBB+             Baa1              CCC-             Caa3
  Jamaica                                                B                       B3                              BBB              Baa2               CC               Ca
  Panama                                                BBB                     Baa2                             BBB-             Baa3                C               C
  Suriname                                               B                       B2                                                                   D
  Trinidad and Tobago                                  BBB+                     Ba1
*-: On review for downgrade

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                                                     October 2018
Caribbean Market Overview – Q3 2018                                                                                       8

Table 3
Caribbean Bonds and Indicative Prices/Spreads (As of October 4, 2018)
                                                            Aruba
                   Bond            Price      Yield            3m Yield Change   Z-Spread   S&P    Moody's        Fitch
ARUBA 4 5/8 09/14/23             100.69      4.47%                  38.89         119.20    BBB+     NR           BBB-
                                                          Bahamas
                   Bond            Price      Yield            3m Yield Change   Z-Spread   S&P    Moody's        Fitch
BAHAMA 5 3/4 01/16/24            102.34      5.23%                   7.22         203.99    BB+     Baa3           NR
BAHAMA 6.95 11/20/29             107.27      6.04%                  16.13         271.47    BB+     Baa3           NR
BAHAMA 6 5/8 05/15/33            104.95      6.11%                  -8.89         277.37    BB+     Baa3           NR
BAHAMA 7 1/8 04/02/38            106.01      6.57%                 -11.74         320.94    BB+     Baa3           NR
                                                          Barbados
                   Bond            Price      Yield            3m Yield Change   Z-Spread   S&P    Moody's        Fitch
BARBAD 7 1/4 12/15/21             56.46      28.28%                426.08        #N/A N/A   SD      Caa3           NR
BARBAD 7 08/04/22                 54.39      25.53%                178.62        #N/A N/A   SD       NA            NR
BARBAD 6 5/8 12/05/35             55.87      12.94%                122.76        #N/A N/A   SD      Caa3           NR
                                                          Bermuda
                  Bond             Price      Yield            3m Yield Change   Z-Spread   S&P    Moody's        Fitch
BERMUD 5.603 07/20/20            103.57      3.51%                  16.93          44.66     A+      A2           WD
BERMUD 4.138 01/03/23            101.60      3.72%                  -0.29          52.86     A+      A2           WD
BERMUD 4.854 02/06/24            104.28      3.95%                  -7.80          73.76     A+      A2           WD
BERMUD 3.717 01/25/27            95.30       4.40%                   2.07         117.57     A+      A2            NA
                                                       Cayman Islands
                  Bond             Price      Yield            3m Yield Change   Z-Spread   S&P    Moody's        Fitch
CAYMAN 5.95 11/24/19             103.26      2.98%                  17.54         -13.23    NR      Aa3            NR
                                                         Costa Rica
                   Bond            Price      Yield            3m Yield Change   Z-Spread   S&P    Moody's        Fitch
COSTAR 9.995 08/01/20            108.00      5.30%                  72.22         214.05    BB-     Ba2            NR
COSTAR 4 1/4 01/26/23            92.03       6.40%                 125.61         320.66    BB-     Ba2            BB
COSTAR 4 3/8 04/30/25            88.94       6.47%                 109.57         327.08    BB-     Ba2            BB
COSTAR 5 5/8 04/30/43            80.72       7.33%                  78.44         405.10    BB-     Ba2            BB
COSTAR 7 04/04/44                90.89       7.83%                 100.86         455.23    BB-     Ba2            BB
COSTAR 7.158 03/12/45            91.80       7.90%                 107.17         461.67    BB-     Ba2            BB
                                                      Dominican Republic
                  Bond             Price      Yield            3m Yield Change   Z-Spread   S&P    Moody's        Fitch
DOMREP 7 1/2 05/06/21            104.54      5.58%                  40.22         140.25    BB-     Ba3           BB-
DOMREP 5 7/8 04/18/24            102.96      5.25%                   3.46         194.28    BB-     Ba3           BB-
DOMREP 6.6 01/28/24              105.66      5.36%                   4.99         218.97    BB-     Ba3           BB-
DOMREP 5 1/2 01/27/25            100.02      5.49%                  11.31         227.62    BB-     Ba3           BB-
DOMREP 6 7/8 01/29/26            106.73      5.73%                  13.19         251.86    BB-     Ba3           BB-
DOMREP 5.95 01/25/27             101.65      5.70%                   5.62         246.32    BB-     Ba3           BB-
DOMREP 8 5/8 04/20/27            113.45      6.54%                   4.24         310.83    BB-     Ba3           BB-
DOMREP 7.45 04/30/44             106.82      6.88%                  18.88         359.66    BB-     Ba3           BB-
DOMREP 6.85 01/27/45             100.96      6.77%                  17.72         349.15    BB-     Ba3           BB-
DOMREP 6 1/2 02/15/48            97.54       6.69%                  15.37         341.87    BB-     Ba3           BB-
                                                         El Salvador
                    Bond           Price     Yield            3m Yield Change    Z-Spread   S&P    Moody's        Fitch
ELSALV 7 3/8 12/01/19            101.21      6.25%                 200.53         330.21    CCC+     B3            B-u
ELSALV 7 3/4 01/24/23            104.41      6.55%                  73.78         335.89    CCC+     B3            B-u
ELSALV 5 7/8 01/30/25            93.55       7.16%                  84.03         396.28    CCC+     B3            B-u
ELSALV 6 3/8 01/18/27            93.57       7.43%                  82.81         421.01    CCC+     B3            B-u
ELSALV 8 5/8 02/28/29            106.06      7.76%                  78.04         451.96    CCC+     B3            NA
ELSALV 7 5/8 09/21/34            101.68      7.44%                  29.23         414.40    CCC+     B3            B-u
ELSALV 7.65 06/15/35             96.36       8.05%                  73.11         475.24    CCC+     B3            B-u
ELSALV 7 5/8 02/01/41            96.18       7.99%                  56.64         469.20    CCC+     B3            B-u
                                                           Jamaica
                   Bond            Price      Yield            3m Yield Change   Z-Spread   S&P    Moody's        Fitch
JAMAN 8 06/24/19                 102.81      3.93%                 -54.29          81.37     B       B3            Bu
JAMAN 7 5/8 07/09/25             115.20      4.95%                 -10.18         137.18     B       B3            Bu
JAMAN 9 1/4 10/17/25             125.13      4.97%                  18.11         176.97     B       B3            Bu
JAMAN 6 3/4 04/28/28             110.35      5.35%                 -10.22         197.95     B       B3            Bu
JAMAN 8 1/2 02/28/36             121.96      6.39%                  -6.81         308.64     B       B3            Bu
JAMAN 8 03/15/39                 118.23      6.39%                 -10.21         307.09     B       B3            Bu
JAMAN 7 7/8 07/28/45             117.15      6.51%                  -7.35         323.83     B       B3            Bu

