CARIBBEAN ECONOMIC PERFORMANCE REPORT

Transcription

1 CARIBBEAN ECONOMIC PERFORMANCE REPORT CARIBBEAN CENTRE FOR MONEY AND FINANCE Established under the joint auspices of the Central Banks of the Caribbean Community and The University of the West Indies 1 P a g e

2 CARIBBEAN CENTRE FOR MONEY AND FINANCE The University of the West Indies St. Augustine, Trinidad and Tobago Phone: (868) , Fax: (868) Website: June 2016

3 TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY GLOBAL ECONOMIC DEVELOPMENTS REGIONAL ECONOMIC PERFORMANCE ECONOMIC GROWTH PRICES LABOUR MARKETS FISCAL ACCOUNTS Current Fiscal Accounts Overall Fiscal Accounts Banking and Finance Interest Rates Commercial Bank Performance Banking System Core Financial Soundness Indicators PUBLIC DEBT INTERNATIONAL TRADE External Current Account External Capital Account International Reserves CARIBBEAN ECONOMIC PROSPECTS iii P a g e

4 1.0 EXECUTIVE SUMMARY The global economy in 2015 was characterised by divergence amongst major economies and differential performances between developed and emerging economies. Major macroeconomic alignments have occurred and look set to continue based in large part on rebalancing and more moderate growth in China, as well as further declines in commodity prices. These forces have generated a redistribution of growth amongst sectors and countries with the related movements in investment, trade and capital flows. Developing countries in particular have been badly affected and this negative dynamic has been accentuated by geopolitical challenges in the Middle East, North Africa and Europe. Overall global economic growth in 2015 was 3.1 per cent down from the 3.4 per cent recorded in This challenging global economic environment is expected to continue in 2016 with global growth expected to be 3.2 per cent, rising moderately to 3.5 per cent in Advanced economies are expected to grow by an average of 1.9 per cent in 2016 accelerating marginally to 2.0 per cent in 2017 driven by lower energy prices. Emerging and developing economies are expected to grow by an average 4.1 per cent in 2016 improving to 4.6 per cent in 2017 as conditions in highly stressed economies normalise. Average growth for the Caribbean region fell from 1.6 per cent in 2014 to one per cent in 2015 with improving performance from service-based economies while commodity-based producers suffered setbacks. This dynamic was generated by the asymmetric response to low commodity prices and a rebound in the tourism sector as arrivals from the US grew strongly. The Caribbean has been experiencing mild inflationary pressures. In the period under review the average inflation rate for the region moved from 2.5 per cent in 2014 to 2.1 per cent in The average inflation rate for the service-producers declined from 2.4 per cent (2014) to 1.4 per cent (2015) due in large part to lower oil prices while the average rate for commodity-producers decreased from 3.4 per cent (2014) to 3.3 per cent (2015) due to lower food prices. The labour markets of the Caribbean economies continued to be affected by the slow-down in economic activities of the region. Unemployment levels have remained relatively high and unchanged for the past three years with a regional average unemployment rate of approximately 10.8 per cent. The current fiscal account performance of the Caribbean economies in 2015 was mixed. The service-based economies reported better outturns on their current fiscal accounts compared to the commodity-based economies. In the service based economies this performance was underpinned by higher revenues from improved economic activity and adjustment efforts. The overall fiscal deficit of the Caribbean region narrowed marginally from US$3020 million 1 P a g e

5 (2014) to US$2997 million (2015). The overall fiscal accounts of the Caribbean economies in 2015 mirrored their current fiscal accounts for the same period. Deposit and lending interest rates of commercial banks continued to be fluctuate mildly between 2014 and 2015 for both the commodity-based and service-based economies. The total domestic credit of commercial banks for the Caribbean economies declined by 18.2 per cent for 2015 (US$27.5 billion), in comparison to 2014 (US$33.8 billion). The banking system of the Caribbean economies remain well capitalised and relatively profitable in The average Regulatory Capital to Risk Weighted Assets ratio for the Caribbean region remaining unchanged from 2014 to 2015 at 18.6 per cent. The commodity - based economies banking systems were in better standing than the service-based economies, having reported higher profitability ratios. The average non-performing loan (NPLs) to total loans ratio for the region increased from 9.5 per cent (2014) to 9.7 per cent (2015) with the commodity-based economies recording a higher increase in NPLs, rising from 6.3 per cent in 2014 to 7.8 per cent in The total debt stock of the Caribbean economies stood at US$49,636.6 million at 2015, of which 52.2 per cent was external debt. The total debt of the service-based economies increased by 1.3 per cent in 2015, over its 2014 debt level, while commodity based economies total debt increased by 5.1 per cent. In this challenging international economic environment the outlook for the CARICOM region is mixed. Continuing low commodity prices are expected to benefit the tourism based economies of the region. This together with strong tourism flows from the US means that growth prospects will continue to be favourable over the next two years with growth in these economies projected at 2.3 per cent in 2016 and 2.6 percent in Lower energy costs have also helped reduce external imbalances. Moreover, fiscal deficits in many countries are likely to improve based on increased revenues from stronger growth and adjustment efforts. Commodity-based producers on the other hand are expected to face increased challenges as commodity prices soften. This group of countries are expected to grow on average by only 0.1 per cent, improving to 2.6 per cent in 2017 as commodity prices begin to increase. Overall, the IMF estimates that the region will grow by approximately 1.5 per cent in 2016 improving to 2.5 per cent in P a g e

6 2.0 GLOBAL ECONOMIC DEVELOPMENTS The global economy in 2015 was characterised by divergence amongst major economies and differential performances between developed and emerging economies. Major macroeconomic alignments have occurred and look set to continue based in large part on rebalancing and more moderate growth in China and further declines in commodity prices. These forces have generated a redistribution of growth amongst sectors and countries with the related movements in investment, trade and capital flows. Developing countries in particular have been badly affected and this negative dynamic has been accentuated by geopolitical challenges in the Middle East, North Africa and Europe. These developments have increased the level of downside risks in the international economic environment and intensified the level of uncertainty which has resulted in a more subdued outlook for the global economy. Overall global economic growth in 2015 was 3.1 per cent down from the 3.4 per cent recorded in This performance was underpinned by a slightly higher growth in advanced economies, with the US economy maintaining its performance, in spite of a slowdown in the fourth quarter and the Euro Area improving its growth performance relative to the previous year as countries such as Italy and Spain began recovering. This was counterbalanced by significantly weaker growth in Canada. In contrast, emerging and developing economies registered slower growth of 4.0 per cent in 2015, down from the 4.6 per cent recorded in This was driven by slightly slower growth in China, a significant reduction in growth in Brazil and Russia and slower growth in commodity producers generally (See Table 1). These headwinds are expected to continue in 2016 with global growth expected to be 3.2 per cent, rising moderately to 3.5 per cent in Advanced economies are expected to grow on average by 1.9 per cent in 2016 accelerating marginally to 2.0 per cent in 2017 driven by lower energy prices. Emerging and developing economies are expected to grow on average by 4.1 per cent in 2016 improving to 4.6 per cent in 2017 as conditions in highly stressed economies normalise. The modest growth in 2016 is based on the assumptions of more modest growth in China, weak outlook for commodity producers and a terms of trade boost for oilimporting countries that is expected to be counterbalanced by tighter financing conditions and weaker external demand. High frequency indicators seem to suggest that global growth continued to be muted and fragile in the first quarter of Growth in the US dropped to a two-year low at 0.5 per cent in the first quarter as momentum seemed to have slowed driven by lower investments in the energy sector, lower net exports and lower inventories. Despite low unemployment and inflation, consumer spending has not kept pace with increases in disposable incomes and business investment have contracted further. Moreover, the fact that this happened in the quarter after the Federal Reserves first rate hike in some time reinforces the point that the 3 P a g e

