Global Credit Research – 20 May 2015

New York, May 20, 2015 — Regional growth in the Caribbean will accelerate in 2015-16 as a result of the recovering tourism industry and sustained low oil prices, helping the credit quality of the sovereigns in the region stabilize following negative pressure in 2014, says Moody’s Investors Service in the report “Sovereign Outlook — Caribbean: Sovereign Credit Quality Supported by Recovery in Tourism, Low Oil Prices.”

Median growth in the Caribbean was 1.5% in 2014 and should accelerate to 2.0% in 2015. In addition, government debt, which rose following the financial crisis, is slowly stabilizing or in some cases declining, putting average sovereign debt metrics on par with those in Latin America.

Debt ratios are stabilizing in Belize, the Bahamas, the Dominican Republic, Cuba, Bermuda, Saint Maarten and Trinidad. However, debt pressures are increasing in Barbados and St. Vincent, while they are easing in the Cayman Islands.

Nevertheless, the overall stabilization in debt levels in the region will help support current rating levels over the next 12-18 months.

The pickup in the tourism industry is credit positive for the Bahamas (Baa2 stable), Barbados (B3 negative), Belize (Caa2, stable), Bermuda (A1 stable), Cayman Islands (Aa3, stable), Jamaica (Caa3 positive), St. Maarten (Baa1 stable), St. Vincent and the Grenadines (B3 negative), because their economies depend heavily on tourism.

The tourism recovery largely reflects improving economic conditions in the US and will continue to depend on the on the strength of the recoveries in the US and the UK through 2016.

“Although the rebound in tourism will help all Caribbean nations that rely on this industry, the individual credit effects will reflect each country’s dependence on this industry,” says Gabriel Torres, a Moody’s Vice President and Senior Credit Officer.

Barbados, Belize, the Bahamas and St. Maarten are most dependent on tourism.

Lower oil prices have also helped spur tourist growth, with fuel costs for airlines dropping significantly in 2014 and expected to continue their decline in 2015. They will also support domestic demand and consumer spending by easing current and expected inflation levels.

However, lower oil prices are credit negative for Trinidad & Tobago. The sharp drop in energy prices will significantly reduce government revenues, the current account surplus and foreign direct investment flows.

While Belize is a net oil-importing country, the decline in its petroleum production will have a significant negative effect on government finance.

Moody’s subscribers can access this report at

https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1005289

Related story:

Expand 2% This Year, Moody’s Says

By Michael D McDonald From Bloomberg

Economic growth in the Caribbean, home to some of the world’s most-indebted countries, will accelerate this year on rebounding tourism and lower oil prices, Moody’s Investors Services said.

The region’s economies will expand 2 percent in 2015, up from 1.5 percent last year and ahead of the 0.9 percent forecast by the International Monetary Fund for Latin America and the Caribbean. Stabilizing debt ratios across the Caribbean after years of rising credit “will help support current rating levels for the next 12-18 months,” Moody’s said in the report on Wednesday.

“Although the rebound in tourism will help all Caribbean nations that rely on this industry, the individual credit effects will reflect each country’s dependence on this industry,” wrote Gabriel Torres, an analyst at Moody’s.

Improving tourism data “is credit positive” for several nations, including Belize and Jamaica, Moody’s said.

The Caribbean has suffered through at least nine debt defaults since 2003, with Grenada’s creditors agreeing to restructure $262 million in global bonds last month.

For more on this story go to: http://www.bloomberg.com/news/articles/2015-05-20/caribbean-economies-to-expand-2-this-year-moody-s-says

IMAGE: Grand Cayman – Debt ratios easing in the Cayman Islands