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                October 2018
Caribbean Market Overview – Q3 2018                                                                                                              9

                                                                                   Panama
                   Bond                                    Price    Yield             3m Yield Change   Z-Spread   S&P    Moody's        Fitch
PANAMA 5.2 01/30/20                                      102.68    3.09%                    30.43         13.22    BBB     Baa2          BBB
PANAMA 4 09/22/24                                        101.22    3.77%                    18.85         57.32    BBB     Baa2          BBB
PANAMA 3 3/4 03/16/25                                    99.37     3.86%                    20.95         66.82    BBB     Baa2          BBB
PANAMA 7 1/8 01/29/26                                    118.90    4.10%                    22.11         90.94    BBB     Baa2          BBB
PANAMA 8 7/8 09/30/27                                    134.87    4.18%                    12.04         94.96    BBB     Baa2          BBB
PANAMA 3 7/8 03/17/28                                    98.65     4.05%                    22.87         81.40    BBB     Baa2          BBB
PANAMA 9 3/8 04/01/29                                    141.44    4.40%                    7.77         115.30    BBB     Baa2          BBB
PANAMA 6.7 01/26/36                                      123.73    4.68%                    12.26        132.53    BBB     Baa2          BBB
PANAMA 4 1/2 05/15/47                                    98.38     4.60%                    18.00        133.23    BBB     Baa2          BBB
PANAMA 4.3 04/29/53                                      94.42     4.63%                    21.11        137.47    BBB     Baa2          BBB
                                                                                  Suriname
                   Bond                                    Price    Yield             3m Yield Change   Z-Spread   S&P    Moody's        Fitch
SURINM 9 1/4 10/26/26                                     98.83    9.46%                   -17.16        623.65     B       B2            NR
                                                                            Trinidad and Tobago
                    Bond                                   Price    Yield             3m Yield Change   Z-Spread   S&P    Moody's        Fitch
TRITOB 9 3/4 07/01/20                                    110.26    3.57%                    38.71         38.43    BBB+    Ba1            NR
TRITOB 4 3/8 01/16/24                                    98.04     4.80%                    33.24        156.31    BBB+    Ba1            NR
TRITOB 4 1/2 08/04/26                                    94.15     5.43%                    55.30        222.27    BBB+    Ba1            NR
Source: Bloomberg and CIBC Capital Markets – Macro Strategy.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                       October 2018
Caribbean Market Overview – Q3 2018                                      10