7 recovery is still fragile and subject to reversals. The Federal Reserve is therefore likely to be very cautious in its strategy to normalise monetary policy in the near to medium term. In Japan industrial production also fell in the first quarter, despite the introduction of negative policy interest rates. Financial markets in and capital flows to emerging and developing economies were volatile in January and February but have since stabilised since commodity prices have improved and as the US dollar softened. Growth in the Euro Area did, however, gain momentum as some of the worst performing European economies stabilise. In the current environment, downside risks to global growth prospects have intensified. The main risks include: potentially disruptive financial asset price shifts and financial market volatility driven by expected interest rate normalisation by the US Federal Reserve, the possibility of a sudden stop of capital flows and growing risks to financial stability in emerging market economies, the potential for disorderly economic transition in China, growing strains in oil exporting countries, longer lasting recessions in emerging market economies currently in crisis, geopolitical risks and the United Kingdom s potential exit from the European Union. Future growth in emerging and developing economies in particular can be compromised in an environment already characterised by declining commodity prices, reduced capital flows and pressure on their exchange rates. These risks include the further strengthening of the US dollar against other major currencies which implies huge challenges for portfolio management and real exchange rate appreciation along with its negative trade implications in some emerging and developing countries. The relatively muted and unbalanced nature of global growth since the international financial and economic crisis has raised concerns of a new normal of lower growth which implies that the relatively muted pace of global growth is a phenomenon that is likely to last longer than expected. Very subdued industrial production and investment seem to lend credence to this view. There are also structural factors which seem to support this view such as high levels of indebtedness across sovereigns, corporates and households, frequent episodes of financial market volatility driven by weaknesses in the international financial architecture, low productivity growth generally and the growth realignment in China. The forces driving the performance of the global economy have therefore become more complex with structural challenges and potential risks entrenching asymmetries and creating a mixed bag of winners and losers. In this environment, it is very difficult to have meaningful international policy coordination which is critical to successfully confronting the myriad challenges facing the global economy. 4 P a g e

8 Table 1: GLOBAL ECONOMIC GROWTH Country/Region World Advanced economies USA Japan Canada UK Euro area Emerging market and developing economies Russia Emerging and developing Asia China India Latin America and the Caribbean Brazil Middle East and North Africa Source: International Monetary Fund, World Economic Outlook Database, April 2016 Unemployment has declined in most advanced economies in 2015 compared to 2014 but remains stubbornly high in the Euro Area reflecting the substantial output gaps in that region that still exist in spite of improved growth. Unemployment levels are expected to continue falling in most advanced economies in 2016, except Canada where growth has been negatively affected by low energy prices (See Table 2). Table 2: UNEMPLOYMENT RATES IN ADVANCED ECONOMIES Year Canada Germany Japan Korea Singapore UK US Advanced Euro Economies Area Source: World Economic Outlook Dataset, April 2016, IMF. Private consumption has improved in developed economies with the exception of Canada in 2015, reflecting better growth performance, improved labour markets and lower oil prices. Consumer expenditure, which is central to growth dynamics in developed markets, is generally expected to soften a little in 2016 (See Table 3). Table 3: CONSUMER EXPENDITURE GROWTH IN ADVANCED ECONOMIES Year Advanced Economies USA Japan Euro Area Canada UK Germany Source: World Economic Outlook Dataset, April 2016, IMF. 5 P a g e

9 Inflationary trends in developed markets were generally subdued in This is based on relatively large output gaps in many countries and lower oil prices. A similar dynamic is in play amongst emerging and developing countries generally. However, inflation has risen in some severely stressed economies such as Venezuela, Brazil and Russia because of significant exchange rate depreciation. Inflationary trends are expected to remain muted in developed economies and emerging and developing economies in 2016 driven by low commodity prices and as exchange rate pressure eases in the latter group of countries (see Table 4). Table 4: GLOBAL INFLATION RATES Advanced Euro Emerging USA Japan Canada UK Economies Area Economies LAC China India Source: World Economic Outlook Dataset, April 2016, IMF. The strengthening US dollar and the related weakening of exchange rates have in emerging and developing economies, particularly oil exporting countries increased tensions in the market and exposed some emerging and developing countries to market and liquidity risks in This resulted in reversals in capital flows and the attendant crisis in capital and currency markets in some emerging and developing economies. This occurred in the context of rising global risk aversion, substantial declines in global equity markets, widening of credit spreads, and historically low yields for safe-haven government bonds. These developments were triggered by concerns about lack of policy space in advanced economies to respond to a potential worsening in the outlook, worries about the impact of low oil prices and concerns about China s slowdown. Since February 2016, however, markets have rebounded reflecting a decline in risk aversion, a modest improvement in commodity prices and supportive actions by central banks. Overall monetary policy remains very accommodative in 2015, except for the rate hike in the US. Given the slowdown in the first quarter of 2016, however, the Federal Reserve is unlikely to raise rates in 2016 especially in the context of very low inflation. Also, the European Central Bank and the Bank of Japan have also moved to further ease monetary policy in the context of concerns about the global economy. Overall trade volumes fell slightly in 2015 and are expected to pick up in 2016 following the global growth cycle. The sharp drop in trade in terms of value is in large part because of commodity price trends with commodity prices expected to fall in 2015 but to improve slightly in 2016 (see Table 5). Table 5: WORLD TRADE AND PRICES (% Change) Year World Trade Volume World Trade in US$ Price Deflators Volume of Exports in AEs Volume of Exports in EDEs Source: World Economic Outlook Dataset, April 2016, IMF. 6 P a g e

10 Commodity prices have broadly tracked the trajectory in the global economy with prices softening due to decreased demand from important emerging markets, most notably China. The fact that oil prices have fallen more sharply than other commodities suggests that factors idiosyncratic to the oil market are at play. In particular, improvement in supply from non- OPEC countries, the maintenance of supply volumes by OPEC in the face of decreased demand, increased energy efficiency and the appreciation of the US dollar against major currencies have all helped to drive prices lower (See Table 6). This softness in energy prices continued unabated in spite of significant geopolitical risks in the Middle East, North Africa and Russia. Oil and natural gas prices softened considerably in 2015 relative to Oil and gas prices are expected to remain muted into In terms of other important commodities, the prognosis is generally the same with only banana prices expected to increase over the 2014 levels. Table 6: SELECTED COMMODITY PRICES Actual Forecast Commodity J-D 2013 J-D 2014 J-D 2015 Latest April 2016 J-D 2016 J-D 2017 Crude Oil average $/bbl Natural Gas US - $/mmbtu Aluminium - $/mt Rice Thai 5% - $/mt Sugar (World) - $/kg Bananas (US) - $/kg Source: Commodity Price Pink Sheet, May 2016 and Commodity Price forecast April 2016, World Bank Despite serious concerns about the global economy, the international tourism industry continues to show resilience and is one of the few sectors growing strongly. For the fourth consecutive year international tourism grew faster than merchandise trade. The United Nations World Tourism Organisation (UNWTO) indicates that international tourist arrivals increased by 4.4 per cent in 2015 to reach 1,184 million visitors (overnight visitors) with tourism receipts in local currencies also growing by 3.6 per cent in 2015 (See Table 9). Unusually strong exchange rate fluctuations in 2015 had a significant impact on tourism receipts for individual destinations and regions. When exchange rate fluctuations and inflation is taken into account, receipts (when expressed in US dollars) in Europe in particular were weaker than in 2014 reflecting the weakening of the Euro against the US dollar. The growth in tourist arrivals in 2015 is above the historical average of four per cent which highlights the resilience of this sector in an environment of moderate and uneven global growth and geopolitical problems in Ukraine, the Middle East and Africa. Income generated by international visitors on accommodation, food and drink, entertainment, shopping and other goods and services reached US$1,232 billion (Euros 1,110 billion) in When international non-resident passenger transport services of UDS 210 billion is added it brings the total value of tourism exports to US$ 1.4 trillion. The tourism 7 P a g e

