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Trinidad and Tobago Country Risk Report Q2 2016

Trinidad and Tobago Country Risk Report Q2 2016

Core Views

Trinidad & Tobago (T&T)'s economy will grow weakly in the comingyears as persistently weak oil prices weigh on consumption,investment and net exports. Low oil prices will compound the pooroutlook for the country's hydrocarbon sector production, while non-oilindustries will struggle to become competitive.

The government will post consistent fiscal deficits as low oil pricesweigh on revenue collection. Expenditure cuts will be limited as thegovernment seeks to support economic activity.

Lower oil prices will place depreciatory pressure on the Trinidadiandollar (TTD) over the coming quarters, resulting in a deterioration ofthe country's terms of trade and weaker investment inflows. Openmarket operations by the central bank will prevent a significantdepreciation of the currency, although the bank will allow the unitto gradually depreciate in the coming quarters.

Major Forecast Changes

We have downwardly revised our current account surplus forecast to1.0% of GDP in 2016 and 1.7% in 2017 due to continued weaknessin oil exports.

We have downwardly revised our fiscal deficit forecast to 7.6% ofGDP in 2016 and 7.4% in 2017 due to our Oil & Gas team's downwardrevision to its oil price forecast.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Recession Will Continue In 2016
Trinidad & Tobago's economy will remain in recession in 2016 as oil prices remain weak, weighing on the country's exports
and reducing investment flows. In the coming years, growth will be tepid as the country's non-oil industries struggle to become
competitive.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Persistent Fiscal Deficits Will Undermine Sovereign Credentials
Trinidad & Tobago will post consistent fiscal deficits in the coming years as structurally lower oil prices weigh on revenue growth,
while the government struggles to rein in expenditures. A rising debt load will undermine investor perceptions and raise financing
costs.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
External Trade And Investment Outlook
Current Account Surpluses Mask Deterioration
Trinidad & Tobago's external accounts will continue to deteriorate in the coming years as structurally lower oil prices weigh on the
country's large hydrocarbon sector. Declining exports and slowing investment flows will temper reserve accumulation, eroding the
country's net creditor position.
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS IMPORTS IN 2014
TABLE: TOP 5 GOODS EXPORTS IN 2014
Monetary Policy
Continuing Recession Will Temper Additional Hikes
The Central Bank of Trinidad & Tobago will temper its rate-hiking cycle in 2016 in response to the continuing recession, adding 50bps of
hikes to bring the policy rate to 5.25% by end-2016. The rate hikes will help stabilise inflation and avoid capital flight. 16
TABLE: INTEREST RATE & INFLATION FORECASTS
Monetary Policy Framework
Currency Forecast
TTD: Deteriorating External Accounts Will Force Depreciation
The Central Bank of Trinidad & Tobago will continue to support the Trinidadian dollar in the coming months as it attempts to prevent
capital flight and inflation from adding to the economy's woes. Within the next two years, the country's deteriorating external accounts
will force the unit's depreciation.
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Trinidad & Tobago Economy To 2025
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
2025. We see limited upside for growth in the non-energy sectors of the economy, including tourism and financial services.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Violent Crimes Will Undermine Business Environment
An uptick of violent crimes in Trinidad & Tobago will undermine the country's political and business environment, creating additional
headwinds for its ailing economy. Institutional weaknesses within the police force will preclude substantial improvements in the security
environment in coming years.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Economic Slowdown Will Challenge Institutional Capacity
In light of structurally slower economic growth, Trinidad & Tobago's governing institutions will be challenged to address pressing social
and political issues, including poverty, crime and ethnic tensions. Well-established democratic norms will underpin broad political
stability, though power is likely to continue to trade hands.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
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 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: MACROECONOMIC DATA & FORECASTS

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