Caribbean Economic Review

CIBC Capital Markets & CIBC FirstCaribbean International Bank   October 2018
Caribbean Market Overview – Q3 2018                                                                                                                                                                                                            11

Caribbean Economic Review                                                                                                                                                                               Shane Lowe
                                                                                                                                                                                                  CIBC FirstCaribbean
The economic rebound in advanced economies continued into the second quarter of 2018. Annualised real GDP growth in
the US accelerated to 4.2% during Q2 2018, up from 2.2% one quarter earlier. The US Bureau of Economic Analysis
suggests that the faster rate of expansion benefited from faster growth in personal consumption, exports, and federal,
state, and local government spending, but suffered from slower growth in non-residential fixed investment and weaker
activity in private inventory investment. Similarly, growth in goods exports, household expenditure, housing investment,
and business capital investment accelerated Q2 2018 GDP growth in Canada to an annualised rate of 2.9%. In contrast,
growth in the UK remained modest (up 1.2% y/y during Q2 2018), while the challenging economic environment in
Venezuela persisted year-to-date. Finally, global crude oil and natural gas prices’ upward trend continued with the prices
of WTI crude oil and Henry Hub natural gas advancing 41.7% y/y and 3.4% y/y during August 2018.
Developments in economic activity in the Caribbean generally responded to global economic trends and external shocks
for the year-to-date 2018. Most markets experienced some expansion in real GDP, but those countries affected by
Hurricanes Irma and Maria in Q3 2017 and those who depend heavily on the UK or Venezuela for tourist arrivals
experienced either modest or negative economic growth over the period. Anguilla, Dominica, and St. Maarten all
witnessed contractions in total tourist arrivals of more than a third, and 2018 economic growth is projected to remain
negative in each of these markets after contracting in 2017. Moreover, ongoing fiscal contraction, economic uncertainty
and a steady decline in the length of stay and average tourist expenditures further reduced economic activity in UK tourist-
dependent Barbados during H1 2018, while sharp declines in stay-over arrivals from Venezuela to Aruba and Curaçao
constrained faster growth in tourist arrivals for the year-to-date. In sum, despite most markets experiencing some
expansion in arrivals thus far in 2018, aggregate stay-over arrivals declined 3.7% y/y during the first four months of 2018
compared to a more modest 1.4% y/y decline a year ago. In contrast, commodity producers generally benefited from more
favourable energy prices and increased production of some commodities as well as witnessed other positive signs of
economic growth during the period. Finally, surges in capital expenditure in some hurricane-affected markets likely
partially offset the fall-out from fewer tourist arrivals, but private sector construction activity likely led growth in overall
construction thus far in 2018.
Again, the effects of external developments influenced fiscal performances in many markets so far in 2018. Those
markets hit by Hurricanes Irma and Maria have lost revenue from weaker economic activity and/or substantially increased
expenditure related to reconstruction and rehabilitation post-disaster. In contrast, fiscal performance in the Bahamas
improved after large one-off expenditures post-Hurricane Matthew in 2016/17, while higher taxes and a suspension of
external interest payments improved the fiscal accounts in Barbados. Similarly, Trinidad and Tobago and St. Kitts and
Nevis experienced improved fiscal balances on account of greater global energy prices and domestic output, as well as
citizenship-by-investment inflows. Performances remained mixed in all other markets.
Chart 1                                                                                                                  Chart 2
Trends in Regional1 Tourist Arrivals                                                                                     Regional2 Loan Growth (y/y; %)
      9 12-mth moving          Total Stay-Over Arrivals (R)   (mln)                                                             20
      8 average                                                                                                                                      Retail Loans
                               Growth in Tourist Arrivals (L)
      7 growth (%)                                                                                                              15
                                                                                                                                                     Corporate Loans
      6
      5                                                                                                                         10
      4
      3                                                                                                                           5
      2
      1                                                                                                                           0
      0
     -1                                                                                                                          -5
     -2
     -3                                                                                                                        -10
       Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18                                                             Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18
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, Aruba, 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, Aruba, the Bahamas, Barbados, Belize, Curaçao, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Maarten, St. Vincent and the Grenadines, Trinidad and Tobago, and