11 industry is therefore very important for stimulating growth, creating jobs and boosting exports in a growing number of countries worldwide. This industry now accounts for seven per cent of total global exports of goods and services and 30 per cent of services exports. In terms of the regional distribution of tourist arrivals, advanced economies (4.6%) grew at a faster pace than emerging economies (4.2%) in This stronger performance by advanced economies was driven by strong performances by Europe (4.7%) which benefitted from a weaker currency. In other regions Asia and the Pacific grew by 5.4 per cent while the Americas grew by 5.0 per cent. The strongest performance in 2015 was the Caribbean region which grew by 7.3 per cent while arrivals in both North Africa and the Middle East suffered because of political crisis and civil wars. In terms of the regional distribution of tourism receipts Europe grew by 2.6 per cent while Asia and the Pacific, the Americas and the Middle East all grew by approximately four per cent in The Caribbean, Central America and South America in particular recorded strong increases in receipts driven by increased outbound tourism from the USA caused by the strong dollar. Table 7: INTERNATIONAL TOURIST ARRIVALS AND RECEIPTS Country/Region Per cent Change Arrivals Per cent Change Receipts 14/13 15/14 14/13 15/14 Europe Northern Europe Western Europe Cent./East. Europe South./Med. Europe Asia and the Pacific North-East Asia South-East Asia Oceania South Asia Americas North America Caribbean Central America South America Africa North Africa Sub-Saharan Africa Middle East Advanced Economies Emerging Economies World Source: UNWTO World Tourism Barometer Volume 14, May P a g e

12 Results from the UNWTO Confidence Index remain largely positive about The outlook for the tourism industry in 2016 is therefore for growth of between 3.5 and 4.5 per cent with growth in the Americas forecast at between four and five per cent. An important trend to note is that exchange rate developments are having considerable impacts on the pattern of tourism demand with outbound travel from the US increasing as the dollar strengthened. This implies that countries that are pegged to the US dollar have to be wary of losing market shares because of this dynamic if the US dollar strengthens further. The increasing competition from new destinations also implies that mature destinations have to improve their competitiveness if they want to increase market share. Factors such as complicated visa procedures, direct taxation of tourism activity and limited connectivity have been identified as some of the major impediments to growth in tourism. Very importantly, as the events of 2015 highlight, safety and security is a very important determinant of inbound tourism. Tourism development therefore depends on our collective ability to promote safe, secure and seamless travel. In this respect, the UNWTO has gone on record as advising governments to include tourism administrators in their national security plans. 9 P a g e

13 3.0 REGIONAL ECONOMIC PERFORMANCE 3.1 ECONOMIC GROWTH Caribbean economies are still to reach their pre-crisis growth levels experienced before 2007 (Figure 1). The Caribbean economy was supported by the growth of the commodity-based economies, up until The average growth for the region fell to 0.8 per cent in 2015, a notable contraction from the 1.4 per cent growth for The service-based economies reported an average growth rate of 0.7 per cent while the commodity-based economies experienced an average growth of 1.4 per cent. Comparing their year-on-year growth performance, both groupings experienced a decline in their economic activity in 2015, the commodity-based economies experienced a contraction moving from 1.6 per cent (2014) to 1.1 per cent (2015); while the service-based economies reported a minimal decline from 1.4 per cent (2014) to 0.7 per cent (2015). The slowdown in economic activities in the commodity-based economies was related to the lower international prices of oil. 10 P a g e

14 All three commodity-based economies experienced low levels of growth in their economic activities in 2015, with reported real GDP growths of 0.1 per cent (Suriname), 0.2 per cent (Trinidad and Tobago) and three per cent (Guyana). Trinidad and Tobago was the only economy to experience a minimal increase in its level of economic activity in 2015, with a reported increase in its real GDP growth rate from -1 per cent (2014) to 0.2 per cent (2015). Trinidad and Tobago s non-energy sectors of finance, insurance and real estate recorded the strongest growth performance for 2015 which tempered the fall-off in production from the energy sector. The decline in the energy sector output was on account of both planned and unplanned maintenance activities undertaken by key industry producers as well as continued upgrades to infrastructure. Early indications for 2016 suggest that the lull in economic activity may continue into The growth rate of Guyana s economy in real GDP terms for 2015 (3%) was marginally lower than its rate for 2014 (3.8%). This positive growth performance was due to higher gold declarations; increased output of rice, sugar, livestock and increased output from the manufacturing and transportation and storage sectors. A projected growth rate of 4.4 per cent is expected for Guyana in This projection is based on growth in the mining and quarrying sector, as gold declarations to be made may be increased by 22 per cent. Economic growth in Suriname decelerated in 2015 (0.1%) compared to 2014 (1.8%) which is largely attributable to mining and manufacturing. The production of alumina and gold declined, while crude oil increased slightly in 2015 compared to The production of alumina fell sharply by 32 per cent, as the bauxite company Suralco was scheduled to cease operations at the Paranam plant in November Gold production contracted further by 14 per cent after declining by 10 per cent in Both, the large and small gold segments showed signs of contraction. Crude oil production as well as refinery production increased as a result of the expanded refinery operations. The service-based economies had a mixed reaction to the lower commodity prices in 2015, but most of them reported positive growth rates. Barbados, Jamaica and Curacao experienced an improvement in their levels of economic activities in 2015 compared to 2014; however, the other economies Aruba, The Bahamas, Belize, ECCU, Haiti and Sint Maarten and experienced contractions in their overall economic activities when compared to their corresponding growth rates in Barbados reported a 0.5 per cent increase in its real GDP growth rate in 2015, this was primarily due to an exceptional performance in its tourism sector. The tourism outturn was the best on record since 2007 for 11 P a g e

