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Trinidad and Tobago Country Risk Report Q1 2016

Trinidad and Tobago Country Risk Report Q1 2016

Core Views

Structurally lower crude oil prices will stymie activity in Trinidad & Tobago's energy sector over the coming years, driving a slowdown in headline growth. Moreover, tepid consumer confidence and a pullback in government spending on infrastructure projects indicate that growth in non-energy sectors of the economy will also struggle.

Trinidad & Tobago's nominal budget shortfall will widen in 2015 as lower oil prices drive down energy sector revenues. The Trinidadian government will not reduce expenditures, as it will look to support household spending as labour market dynamics deteriorate.

Lower oil prices will place depreciatory pressure on the Trinidadian dollar over the coming quarters, resulting in a deterioration of the country's terms of trade and weaker investment inflows. Open market operations by the central bank will prevent a significant depreciation of the currency, informing our view that a gradual weakening of the exchange rate is on the cards in the coming quarters.

Major Forecast Changes

We have revised our current account surplus forecasts to 2.9% of GDP in 2015 and 2.1% of GDP in 2016 on the back of a weaker performance in crude oil export values than we had previously expected.

We now expect T&T to enter a recession in 2015 and the economy to contract again in 2016 as the country remains uncompetitive for non-extractive investments and as commodity prices are structurally lower.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Low Oil Prices A Significant Obstacle For New PNM Government
The People's National Movement will struggle to substantially reduce crime and bolster growth in Trinidad & Tobago in the current low
oil price environment. Structurally lower prices will weigh on investment and fiscal revenues and make it more difficult to fund anti-crime
programmes.
TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Hydrocarbons Weakness Will Prolong Recession
Trinidad & Tobago (T&T)'s recession, which began in Q115, will persist through 2016 as the economy faces significant headwinds
from structurally lower hydrocarbons prices. Thereafter, T&T will only experience tepid growth, driven by modest expansion in private
consumption.
TABLE: ECONOMIC ACTIVITY
Fiscal Policy And Public Debt Outlook
Rapid Increase In Public Debt Ahead As Deficit Widens
Trinidad & Tobago will undergo substantial deterioration in its fiscal accounts over the coming two years as the government expands
expenditures while revenues fall. This will feed through to a significant rise in the government's debt load.
TABLE: FISCAL POLICY
Monetary Policy
Capital Flight Concerns Will Prompt Further Hikes
The CBTT's rate hiking cycle will continue into 2016 as the bank remains concerned about capital flight risk in light of an imminent rate
hike by the US Federal Reserve. Inflation in T&T will steadily rise, however, as the bank's decision to allow for currency weakness will
cause import costs to increase in 2016.
TABLE: INTEREST RATE AND INFLATION FORECASTS
Currency Forecast
TTD: CBTT Will Slowly Unwind FX Intervention
In the near term, the Central Bank of Trinidad & Tobago will intervene in currency markets, offsetting downward pressure placed on the
TTD by declining oil prices. Over time, however, the bank will be forced to allow the currency to depreciate in order to rebalance the
economy away from its dependence on commodities.
TABLE: BMI CURRENCY FORECAST
External Trade And Investment Outlook
External Account Deterioration Will Boost Capital Flight Risk
Trinidad & Tobago's external accounts will deteriorate in the coming years as goods exports decline while a relative strong currency
supports import growth. A highly liquid international investment position will risk potential capital flight, forcing the central bank to draw
down on reserves.
TABLE: CURRENT ACCOUNT
Chapter 3: 10-Year Forecast
The Trinidad & Tobago Economy To 2024
Structurally Lower Oil Prices To Drag On Long-Term Growth
Structural weaknesses and external headwinds from lower energy prices will see tepid real GDP growth in Trinidad & Tobago through
2024. Moreover, we see limited upside for growth in non-energy sectors of the economy, including tourism and financial services.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: CARIBBEAN - OPERATIONAL RISK
TABLE: CARIBBEAN - LABOUR MARKET RISK
TABLE: CARIBBEAN - LOGISTICS RISK
TABLE: CARIBBEAN - TRADE AND INVESTMENT RISK
TABLE: CARIBBEAN - CRIME AND SECURITY RISK
Chapter 5: BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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