Turks and Caicos Islands.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                                                                                                        October 2018
Caribbean Market Overview – Q3 2018                                                                                                                                                                          12

Rising global oil prices continued to influence trends in consumer prices and to a lesser extent FX reserves in 2018.
Consumer prices continued to rise in 2018 and the average inflation rate excluding Suriname reached 1.8% y/y (2.2% y/y
including Suriname) as at March 2018. Latest data suggest that inflation rates accelerated in most markets relative to the
corresponding period one year earlier, but have stabilised or declined for the year-to-date. Further, consumer prices
increased in all markets y/y except for St. Kitts and Nevis where prices fell just marginally. FX reserves generally
remained adequate by global benchmarks, except primarily in Barbados and Guyana. Faster imports than exports
widened the trade deficit in Guyana and reduced FX reserves to just over 2 months of imports, while a persistent decline
in reserves since 2012 culminated in FX reserves reaching 7 weeks of imports in June 2018, before the newly-elected
Government of Barbados opted to default on its external debt to reduce the chances of further FX reserves depletion and
currency devaluation. Finally, despite a recovery in energy exports, a net outflow of capital continues to keep FX reserves
in Trinidad and Tobago on a downward trajectory.
Regional loan growth accelerated during the first quarter of 2018, but faster deposit growth further increased excess
liquidity y/y over the same period. Total loans and advances increased 1.2% y/y as a 4.5% y/y increase in retail lending
eclipsed a 2.5% y/y fall in corporate loans. However, domestic deposits increased 6.5% y/y compared to 1.0% y/y over
the same period one year prior. Loan quality continues to improve in the larger markets, but has started to worsen in
hurricane-hit markets. However, capital adequacy remains above globally-accepted minimums.
With economic growth in North America accelerating year-to-date, and the IMF projecting that global GDP growth will
remain robust and broadly-based for the rest of 2018 and into 2019, economic activity will likely also expand across most
markets in the Caribbean in 2019. Those economies most affected by hurricanes will likely experience some recovery in
output in 2019 as tourism and agriculture value-added rebound, along with construction activity that continues to support
rebuilding and rehabilitation work. Other markets most dependent on US and Canadian tourists will likely benefit from
greater arrivals, while a sustained improvement in global energy prices, though more modest than over the last year,
bodes well for economic growth and the balance of payments for the region’s commodity exporters. Consumer prices,
supported by higher taxes in some markets, will thus probably continue on their upward trajectory. Finally, as Barbados
likely embarks on an IMF-financed fiscal consolidation programme, economic growth in that economy is expected to
remain subdued, but external buffers should recover with each successful, periodic IMF review. Public debt levels should
fall sharply once domestic and external debt restructurings are completed, but the nature of these restructurings and the
successful implementation of revenue measures, expenditure cuts, and structural reforms will determine the speed at
which the government regains access to international capital markets.

Chart 3
Regional3 Inflation and Intl. Commodity Prices (y/y; %)
    5                                                                                      90
                           Regional Inflation Rate (L)                                     70
    4
                                                                                           50
    3
                                                                                           30
    2                                                                                      10
                                                                                           -10
    1
                                                                                           -30
    0
                                                                                           -50
    -1                                                              -70
      Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18
Source: Regional authorities, International Monetary Fund and CIBC FirstCaribbean.
* Average of U.K. Brent, Dubai and West Texas Intermediate + International Monetary Fund Food Index.