15 Barbados, with activity in this sector rebounding to pre-crisis levels (Figure 3). Tourism grew by 6.4 per cent in 2015 due to a 13 per cent increase in airlift from major source markets; an expansion in room stock, and refurbishment of aging hotel plant. The outlook for Barbados s economy is positive, with a higher level of growth expected for For the first quarter of 2016 the Barbados economy expanded by an estimated 1.7 per cent, in comparison to the same period in The main reason being a significant increase in tourist arrivals for the winter tourism season. The Jamaican economy has maintained its slow but steady increase in economic activities from 2013 to The growth in real GDP in Jamaica moved from 0.2 per cent (2013) to 0.5 per cent (2014) and to 0.8 per cent for This increasing trend in economic activity in 2015 was largely linked to expansions in manufacturing, tourism, electricity and water supply and hotels and restaurant supported by a rise in domestic investment initiatives and a gradual improvement in external demand. Despite these positive developments, the pace of growth in tradable industries slowed to 1.1 per cent for 2015 relative to an uptick of four per cent a year earlier. The other service-based economies reported lower growth rates in their real GDP for 2015 than those reported in 2014; they were Aruba, Belize, ECCU, Haiti and Curacao and Sint Maarten. Their growth rates for 2015 ranged from 0.3 per cent (Aruba and Curacao and Sint Maarten) to 2.6 per cent in the ECCU. The average growth for Curacao and Sint Maarten faintly improved from 0.2 per cent (2014) to 0.3 per cent (2015). The economy of Sint Maarten reported a 0.3 per cent growth in its real GDP for 2015, this represents a contraction in its level of economic activities when compared to its 1.5 per cent growth reported for This decline in economic activities was due to contractions in the transport, storage, and communication, financial intermediation, construction, and manufacturing sectors. After three consecutive years of negative growth rates in its real GDP, Curacao reported a growth rate of 0.1 per cent for 2015; representing an expansion in its economy when compared to the -1.1 per cent reported in The economic expansion in Curacao was driven by a growth in public demand, as both government investment and consumption rose. The sectors that pushed Curacao s growth in 2015 were the transport, storage and communication, restaurants and hotels, and wholesale and retail trade. However, the financial services and construction sectors contracted as private demand dropped because of a further decline in investments. The decline in private investments indicates that investor confidence is not yet restored in Curacao. A very significant slowdown in economic activities was experienced in Belize for 2015, its real GDP growth rate declined from 4.1 per cent (2014) to one per cent in The Government of Belize was the main stimulator for growth in the Belizean economy for 2015, having reported a higher growth 12 P a g e

16 rate of 11.5 per cent when compared to the 9.5 per cent in the previous year. The decline in Belize s economic activities was a result of construction activity contracting significantly from 20.6 per cent (2014) to a negative rate of 0.5 per cent (2015). Lower oil production in 2015 heavily influenced the decline in output in manufacturing and agriculture output for 2015 was negative 4.5, which was heavily influenced by declines in sugar cane deliveries, livestock and poultry production. The fisheries sector was badly affected by a bacterial infection that caused farmers to halt shrimp farming. Aruba s economy slowed down from a reported 0.8 per cent growth rate in 2014 to 0.1 per cent in The construction sector was chiefly responsible for this decline in economic activities, as several large projects have suffered delays, are on hold, or have been discontinued. The reported contraction of 1.7 per cent (2015) in The Bahamas economic activity was owing to a sharp decline in the construction sector. Construction activity was negatively impacted by the winding down of activity on a multi-billion dollar resort development. However, public sector projects related to the rebuilding of key infrastructure and residences affected by the hurricane, provided some offset. Economic activity within the ECCU region in 2015 (2.6 %) was minimally lower than the level reported for 2014 (2.9%). This positive growth rate was supported by increased output from sectors such as Hotels and Restaurants, Transport, Storage and Communications, Construction and Agriculture. At a country level, the growth rates reported for 2015 were mixed (Figure 5); the growth rate in real GDP ranged from -3.7 (Dominica) to 6.6 per cent (St. Kitts and Nevis). Economic activity improved in 2015 for the economies of Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines, with real GDP growth rates of 3.9 per cent, 6.6 per cent, 2.4 per cent and 0.8 per cent respectively. While the other ECCU members experienced contractions in their economies for the year 2015 in comparison to Dominica (3.4%) and Monserrat (1.3%) moved from positive growth rates to negative growth rates of -3.7 per cent and -1.4 per cent, respectively. The outlook for 2016 for the ECCU economy is promising, since results of the Business Outlook Survey done by the ECCB in January 2016 indicated that businesses in the ECCU expect some improvements in economic conditions for the first half of P a g e

17 3.2 PRICES The Caribbean region has been experiencing mild inflationary pressures since Figure 6 shows that the regional average inflation rate declined in 2012, moving from 4.4 per cent (2012) to 1.9 per cent (2015). The average inflation rate of the serviceproducer economies behaved in a similar manner; however the commodity-producer economies trend was not the same with its average inflation rate beginning to flatten out in In the period under review the average inflation rate of the service-producers declined from 2.4 per cent (2014) to 1.4 per cent (2015); this was on account of the lower oil prices. The commodity-producers average inflation rate decreased from 3.4 per cent (2014) to 3.3 per cent (2015) due to lower food prices. Suriname is the only commoditybased economy that experienced higher prices in The almost doubling of its average inflation rate from 3.4 per cent (2014) to 6.9 per cent (2015) was attributable to firstly, the systematic depreciation of the foreign exchange rate on the parallel market; secondly, the introduction of the solidarity levy on fuel in September; thirdly, the tariff adjustment of electricity and water in October; and fourthly the adjustment of the official foreign exchange rate in November 2015 by the Central Bank. Trinidad and Tobago reported an average inflation rate of 4.7 per cent for the year 2015, which was lower than its 2014 (5.7%) rate. The lower prices of food was the main contributor to the lower prices experienced in 2015, but they have begun to rise again in P a g e

18 Inflationary pressures eased in Guyana in 2015, the Consumer Price Index (CPI) registered a decline of 1.8 per cent relative to a 1.2 per cent increase at end Prices are expected to increase in 2016 on account of higher food prices, Guyana s projected inflation rate for 2016 is two per cent. The average inflation rates for the service-based economies ranged from -1.2 per cent (ECCU) to 6.6 per cent (Haiti) for the year Aruba, The Bahamas and Haiti reported higher inflation rates for 2015, when compared to Inflationary pressures in Haiti in 2015 were heavily excreted from a sharp depreciation of the gourde in June/July 2015 and from an increase in food prices because of severe drought. Haiti s average inflation rate increased by 2.7 percentage points from 3.9 per cent (2014) to 6.6 per cent (2015). Inflation for 2014 was 1.2 per cent in The Bahamas; price gains from the introduction of a 7.5 per cent VAT in January 2015 were stifled by lower commodity prices to report an inflation rate of 1.9 per cent (2015). It is expected that The Bahamas inflation rate will remain mild at approximately 1.5 per cent in 2016, in line with the sustained weakness in global oil prices. Aruba s average inflation rate was still low in 2015, recording a mere increase from 0.4 per cent (2014) to 0.5 per cent in The movements of energy prices have always been the primary source of inflationary pressures in Aruba. However, the recent decline in oil prices did not fully impact the general price levels, in light of the partial coverage in hedging contracts in place for 2015 and Prices will continue to drop in 2016 as Aruba s end-of-month inflation rate for March 2016 was -1.8 per cent. This was due to the lower cost of electricity and gasoline. Deflation was reported in Barbados, Belize and the ECCU in 2015, with average inflation rates of -1.1 per cent, -0.9 per cent and -1.2 per cent, respectively. The lower prices for fuel and food in 2015 were the cause for the deflation experienced in Barbados and Belize. The average inflation rate of ECCU dropped from 1.5 per cent (2014) to -1.2 per cent (2015). All member states within the ECCU had lower average rates of inflation for 2015, when compared to their 2014 rates (Figure 9); deflation was 15 P a g e

