Cuba, Dominican Republic and Puerto Rico Country Risk Report Q2 2015

Cuba, Dominican Republic and Puerto Rico Country Risk Report Q2 2015

Core Views

We believe that rising gold production, a gradually improving tourismsector, and stronger private consumption growth will drive robust realGDP growth rates in the Dominican Republic in the coming years.

We expect Puerto Rico to remain in a recession through fiscal year2015 amid high unemployment and weak investment, and see ahigh likelihood of debt restructuring by the commonwealth's electricpower authority (PREPA) in 2015.

An agreement struck between the US and Cuba involving the releaseof prisoners held on both sides is the first major diplomatic breakthroughin the diplomatic relationship between the two countries ingenerations, and will have far-reaching impacts with regards to theeconomic and political future of the island nation.

Major Forecast Changes

There are no major forecast changes.

Executive Summary
Core Views
Major Forecast Changes
Key Risk To Outlook
Chapter 1.1: Political Outlook - Cuba
Foreign Policy
Rapid Diplomatic Thaw To Have Huge Economic Implications
Cuba's release of US citizen Alan Gross removes the single greatest hurdle to the normalisation of diplomatic relations between the two
countries. US President Barack Obama's decision to significantly pare back economic sanctions on the country will pave the way for
greater global integration and a significant uptick in international investment.
Table: Political Overview
table: Reform Momentum Had Already Been Building
Long-Term Political Outlook
Political Change To Come Despite Legacy Of Intransigence
The Cuban political system is tightly controlled by a small number of individuals, many of whom are of an advanced age, which presents
significant scope for uncertainty over the coming decade. Internationally, Cuba has begun to reposition itself with a view to greatly
increasing its engagement with international markets, a strategy that will be supported by the US's softening of policy towards the island.
Chapter 1.2: Economic Outlook - Cuba
Investment Climate
Return To Capital Markets Inching Closer
As Cuba begins to reorient itself towards greater integration with the global economy, investor interest in the island's potential return to
international financial markets will continue to rise. Despite a reputation of antagonism towards capitalism and the private sector which
will be difficult to shed, there are clear indications that Cuban leaders are seeking to lay the groundwork for a return to capital markets.
Chapter 1.3: 10-Year Forecast - Cuba
The Cuban Economy To 2024
Reforms And Global Integration To Drive Stronger Growth Over The Next Decade
Economic growth in Cuba will pick up in the coming decade, due to incremental reforms on the part of the government and greater
engagement with the global economy. We forecast real GDP growth to strengthen from an average of 2.7% over the past five years to
an average of 3.2% over the coming decade.
Table: Long-Term Macroeconomic Forecasts
table: The Cuban Business Environment Two-Step
Chapter 2.1: Political Outlook - Dominican Republic
Domestic Politics
Tensions To Remain High On Immigration
Social tensions in the Dominican Republic will remain high due to ongoing controversy surrounding the immigration status of thousands
of Haitians living in the country. An immigrant regularisation programme that ended on February 1 was largely ineffective, and
uncertainty regarding the legal status of a large segment of the population will continue to fuel tensions.
Long-Term Political Outlook
Economic Improvements To Support Policy Continuity
Government policies will remain business-friendly in the Dominican Republic in the coming years, as strong economic growth ensures
the current political direction of the country remains popular. The main th reats to policy continuity are a deterioration in the security
environment and an escalation in long-running tensions with neighbouring Haiti.
Chapter 2.2: Economic Outlook - Dominican Republic
Debt Policy
Debt Position To Remain Stable Despite Likely End Of Petrocaribe
The Dominican Republic's external debt position will remain stable in the coming years, despite the likely end of Venezuela's
Petrocaribe programme/oil alliance in the near future. The drop in oil prices and low borrowing costs will allow the Dominican Republic
to forego Petrocaribe assistance without major strains on its debt dynamics.
Chapter 2.3: 10-Year Forecast - Dominican Republic
The Dominican Republic To 2024
Recovery In Tourism To Drive Growth
The Dominican Republic's economic outlook is bright over the next decade, wit h the country set to benefit both directly and indirectly
from the recovery in the US growth story. A greater number of arrivals will bolster revenue into the tourism sector, and the construction
and services sectors are also set to see stronger growth from greater foreign arrivals. A surge in gold production will also be an
increasingly important driver of real GDP growth.
Table: Long-Term Macroeconomic Forecasts
Chapter 3.1: Political Outlook - Puerto Rico
Domestic Politics
High Risk Of Credit Event In 2015
Puerto Rico's debt position will remain critical in 2015, as the risk of a restructuring by the commonwealth's Power Electric Authority will
remain elevated. Moreover, fiscal revenue will continue to fall below budget projections, which will make issuing additional debt by the
commonwealth, or any state-owned enterprise, increasingly expensive.
Table: Impact Of Puerto Rico Statehood On Select Federal Programmes
Long-Term Political Outlook
No Change In Sight To Political Status With The US
Puerto Rico's political status as a territory of the US is unlikely to change over the coming decade, given the unfavourable tax effects
that statehood would imply for residents. One of the main political challenges in the coming years w ill be to curb the decli ne in
Puerto Rico's population, a dynamic that is further dampening an already weak economic outlook, and would further deteriorate under
Chapter 3.2: Economic Outlook - Puerto Rico
Economic Activity
Post-Recession Growth To Remain Sluggish
The Puerto Rican economy will remain in a recession in fiscal year (FY) 2015, as austerity and weak labour market dynamics continue
to depress consumption and investment growth. Growth will return to positive territory in FY 16, but will average below 1.0% in the next
few years, in part due to a declining population.
Chapter 3.3: 10-Year Forecast - Puerto Rico
The Puerto Rican Economy To 2024
Post-Recession Growth To Remain Sluggish
Economic growth in Puerto Rico will remain subdued in the coming years, in large part due to unfavourable demographics and labour
market dynamics. In addition, weak fixed investment will further weigh on the long-term growth prospects of the economy.
table: Long-Term Macroeconomic Forecasts
Chapter 4: BMI Global Assumptions
Global Outlook
Weaker EMs To Weigh On Growth
Table: Global Assumptions
Table: Developed States, Real GDP GrowtH, %
Table: Emerging Markets, Real GDP Growth, %

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