3Caribbean region includes Anguilla, Antigua and Barbuda, Aruba, Barbados, Belize, British Virgin Islands, Cayman Islands, Curaçao, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Maarten, St.
Vincent and the Grenadines and Trinidad and Tobago.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                                                                            October 2018
Caribbean Market Overview – Q3 2018                                                                                                                                                      13

Anguilla                                                                                                                                                           Shane Lowe
                                                                                                                                                             CIBC FirstCaribbean
Production, Prices, and Employment
Preliminary data from the Eastern Caribbean Central Bank (ECCB) suggest that the lingering effects of Hurricane Irma’s
passage during Q3 2017 further reduced economic activity y/y during the first half of 2018.
            Tourist arrivals continue to plummet in the months following Hurricane Irma’s passage in Q3 2017. Declines in
             stay-over arrivals (down 51.4% y/y) and excursionists (down 76.2% y/y) reduced total tourist arrivals by 65.0% y/y
             during H1 2018. Stay-over arrivals from the USA, Canada, the UK, the Caribbean, and all other markets fell
             57.5% y/y, 64.5% y/y, 45.2% y/y, 8.8% y/y, and 54.0% y/y. Consequently, visitor expenditure shrank by 41.7% y/y
             over the same period.
            Latest data imply mixed performances in investment during the first half of 2018. While the values of imports of
             inedible crude materials, excluding fuels, and imports of machinery and transport equipment increased 47.5% y/y
             and 50.3% y/y, the government reduced its spending on capital works by 33.8% over the same period. Total
             exports rebounded by 12.4% y/y, but a 51.2% y/y surge in imports widened the merchandise trade deficit by
             52.6% y/y to US$133.8mln.
Notwithstanding lower prices for food and non-alcoholic beverages (down 0.7% y/y), housing, utilities, gas and fuels
(down 0.4% y/y) and communication (down 0.7% y/y), a 5.7% y/y rise in transportation costs increased consumer prices
by 0.8% y/y in June 2018.

Developments in Financial Markets
Despite recovering loan growth, much faster deposit growth increased commercial bank excess liquidity y/y during Q1
2018 and pushed interest rates down over the same period.
            Total loans and advances increased 3.0% y/y as a 1.5% y/y rise in retail loans supported a 5.0% y/y increase in
             corporate lending. Consumer loans declined 0.8% y/y, but mortgages, business loans, and public sector loans
             advanced 4.0% y/y, 5.1% y/y, and 2.4% y/y.
            Higher retail (up 2.8% y/y), corporate (up 13.9% y/y), and non-resident (up 10.1% y/y) deposits increased total
             deposits by 11.6% y/y.
            A 4.2 percentage point y/y fall in the loan-to-deposit ratio to 50.3% implied that excess liquidity increased y/y.
             Hence, the average interest rate spread widened 10 bps y/y to 7.78%. The weighted average lending and deposit
             rates declined 17bps y/y and 27bps y/y to 9.87% and 2.09%, respectively.

Chart 1                                                                                           Chart 2
Stay-Over Tourist Arrivals                                                                        Inflation (y/y; %)
   2,250 (US$/person)                                               (000's) 90                           6                                                              All Items
                                                                            85                                                                                          Food
   2,200                                                                                                 5                                                              Fuel and Light
                                                                            80
                                                                                                         4
   2,150                                                                    75
                                                                                                         3
   2,100                                                                    70
                                                                            65                           2
   2,050                                                                    60                           1
   2,000                                                                    55                           0
                  Visitor Expenditure/person - 12-month average (L)
                                                                            50                          -1
   1,950          Stay-Over Arrivals (R)                                    45                          -2
   1,900                                                                    40                          -3
        Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18                                       2013Q2       2014Q2         2015Q2         2016Q2      2017Q2     2018Q2
Source: Caribbean Tourism Organization, Eastern Caribbean Central Bank and CIBC FirstCaribbean.   Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                                                          October 2018
Caribbean Market Overview – Q3 2018                                                                                                                                     14

While financial stability indicators have improved since the resolution of two large insolvent banks, loan quality and
profitability have since started to trend downward. The non-performing loans to total loans ratio surged from 6.9% in Q1
2017 to 23.0% in Q1 2018, while the return on average assets ratio fell 1.3 percentage points y/y to 0.1%. The regulatory
capital to risk-weighted assets ratio improved marginally by 0.2 percentage points y/y to 10.6%.