19 experienced in 2015 for all member states expect Antigua and Barbuda. The low and negative inflation rates within the ECCU was due to a decline in prices for Transport and Food and Non- Alcoholic beverages. The average inflation rates within the ECCU in 2015 ranged from -2.3 per cent (St. Kitts and Nevis) to one per cent (Antigua and Barbuda). Lower international oil prices was the primary reason for the ease in inflationary pressures in Curacao and Sint Maarten. Curacao s average inflation rate declined from 1.5 per cent (2014) to one per cent (2015); while Sint Maarten reported a lower average inflation rate of 1.4 per cent (2015) compared to the 1.9 per cent reported for Inflation rates are projected to remain low in both economies in 2016 with projected average inflation rates of 0.8 per cent (Curacao) and 1.5 per cent (Sint Maarten). 16 P a g e

20 3.3 LABOUR MARKETS The labour markets of the Caribbean economies continued to be affected by the slow-down in economic activities of the region. Unemployment levels remained relatively high and unchanged for the past three years with a regional average unemployment rate of 10.8 per cent. The International Labour Organisation reported in May 2016 that the labour markets in the region showed resilience in the first phase of the slowdown, from mid-2011 to 2014, but signs of deterioration have emerged, both in terms of the quantity and quality of those jobs created. Trinidad and Tobago reported a minimal increase from 3.3 per cent (2014) in its unemployment rate to 3.4 per cent (Sept-2015). The increase in the unemployment rate reflected a fall in the labour force (17,900 persons) largely owing to a reduction in the number of persons with jobs (17,700 persons) in the twelve months to September As a consequence, the participation rate declined to 60.3 per cent in the third quarter of 2015 from 62.0 per cent in the similar period one year prior. The increase in job separation occurred mostly in the services, construction and manufacturing sectors. Labour productivity declined towards the end of 2015 amid weakening economic activity and slowing employment creation. In the absence of official unemployment statistics from the Central Statistical Office, early indicators for the period October 2015 to February 2016 suggest further deterioration in labour market conditions. Retrenchment notices filed with the Ministry of Labour and Small Enterprise Development increased by 756 persons over the period October 2015 to February 2016 from 490 persons in the corresponding period one year ago. The main sectors affected included the construction, finance and petroleum sectors which retrenched 329 persons, 142 persons and 101 persons, respectively. Meanwhile, the number of job openings fell by 6.3 per cent over the period October 2015 to February 2016, suggesting an overall decline in labour demand. Further, recent 17 P a g e

21 announcements of job cuts in the private sector over the period September 2015 to March 2016 highlight the changing employment situation. The largest layoffs were announced in the manufacturing sector where iron and steel producer, ArcelorMittal dismissed 644 workers as the company shut down business in the midst of a weak global steel market. Relatedly, Centrin and TMS International Corporation retrenched 200 employees each. The rate of unemployment for Trinidad and Tobago will increase in 2016 if there is no absorption of the workers who lost their jobs from the energy and construction sector, into other sectors. Guyana s public sector employment increased by 2.9 per cent at the end of 2015, although private sector employment data for 2015 are unavailable, there are indications of job creation in the mining, telecommunications and other services industries. In August 2015 the public sector minimum wage was increased and the level of industrial unrest was reduced in Unemployment levels for all the service-based economies remained above ten per cent in All of them reported declines in their unemployment rates in 2015; with unemployment rates ranging from 10.1 per cent (Belize) to 14.8 per cent (The Bahamas). Belize s unemployment rate declined, moving from 11.1 per cent (2014) to 10.1 per cent (2015). This one percentage point decline was a result of the growth in employment exceeding the increase in the labour force. Job gains in the primary sector made up for losses in the manufacturing industries. In Barbados the average unemployment rate for 2015 was 11.8 per cent, compared with 12.3 per cent in Labour costs are estimated to have risen by one per cent per year since 2008, while there has been no perceptible increase in productivity. As a result, the large gap between unit labour cost and output per worker persists. The growth in public investment in Curacao was the main cause for the lower unemployment rate of 11.7 per cent reported for 2015 when compared to 2014 (12.6%). The construction of a new hospital and the upgrading of Curacao s road infrastructure are the projects that were able to offset the loss of jobs in tourism. The unemployment rate in Jamaica declined to 13.5 per cent (2015), from 13.7 per cent (2014). It was reported that employment grew by approximately one per cent supported by an increase of 0.7 per cent in the total labour force. The rate of change in the job-seeking rate for the review period held firm at 9.1 per cent in 2015, similar to that which was recorded in The expansion in employment for various industries over the period was primarily concentrated in hotels and restaurants, electricity and water supply, construction and installation and health and social work. The Bahamas unemployment rate fell from 15.7 per cent (2014) to 14.8 per cent (2015) on account of an improvement in tourism in Abaco, all the other job centres - New Providence and Grand Bahama, reported increases in their job losses for The relatively high unemployment rate of 14.8 per cent (2015) is due to the increase in the labour force due to the entrance of new high school and university graduates, a further reduction in the number of discouraged workers by 30 per cent to 2,750, as well as the layoff of over 2,000 of previously on-boarded staff from the Baha Mar properties. 18 P a g e

22 3.4 FISCAL ACCOUNTS Current Fiscal Accounts The performance of the current fiscal accounts of the Caribbean economies was mixed. The servicebased economies reported better balances on their current fiscal accounts in 2015 compared to balances of the commodity-based economies. Although current revenue increased for all servicebased economies, Belize and Jamaica were the only service-based economies to not experience improvements in their current fiscal balance for 2015, in comparison to the balances of On the other hand, only one of the commodity-based economies reported an improvement in its current fiscal balance in this was Guyana. The Bahamas and Sint Maarten were the only service-based economies to move from a current fiscal deficit to a current fiscal surplus in The Bahamas reported an improvement in its current fiscal balance, moving from a current fiscal deficit of US$172.8 million (2014) to a current fiscal surplus US$58.8 million (2015). Current revenue increased by 29.8 per cent in 2015, having increased from US$1,471.9 million (2014) to U$1,911.3 million (2015). The introduction of VAT in The Bahamas in January 2015 added US$536.2 million to current revenue, but the reduction in several tariff rates to compensate for the introduction of the VAT, led to a fall-off in international trade taxes by 12.8 per cent, amid declines in import, excise, and export taxes. Sint Maarten s current fiscal deficit of US$4.6 million (2014) significantly improved in 2015 by per cent, with a current fiscal balance of US$0.8 million. Current revenue increased by two per cent in 2015, while their current expenditure was relatively unchanged, having reported a 0.25 per cent decline. The growth in revenue from income taxes of 7.2 per cent was the primary source for Sint Maarten s improved current fiscal stance. An improvement in the fiscal stance of Curacao was also 19 P a g e

