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Cuba, Dominican Republic and Puerto Rico Country Risk Report Q2 2016

Cuba, Dominican Republic and Puerto Rico Country Risk Report Q2 2016

Core Views

A gradually improving tourism sector and strong private consumptiongrowth will drive robust real GDP growth rates in the DominicanRepublic in the next few years.

Puerto Rico to remain in a recession through 2015 amid high unemploymentand weak investment, and should see a high likelihood ofadditional defaults following the missed debt servicing payment bythe Public Finance Corporation.

Reforms in Cuba are headed in a positive direction and investorinterest is on the rise. However, the country’s transition towards amore market-orientated economy will be slow, as illustrated by theincremental steps towards abolishing the dual exchange rate regime.

Major Forecast Changes

Buoyant government expenditure and solid private consumption,even despite slumping precious metals production, will support realGDP growth to a greater extent than we previously anticipated. Wenow forecast real GDP growth of 5.4% in 2016 ,slightly slower thanan estimated 6.2% in 2015.

We have also downgraded our growth forecasts for Puerto Rico,due to significant fiscal tightening and reduced private investment.

We forecast real GDP will contract by 0.6% in FY2015, and growby an average of just 0.7% from FY2016 to FY2019.


BMI Indices – Brief Methodology
BMI Risk Index – Cuba
BMI Risk Index – Dominican Republic
BMI Risk Index – Puerto Rico
BMI Risk Index League Tables
Regional SWOTS
Executive Summary - Cuba
Core Views
Major Forecast Changes
Key Risks
Chapter 1.1: Economic Outlook – Cuba
Cuba Fiscal And Debt Outlook
Paris Club Deal A Major Step Towards Global Reintegration
The deal struck with the Paris Club of nations forgiving billions of dollars of Cuba's unpaid debt will help the island gain access to
development finance and ultimately pave the way for stronger economic growth.
Chapter 1.2: 10-Year Forecast – Cuba
The Cuban Economy To 2025
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.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
TABLE: THE CUBAN BUSINESS ENVIRONMENT TWO-STEP
Chapter 1.3: Political Outlook – Cuba
Domestic Politics
Global Integration Moving Forward, But US Relations Will Remain Cool
Foreign interest in Cuba is on the rise, evident by rising levels of tourism and strengthening ties with Europe.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Political Change To Come, Despite Legacy Of Intransigence
The Cuban political system is heading for substantial change and uncertainty as the Castro brothers prepare to leave office in 2018 after
more than 50 years in power.
Chapter 2.1: Economic Outlook – Dominican Republic
Economic Growth Outlook
Structurally Slower Growth Ahead
A deceleration in government consumption growth combined with weak export performance will drive a growth slowdown in the
Dominican Republic over the next several years.
TABLE: ECONOMIC ACTIVITY
Monetary Policy
Cautious Rate Cuts In 2016
The Banco Central de la República Dominicana will cut its policy rate by an additional 50bps in 2016 in response to below-target
inflation and decelerating growth, bringing its policy rate to 4.50% by the end of the year.
TABLE: MONETARY POLICY
Chapter 2.2: 10-Year Forecast – Dominican Republic
The Dominican Republic Economy To 2025
Recovery In Tourism To Drive Growth
The Dominican Republic's economic outlook is bright over the next decade, with the country set to benefit directly and indirectly from
growth in the US.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 2.3: Political Outlook – Dominican Republic
Domestic Politics
Medina On Track For Re-Election
Dominican Republic President Danilo Medina will likely secure re-election in the country's May presidential election. He will maintain
a positive stance towards investment in the mining and tourism sectors during a second term, but is unlikely to tackle corruption, a
persistent issue for the country.
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.
Chapter 3.1: Economic Outlook – Puerto Rico
Fiscal Policy And Public Debt Outlook
Debt Restructuring By The End Of 2016
The US Congress will grant Puerto Rico the ability to access bankruptcy court by the end of H116, which will prompt a significant
reduction in the commonwealth's debt load. This will come at the expense of sovereignty of fiscal and other economic policies, and will
lead to additional cuts to government spending.
Economic Growth Outlook
Set To Exit Recession In 2016
Puerto Rico will see its real GDP post positive growth in 2016 after contracting for nine of the past ten years. Nonetheless, growth will
remain tepid as fiscal tightening weighs on government consumption and keeps many investors on the sidelines.
Chapter 3.2: 10-Year Forecast – Puerto Rico
The Puerto Rican Economy To 2025
Growth Will Remain Subdued Amid Unfavourable Demographics
Economic growth in Puerto Rico will remain subdued in the coming years, in large part due to unfavourable demographics and labour
market dynamics. Weak fixed investment will further weigh on the long-term growth prospects of the economy.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3.3: Political Outlook – Puerto Rico
Domestic Politics
Uphill Battle For PPD In 2016 Election
Puerto Rico's ruling PPD will struggle to maintain power in the November 2016 election as an economic crisis boosts support for the
opposition.
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.
TABLE: IMPACT OF PUERTO RICO STATEHOOD ON SELECT FEDERAL PROGRAMMES
Chapter 4: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: CUBA, DOMINICAN REPUBLIC & PUERTO RICO – MACROECONOMIC DATA & FORECASTS

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