Government Debt
Declines in tax revenue and increases in current expenditure contributed to a 79.8% y/y fall in the government’s fiscal
surplus to US$1.0mln during H1 2018.
            Non-tax revenue expanded US$1.9mln y/y to US$7.1mln, but lower tax revenue (down US$6.8mln y/y to
             US$29.5mln) reduced current revenue by US$4.9mln y/y to US$36.6mln. Taxes from international trade and
             transactions increased US$2.6mln y/y to US$16.9mln, but taxes on income and profits, property, and domestic
             goods and services fell US$0.2mln (7.9% y/y), US$0.6mln (49.0% y/y) and US$8.6mln (47.7% y/y), respectively.
             Total grants received, much of which were likely associated with rebuilding and rehabilitation after Hurricane Irma,
             increased US$1.1mln y/y to US$1.4mln.
            In contrast, current expenditure increased US$0.9mln y/y to US$35.8mln. Personal emoluments, interest
             payments, and transfers and subsidies rose US$0.3mln (1.8% y/y), US$0.4mln (14.5% y/y) and US$0.2mln (2.6%
             y/y), but spending on goods and services declined US$0.1mln (0.7 y/y). However, capital expenditure and net
             lending plunged 33.8% y/y to US$1.2mln.
The stock of public debt fell 6.3% y/y to US$191.6mln (68.1% of GDP) as at December 2017.

Outlook
After likely contracting by 5.0% y/y during 2018, the ECCB expects that rebounds in tourism (up 10.0% y/y) and transport,
storage and communication (up 10.0% y/y) will likely support ongoing recoveries in construction, mining and quarrying,
and wholesale and retail trade (each also up 10.0% y/y) to push real GDP growth to 7.1% in 2019. However, real GDP will
likely remain 6.2% lower than the value of production realised during 2016.

Chart 3                                                                             Chart 4
Public Sector Debt Outstanding                                                      Growth in Key Balances (y/y; %)
   250     (US$mln)                                                                      20
                                                                                         10
   200
                                                                                          0

   150                                                                                  -10
                                                                                                                    Loans
                                                                                        -20
                                                                                                                    Deposits
   100
                                                                                        -30

     50                                                                                 -40
                                                                                        -50
      0                                                                                 -60
          2013Q4           2014Q4            2015Q4               2016Q4   2017Q4             2013Q1       2014Q1           2015Q1        2016Q1      2017Q1   2018Q1
Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.                     Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                                            October 2018
Caribbean Market Overview – Q3 2018                                                                                                                                                       15

Antigua and Barbuda                                                                                                                                                Shane Lowe
                                                                                                                                                             CIBC FirstCaribbean
Production, Prices, and Employment
Stronger tourist arrivals and expenditure and improved investment indicators point to likely greater economic activity
during H1 2018 relative to the same period one year earlier.
            Thus far in 2018, a 7.6% y/y rebound in stay-over arrivals contributed to a reported 28.1% y/y expansion in visitor
             expenditure over the first six months of 2018. Stay-over arrivals from the USA, Canada, and the Caribbean
             increased 3.6% y/y, 81.5% y/y, and 7.7% y/y, but arrivals from the UK and other countries contracted 4.6% y/y
             and 8.5% y/y. Similarly, the number of cruise ship passengers advanced 17.3% y/y, but those arriving by yacht fell
             8.2% y/y. Consequently, the total number of visitors to the country increased 14.4% y/y.
            Preliminary data suggest that investment activity likely improved during H1 2018. The values of imports of inedible
             crude materials and imports of machinery and transport equipment advanced 102.6% y/y and 36.1% y/y, while the
             government spent 99.3% more y/y in capital projects over the same period. Further, despite strong growth in
             imports (up 28.2% y/y), a 181.1% y/y surge in merchandise exports narrowed the merchandise trade deficit by
             10.0% y/y to US$200.2mln. Finally, increased stay-over and cruise arrivals, stronger construction performance,
             and greater activity through the sea ports likely propelled real value-added in transport, storage and
             communications higher over the same period.
Consumer prices increased 1.3% y/y in June 2018. The prices of food, and housing and utilities advanced 3.6% y/y and
2.2% y/y, but the cost of transportation and communication fell marginally by 0.1% y/y.

Developments in Financial Markets
Higher excess liquidity and lower loan delinquency combined to keep commercial bank profitability unchanged over the
four quarters ending Q1 2018.
            Total loans and advances fell 0.6% y/y. A 6.8% y/y rise in consumer loans more than offset a 1.7% y/y contraction
             in mortgages to push retail loans higher by 1.3% y/y, while a 3.4% y/y increase in public sector loans could not
             mitigate a 6.7% y/y decline in business loans and pushed total corporate loans 2.5% lower y/y.
            Higher retail (up 4.4% y/y) and corporate (up 19.8% y/y) balances outpaced a 4.7% y/y fall in non-resident
             deposits and lifted total deposits 9.1% higher y/y.
            The combination of falling loan balances and rising deposits reduced the loan-to-deposit ratio by 5.9 percentage
             points y/y to 61.1%. However, lending and deposit rates declined just 3bps y/y and 1bp y/y to 9.0% and 1.6%.