23 reported for 2015, its current fiscal deficit narrowed from US$6.3 million (2014) to US$0.8 million (2015). The main source of the increase in current revenue of 4.3 per cent in 2015 stemmed from the increase in non- tax revenue of 29.3 per cent. Curacao s current expenditure increased by 3.7 per cent, which was off-set by a notable decline in expenditure of 14.6 per cent for goods and services. Similar, to Curacao, the economies of Aruba, Barbados and Haiti experienced a narrowing of their current fiscal deficit in 2015, of 35.5 per cent, 29 per cent and 95.2 per cent, respectively. Aruba experienced an improvement in its current fiscal balance in 2015, over its 2014 balance, with a contraction from a current fiscal deficit of US$195.5 million (2014) to a deficit of US$126.2 million (2015). A decline in current expenditure of 6.6 per cent coupled with an increase in current revenue of only 2.3 per cent resulted in the narrowing of Aruba s current fiscal deficit for The decline in current expenditure was attributed to the 40 per cent decline in transfer and subsidies. The current fiscal deficit of Barbados was lowered in 2015 to US$223.4 million, from US$314 million (2014). It was reported that higher receipts from excise taxes, personal taxes and corporate taxes pushed current revenue up in 2015, but this was off-set by lower receipts from VAT because of a reduction in fuel imports and property taxes. Haiti s improvement in its current fiscal stance for 2015 was a result of increases to its current revenue (21.3%) and declines in current expenditure (8%), compared to their 2014 levels. The current fiscal deficit of Haiti narrowed from US$351 million (2014) to US$16.6 million (2015). Although both Belize and Jamaica reported surpluses on their current fiscal balance for 2015, they both experienced a weakening in their current fiscal balance for 2015, when compared to their 2014 balances. The current fiscal balance for Belize fell from US$47 million (2014) to US$39.4 million (2015), a 16.4 per cent decline. Belize s current revenue increased by 6.3 per cent but was outweighed by the increase of 8.8 per cent in current expenditure for the year Current revenue for 2015 was bolstered by increases from International trade tax (27.6%), as there were declines in revenue from Income Taxes and Non-Tax revenue. The increase in Belize s current expenditure in 2015 was a result of the negotiated eight per cent increase in public servant wages, which increased the wages and salaries of government by 12.7 per cent, moving from US$330 million (2014) to US$ million (2015). Jamaica s current fiscal balance worsened by 31.4 per cent, having reported a decline in its balance from US$ million (2014) to US$154.2 million (2015). The deterioration in the Jamaica s current fiscal position was consistent with the growth in current expenditure, mainly due to an increase in expenditure in goods and services (26.5%) and wages and salaries (4.5%); which stemmed from the implementation of the new public sector wage agreement and annual increases in programme spending. Current revenue increased by 8.8 per cent in 2015 for Jamaica, which was buffered by increases in revenue from income tax (12%) and sales tax (13.6%). The only servicebased economy to maintain and improve its positive current fiscal stance in 2015 was the ECCU, having experienced an increase of 74.8 per cent over its 2014 current fiscal balance. 20 P a g e

24 The ECCU s current fiscal balance moved from US$85 million (2014) to US$148.6 million (2015). Current expenditure within the ECCU rose by 2.1 per cent in 2015, a decline in interest payments of 3.7 per cent assisted in counteracting the increased costs from transfers and subsidies (10%) and wages and salaries (0.4%). The reported increase in transfers and subsides was due to developments in Antigua and Barbuda and St. Kitts and Nevis, while the decline in interest payments occurred in all member states except Antigua and Barbuda, but was more pronounced in St. Kitts and Nevis. Commodity -Based Economies Service- Based Economies Country Current Revenue Table 8: CURRENT FISCAL BALANCES OF CARICOM ECONOMIES 2014 (US$M) Current Expenditure Current Fiscal Balance Current Revenue 2015 (US$M Current Expenditure Current Fiscal Balance Current Revenue 2015/2014 (% Change) Current Expenditure Current Fiscal Balance Guyana Suriname Trinidad and Tobago Aruba Bahamas Barbados Belize ECCU Haiti Jamaica Curacao St. Maarten Source: National Central Banks of the countries (April 2016) Overall Fiscal Accounts The overall fiscal accounts of the Caribbean economies in 2015 performed similarly to their current fiscal accounts for the same period, as the services-based economies overall fiscal accounts were in better standing compared to those of the commoditybased economies. The service-based economies overall fiscal performance in 2015 was slightly different from its current fiscal performance since Curacao and Sint Maarten were the only economies to experience an overall fiscal surplus in All the commodity-based economies registered 21 P a g e

25 overall fiscal deficits for the year 2015, with only Guyana reporting any improvements in its fiscal deficits. Figure 12 shows that for 2015 the overall fiscal deficits as a per cent of GDP of the commodity-based economies ranged from -1.4 per cent (Guyana) to -9.6 per cent (Suriname); and the service-based economies ranged from -8.4 per cent (Belize) to 2.9 per cent (Curacao). Aruba, The Bahamas, Barbados, the ECCU and Haiti are the service-based economies that reported lower overall fiscal deficits for 2015, in comparison to their 2014 deficits. Of these five economies, the ECCU is the only economy to not perform on trend to their current fiscal accounts for Of the three commodity-based economies, Guyana was the only economy to experience an improvement in its overall fiscal deficit in Suriname and Trinidad and Tobago both recorded higher overall fiscal deficits in The opening up of the overall fiscal deficit in Suriname was on account of falling government transfers from the mining sector, high election-related expenditures in the first half of 2015 and the settlement of substantial arrears to private suppliers in the second half of the year. Suriname s overall fiscal deficit widened by 72.1 per cent. Total revenues declined by three per cent of GDP as mining proceeds continued to suffer from lower commodity prices. Revenues from the mining sector fell by 65 per cent, particularly transfers from the oil sector which dropped by more than 80 per cent. Total expenditures rose by two per cent of GDP which included the payment of arrears. The arrears amounted to almost eight per cent of GDP. Trinidad and Tobago s overall fiscal balance worsened again in 2015, with a reported widening of its overall fiscal deficit of 24.7 per cent. The higher deficit experienced in 2015 was due to lower energy revenues which more than offset the decline in expenditure. Total revenue declined while total expenditure also fell on account of a fall-off in transfers and subsidies. The non-energy fiscal deficit was lower at $25.4 billion (15.1 per cent of GDP) in the financial year 2014/15 compared with $32.6 billion (18.7 per cent of GDP) one year earlier. Most recent data as at March 2016 suggests no transfers to the Heritage and Stabilization Fund (HSF) in the financial year 2014/15. Country Commodity-Based Economies Service-Based Economies Table 9: OVERALL FISCAL BALANCE OF CARIBBEAN ECONOMIES Overall Fiscal Balance (US$M) Per cent change (Year-on-Year) / /2014 Guyana Suriname Trinidad and Tobago Aruba Bahamas Barbados Belize ECCU Haiti Jamaica Curacao St. Maarten Source: National Central Banks of the countries (April 2016) 22 P a g e

26 3.5 Banking and Finance Interest Rates Deposit and lending interest rates of commercial banks continue to be unchanging from 2014 to 2015 for both the commodity-based and servicebased economies. Comparing the average three-month deposit rates of commercial banks for 2015 to their 2014 rates, it is seen that the change in basis points of the average three-month deposit rates for all but two economies ranged between -50 basis points to 50 basis points. The service-based economies of Jamaica and Haiti were the outliers, with Jamaica experiencing a decline of 117 basis points and Haiti reporting a 270 basis points increase of their average three-month deposit rate. The range of the change in basis points (2015 vs 2014) for the weighted average loan rate was a bit higher than that of the average three-month deposit rate. The change in basis points for all but one economy ranged between -100 basis points to 100 basis points. Haiti was the outlier with changes in its average loan rate increasing by 2.7 percentage points (270 basis points). Interest rate spreads of the commercial banks narrowed in six economies in 2015 when compared to 2014, because declines in their deposit rates were lower than the declines in their lending rates. Of these six economies two were commodity-based (Guyana (33 basis point) and Trinidad and Tobago (5 basis points)) and four were service-based (Aruba (10 basis points), Barbados (48 basis points), Belize (36 basis points) and Curacao and Sint Maarten (33 basis points)) while the other economies experienced a widening of the interest rate spread of the commercial banks ranging from seven basis points (Haiti) to 91 basis points (Jamaica). 23 P a g e

27 3.5.2 Commercial Bank Performance The uncertainty of the outlook of the international and domestic economy and low levels of economic growth reported in 2015 resulted in almost no growth in private sector credit in the Caribbean economies. The total domestic credit of commercial banks for the Caribbean economies merely increased by 0.1 per cent in 2015when compared to The service-based economies reported a decline in their total domestic credit of 1.7 per cent, having dropped from US$23,381 million (2014) to US$22,980.1 million (2015), while, a minimal increase of four per cent of total domestic credit for the commodity-based economies was reported. Suriname was the only commodity-based economy that experienced a decline of 4.6 per cent in its total domestic credit to private sector in The other two commodity-based economies experienced increases of 6.2 per cent (Guyana) and 5.8 (Trinidad and Tobago). In Guyana credit expanded for all sectors for 2015, except mining, manufacturing, other services and agriculture, while in Trinidad and Tobago credit was increased for sectors such as manufacturing, construction and distribution, and a decline in credit was reported for other services and finance, insurance and real estates. Four of the service-based economies reported declines in their total domestic credit to private sector for 2015 in comparison to their 2014 levels: Aruba (0.4 %), Curacao and Sint Maarten (0.5%), ECCU (6.1%) and Haiti (12.8%). The service-based economies that did experience growth in their domestic credit to private sector credit in 2015 reported increases that ranged from 0.8 per cent (Barbados) to 4.2 per cent (Jamaica). 24 P a g e

28 Overall, the lending conditions tightened in all of the Caribbean economies in 2015; this translated to declines and small increases in the amount of total domestic credit to private sector and in total loans outstanding. A mere 2.7 per cent increase in total loans of the banking sector was reported for the Caribbean economies in 2015, in comparison to the total loans in This increase was a direct result of the reported increases in all three of the commodity-based economies. The service-based economies experienced minor increases ranging from 0.1 per cent (Aruba) to 3.9 per cent (Jamaica) and in some instances, declines (The Bahamas, Barbados, ECCU, Haiti and Curacao and Sint Maarten) in their total loans outstanding from the banking sector in Total deposits of the banking sector increased in all the Caribbean economies, except Suriname and Trinidad and Tobago for 2015, in comparison to total deposits in The Caribbean region s total deposits of its banking sector increased in 2015 by six per cent, from US$1,293 billion (2014) to US$1,370 billion (2015). All the service based economies had higher levels of deposits at the end of 2015, with increases for 2015 ranging from 0.6 per cent (The Bahamas) to 7.3 per cent (Jamaica).The decline in deposits in Suriname (7.7%) and Trinidad and Tobago (1.2%) and the sluggish growth in credit and loans may be due to the uncertainties that exist for businesses and consumers with respect to the future of their economies. Businesses and consumers appear to be delaying decisions to borrow and instead are drawing down on existing deposits to finance their activities. An interesting trend in the banking sector was the increase in US dollar deposits for the Caribbean economies of 6.8 per cent in 2015 (US$13.7 billion) over its total in 2014 (US$12.8 billion). In 2015, all of the Caribbean economies reported increases in US dollar deposits in the banking sector, with 25 P a g e

29 the exception of Aruba and The Bahamas. The demand for the US dollar has been increasing since the last quarter of 2014 to date; the increases in the US$ deposit for 2015 ranged from 0.8 per cent (Suriname) to 44.8 per cent (Barbados) Banking System Core Financial Soundness Indicators The banking system of the Caribbean economies remains well capitalised and relatively profitable in The commodity-based economies banking systems were in better standing than the servicebased economies, having reported higher profitability ratios. The level of non-performing loans (NPL) was also higher for the service-based economies, but in 2015 the rate of growth for nonperforming loans in comparison to its 2014 level was greater for the commodity-based economies. All of the Caribbean economies banking systems registered Capital to Risk Weighted Assets Ratios (CRWAR) that were above the prudential eight per cent benchmark in Of the four service-based economies for which data were available, only one, that is Belize, had an increase of 6.1 per cent in its CRWAR in 2015, in comparisons to its 2014 ratio. Belize s CRWAR for 2015 was 24.9 per cent. For other service-based economies although they experienced declines in 2015, their CRWAR remained high at 18.9 per cent (Barbados), 14.9 per cent (Jamaica) and 13.9 per cent (Curacao and Sint Maarten). The commodity-based economies of Suriname and Trinidad and Tobago reported small declines of 1.7 per cent and 1.6 per cent respectively, in their CRWAR in 2015, in comparison to the 2014 ratios. Guyana experienced an increase of 9.6 per cent in its 26 P a g e

30 CRWAR, having moved from 21.8 per cent (2014) to 23.9 per cent (2015). This increase was on account of a higher level of tier 1 capital at the end of December 2015, which was because of an increase in Republic Bank Limited retained earnings. Given the challenges that commodity-based economies are facing, it is not surprising that in 2015 two of the three economies reported higher NPL ratios. Suriname and Guyana reported increases in their NPL ratio of 33.2 per cent and 35.4 per cent, respectively. Guyana s increase in NPL ratio of 8.6 per cent (2014) to 11.5 per cent (2015) was due to NPL increasing in the business enterprise (mining and quarrying, services, agriculture and manufacturing) and households sectors. Trinidad and Tobago s NPL ratio dropped to 3.4 per cent (2015) from 4.1 per cent (2014). Five of the servicebased economies reported data for their NPL ratio, of which only one of them, Curacao and Sint Maarten experienced an increase of 2.2 per cent over its 2004 value. The Caribbean economies experienced varying levels of profitability for their banking systems based on the 2015 ratios for Return on Assets (ROA) and Return on Equity (ROE). Both the commoditybased and service-based economies experienced declines in their profitability ratios; the ROA ratio was lower in 2015 than in 2014 for Suriname, Belize and Curacao and Sint Maarten. Declines in 2015 for the ROE ratio was reported for Guyana, Suriname, Belize, Jamaica and Curacao and Sint Maarten. 27 P a g e