Chart 1                                                                                           Chart 2
Stay-Over Tourist Arrivals                                                                        Inflation (y/y; %)
  3,000 (US$/person)                                                           (000's) 270                                                 All Items (L)
                                                                                                      4                                                                               10
                                                                                                                                           Food (L)
                                                                                                      3                                    Fuel and Light (R)
                                                                                         260                                                                                          5
  2,500
                                                                                                      2
                                                                                                                                                                                      0
                                                                                         250
                                                                                                      1
  2,000                                                                                                                                                                               -5
                                                                                         240          0
                          Visitor Expenditure/person (L)                                                                                                                              -10
  1,500                                                                                               -1
                          Stay-Over Arrivals (R)                                         230
                                                                                                      -2                                                                              -15

  1,000                                                               220                             -3                                                                              -20
       Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18                                      2013Q2      2014Q2          2015Q2         2016Q2        2017Q2   2018Q2

Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean, Caribbean Tourism Organization.   Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                                                           October 2018
Caribbean Market Overview – Q3 2018                                                                                                                                  16

            Profitability remained unchanged y/y between Q1 2017 and Q1 2018 – the return on assets ratio remained at
             1.4%. Non-performing loans fell to 7.7% of gross loans from 8.4% four quarters earlier, and capital adequacy
             increased further by 2.1 percentage points y/y to 38.0%.

Government Debt
An almost doubling in capital expenditure and net lending and a more than 50% fall in collections of non-tax revenues
contributed to a US$21.4mln widening of the government’s overall fiscal deficit to US$22.9mln during H1 2018.
            Despite a US$2.7mln y/y (2.1% y/y) rise in tax receipts, a US$12.9mln (50.9% y/y) plummet in non-tax revenues
             likely associated with lower citizenship-by-investment inflows reduced current revenue by US$10.2mln to
             US$145.5mln. Taxes on property fell US$0.1mln (1.9% y/y), but taxes on income and profits, taxes on domestic
             goods and services, and taxes on international trade and transactions expanded US$0.1mln (0.3% y/y),
             US$0.7mln (1.1% y/y), and US$2.1mln (4.6% y/y).
            The government increased spending on both current and capital expenditures over the first half of the year.
             Current spending advanced US$1.5mln y/y to US$154.8mln, as increases in personal emoluments (up
             US$7.1mln or 11.9% y/y), goods and services (up US$5.1mln or 22.9% y/y), and interest payments (up
             US$0.4mln or 1.9% y/y) more than offset a US$11.0mln (21.9% y/y) reduction in transfers and subsidies.
             Meanwhile, capital expenditures and net lending surged US$7.0mln y/y to US$14.1mln.
During the 12 months ending December 2017, total public debt increased 1.5% y/y to US$1.19bln (78.2% of GDP).

Outlook
The ECCB’s latest projections suggest that real GDP will likely expand by 3.9% y/y each in 2018 and 2019. Strong growth
in construction output (up 15.0% y/y in each year) will likely lead the acceleration in economic growth during those years,
but growth in tourism, and wholesale and retail trade will likely decelerate to 2.5% y/y and 0.5% y/y in 2019, from 5.1% y/y
and 1.5% y/y during 2018. Manufacturing output will also likely support economic growth and expand by 1.0% y/y during
each of 2018 and 2019.

Chart 3                                                                             Chart 4
Public Sector Debt Outstanding                                                      Growth in Key Balances (y/y; %)
  1,300 (US$mln)                                                                         10                                                 Loans
                                                                                          8                                                 Deposits
  1,250
                                                                                          6
  1,200                                                                                   4
                                                                                          2
  1,150                                                                                   0
                                                                                         -2
  1,100
                                                                                         -4
  1,050                                                                                  -6
                                                                                         -8
  1,000                                                                                 -10
          2013Q4           2014Q4             2015Q4              2016Q4   2017Q4             2013Q1       2014Q1          2015Q1         2016Q1       2017Q1   2018Q1

Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.                     Source: Eastern Caribbean Central Bank and CIBC FirstCaribbean.

CIBC Capital Markets & CIBC FirstCaribbean International Bank                                                                                             October 2018
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