31 3.6 PUBLIC DEBT The Caribbean economies continue to struggle with managing high levels of debt, having always reported higher debt levels each year (Figure 24). The total debt stock of the Caribbean economies stood at US$49,636.6 million at 2015, of which 52.2 per cent was external debt (US$25,907.9 million). The service-based economies debt levels have been growing at a slower rate since 2011, while the debt of commodity-based economies have been fluctuating over time. The total debt of the service-based economies increased by 1.3 per cent in 2015, over the 2014 debt level, while a higher rate of increase (5.1 %) was reported in the total debt for the commodity-based economies. Commodity- Based Economies Service- Based Economies Table 10: PUBLIC DEBT RATIOS OF THE CARIBBEAN ECONOMIES Country Domestic Debt (% of GDP) External Debt (% of GDP) Debt Service Ratio (%) Guyana Suriname Trinidad and Tobago n.a. Aruba n.a. n.a n.a. n.a. Bahamas Barbados Belize ECCU Haiti n.a. n.a. Jamaica n.a. n.a. Curacao n.a. n.a. St. Maarten n.a. n.a. Source: National Central Banks of the countries (April 2016) Two of the three commodity-based economies experienced higher levels of debt in 2015 over their reported debt levels in 2014, with a reported growth in total debt of 39.3 per cent (Suriname) and 0.3 per cent (Trinidad and Tobago). Guyana, however, experienced a decline in its total debt of 3.6 per cent. Domestic debt outstanding for Guyana increased by 4.2 per cent in 2015, to US$395.6 million due to the high issuance of treasury bills to sterilise excess liquidity in the financial system. 28 P a g e

32 The volume of outstanding 91-day and 364-day bills increased by 27 per cent and 8.6 per cent respectively. A six per cent decline in external debt outstanding for Guyana to US$ million (2015) occurred on account of the reduction in delivery of credit under the Venezuela PetroCaribe agreement of US$84.6 million and lower disbursements from the Inter-American Development Bank of US$11.5 million. The ECCU, Jamaica and Sint Maarten experienced a decline in their overall debt levels in 2015 in comparison to 2014 debt levels, while the other service-based economies reported increases in their debt levels ranging from 5.4 per cent (Barbados) to 14.4 per cent (Curacao). Some of the servicebased economies funded their budget deficits from their domestic markets, resulting in higher level of domestic debt in The Bahamas and Belize in P a g e

33 3.7 INTERNATIONAL TRADE External Current Account The Caribbean as a region experienced a worsening in its balance of trade in 2015, having reported an increase of 3.1 per cent from a trade deficit of US$9,061.2 million (2014) to a deficit of US$9,343.6 million (2015). Both the service-based economies and commodity-based economies experienced improvements of 17.9 per cent and 86 per cent, respectively. Lower levels of total imports and exports in 2015 for both economy types contributed to this trade improvement. On a country level, only Suriname reported a worsening of its balance of trade, due to increasing imports. Suriname s exports of goods fell by 23 per cent, primarily driven by gold, oil and alumina, while imports of goods rose by one per cent. Commodity- Based Economies Service- Based Economies Country Table 11: CARIBBEAN ECONOMIES EXPORTS AND IMPORTS Total Exports (US$M) Total Imports (US$M) Balance of Trade (US$M) Per cent change 2015/2014 Total Exports Total Imports Balance of Trade Guyana Suriname Trinidad and Tobago * * * -43.7* -36.7* -67.4* Aruba Bahamas Barbados Belize ECCU Haiti Jamaica Curacao n.a n.a n.a. n.a. n.a. n.a. Sint Maarten n.a n.a n.a. n.a. n.a. n.a. Source: National Central Banks of the countries (April 2016); Notes: * Trinidad and Tobago 2015 Data is for Jan-Sept. The external current account worsened in 2015 for two of the commodity-based economies (Suriname and Trinidad and Tobago) and one of the service-based economies (Belize). The range of the external current account as a per cent of GDP for 2015 was (Suriname) to 4.1 (Aruba), Figure P a g e

34 All service-based economies except Belize experienced an improvement and narrowing of their current account deficits. Aruba was the only service-based economy to move from a current account deficit US$136.7 million (in 2014) to a surplus of US$109.9 million (2015). Aruba s current account balance improved by 180 per cent because of higher receipts from tourism which boosted its services account and the lower cost of oil resulted in lower cost of oil imports. The other service-based economies all experienced a narrowing of their current account deficits in 2015, ranging from 12.7 per cent (ECCU) to 71 per cent (Haiti and Jamaica). Lower oil import costs and consumer goods imports coupled with increases from tourism receipts were the common causes of the narrowing of the current account balance for The Bahamas, Barbados, ECCU, Haiti and Jamaica for 2015 when compared to their 2014 balance External Capital Account The commodity-based economies and service-based economies both reported a worsening in their aggregated capital account in 2015, of per cent and 54.3 per cent respectively, over their 2014 balance. The capital accounts of all the Caribbean economies were in surplus for all economies except Trinidad and Tobago and Barbados; but not all of them experienced improvements. Suriname was the only economy to report an increase in its capital account surplus. 31 P a g e

35 All of the service-based economies except Barbados reported a capital account surplus at the end of 2015, but all of them experienced a weakening in their capital accounts in The declines ranged from -0.9 per cent (ECCU) to per cent (Belize). Most of the member economies of the ECCU reported lower grant inflows in 2015; Anguilla and Grenada accounted for the minimal contraction in their capital account balance from US$355.9 million (2014) to US$352.8 million (2015). Barbados was the only service based economy to report a capital account deficit in 2015 (US$7.9 million or 0.09% of GDP). This represented a widening of its capital account deficit from it 2014 deficit of US$ 4.7 million (0.05% of GDP), on account of increases in capital expenditure. Belize experienced the greatest decline in its capital account, 80 per cent in 2015 down from US$44 million (2014) to US$8.6 million (0.5% of GDP). This notable worsening was on account of a significant fall in receipts from grants from foreign donors. The financial account registered net inflows due mostly to a contraction in net foreign direct investment (FDI) inflows, while loan repayments by the Government and deposits held abroad by the domestic banks also increased. In comparison to the similar period of 2014, net FDI inflows more than halved due to compensation payments of US$67.65 million to the previous owners of BTL and BEL. The settlement of a loan for US$48.5 million owed to a foreign bank by BTL more than doubled Government's loan repayments which surpassed disbursements that came mostly from the Venezuelan Petrocaribe Agreement (VPCA), the Republic of China/ Taiwan (ROC/Taiwan) and the Inter- American Development Bank (IDB). 32 P a g e

36 3.7.3 International Reserves Total gross international reserves for the Caribbean region declined minimally by 0.7 per cent to US$31,496.9 million (2015) from US$31,714.8 million (2014). The decline of nine per cent in reserves for the commodity-based economies outpaced the increase of 7.9 per cent in reserves for the service-based economies in All of the commodity-based economies experienced a decline in their gross international reserves in 2015, in comparison to their levels at 2014, while only one of the service-based economies reported a decline (Belize). The commodity-based economies of Guyana, Suriname and Trinidad and Tobago reported declines in their gross international reserves of 6.6 per cent, 47.2 per cent and 7.6 per cent, respectively. The draw-down in reserves in 2015 to US$955.7 million (Guyana), US$330.2 (Suriname) and US$13,296.3 million (Trinidad and Tobago) was on account of the overall balance of payment account deficit of these economies. At the end of 2015 the gross international reserves of the commodity-based economies were equivalent to 3.7 months of imports (Guyana), 1.5 months of imports (Suriname) and 11 months of imports (Trinidad and Tobago. All the service-based economies, except Belize experienced increases to their gross international reserves in 2015, in comparison to The increases ranged from 1.1 per cent (Barbados) to 29.2 per cent (Aruba) and were primarily because of higher receipts from tourism. The import cover ratio for the service-based economies was above three months for all of them in P a g e