Trinidad and Tobago

Prepared by: Trevis Gangaya

Trevis.Gangaya@firstcitizenstt.com
Last Updated: July 2017

COUNTRY CREDIT RATING

Real GDP growth (%) CSO 2016 -2.30% S&P Foreign Currency BBB+/Stable Major Trade Partners US, EU, Brazil, Colombia, Jamaica, Dominican Republic, Barbados
Next General Election Sep-20 S&P Local Currency BBB+/Stable Major Exports (%) Fuels and mining (62%); Manufactures (25%); Agriculture (2.3%)
Exchange Rate (TTD/USD) 6.75 Moody's Foreign Currency Debt Ba1/Stable GDP Composition Energy(35%);Services(56%);Manufacturing(8.1%);Agriculture(0.5%)

RECENT ECONOMIC DEVELOPMENTS

According to the IMF's World Economic April 2017 Outlook, Trinidad & Tobago is expected to realize minute growth of 0.3% in real GDP for 2017, with a 3.4%
pickup projected for 2018. The economy is experiencing weak economic growth as lower oil prices weigh on government revenue, consumption, investment and
net exports. Furthermore, the government attempts to limit its fiscal shortfall through tax increases, including the new property tax initiative, will constrain
consumption. Alongside a high crime situation, weak business climate will weigh on investments, particularly outside the energy sector. Weakness in the energy
ECONOMIC OUTLOOK Negative sector reflected contractions in crude oil, natural gas, LNG and petrochemical production which outweighed increases in petroleum refining. For the 1Q2017, oil
production was higher than the previous three quarters, however 1.6% lower than the 1Q2016 according to Central Bank estimates. Meanwhile, natural gas
production has yet to recover, with output in January to March 2017 recorded at 8.4% lower than the year-earlier period. The CBTT bulletin further noted that
other available non-energy statistics suggest that construction and distribution activities were very subdued in early 2017.

INFLATION
Inflation remains relatively low, with the 12-month headline rate in April 2017 at 1.8%, down from 2.7% in the previous month. Core inflation was 1.74% (year-on-
year) in April. According to Central Bank's Monetary Policy Announcement in May, the weak inflationary pressures were also reflected in the indices of producer
prices and building material prices (an increase of 2.8% and a decline of 0.6% on a 12-month basis respectively, in March 2017).

INFLATION/ LABOR MARKET Stable/ Negative JOB MARKET

According to the Central Statistical Office (CSO), Trinidad & Tobago has recorded a decline in the unemployment rate from 4.4% in 2Q2016 to 4% in 3Q2016.
However, the labour bulletin from the CSO notes when compared year-on-year (y-o-y) there was an overall increase in the unemployment rate as the rate for
2015 stood at 3.4%. The largest number of jobs came from the public sector with employment in “Government public service/statutory board” falling by 9,400 or
6.5%. It noted, though, that this decrease was offset by an increase in the number of self-employed persons (by 9,100 or 8.5%).

Over the first half of 2016, the external accounts of Trinidad and Tobago registered a deficit of USD367.3 million with gross official reserves amounting to
USD9,565.7 million at the end of the period. Meanwhile, the current account showed a deficit of USD582.7 million, which was primarily driven by depressed
conditions within the energy sector. A decline in exports coupled with a marginal increase in imports led to a deficit of USD114.4 million on the Goods sub-
account. Energy sector exports are estimated to have fallen by USD1,340.8 million during the first six months of 2016 to USD3,361.2 million as a result of lower
EXTERNAL ACCOUNTS Negative energy prices and production. At the same time energy imports climbed by 37.1% to an estimated USD1,556.8 million reflecting an increase in the volume of
petroleum imports over the period. With falling inflows from the energy sector, conditions within the domestic foreign exchange market remained tight during the
first six months of 2016. In order to support the market, the Central Bank sold USD706.6 million to authorized dealers in the first six months of 2016. The financial
account registered a net inflow of USD573.0 million, which was a reversal of the net outflow of USD429.0 million in the similar period in 2015.

Fiscal performance continued to be constrained by the weak global energy markets and lower domestic energy production. Latest revised estimates from the
Ministry of Finance show an overall fiscal deficit of TTD7.3 billion (5.0% of GDP) for FY 2015/16 (October 2015 - September 2016). This compares with an
initially budgeted deficit of TTD2.8 billion and a FY 2014/15 deficit outturn of TTD2.7 billion (1.8 % of GDP). The larger deficit was primarily the result of steeper
declines in revenue than in expenditure. The protracted period of lower-than-budgeted crude oil prices influenced the government’s withdrawal of TTD2.5 billion
from the Heritage and Stabilization Fund (HSF) in 2016 to finance its operations, making this the first withdrawal from the HSF since it was established in 2007. A
FISCAL ACCOUNTS Negative second drawdown was made in March, 2017 of TTD1.71 billion, to partially fund Public Sector Investment Plan (PSIP). In the government's Mid-Year Budget
Review, the Minister of Finance re-assured the public that between May 2016 and March 2017, the HSF earned USD275 million. Accordingly, after the second
drawdown in March of this year, the Fund was USD5.44 billion, close to the same level as it was after the first drawdown.

BMI forecasts a repo rate of 5.5% for year-end 2017 as a result of higher US interest rates and accelerating inflation driven by a weaker currency. We are of the
view that the projected repo rate would not increase to 5.5% at end of 2017, however, the Monetary Policy Committee is concerned about significant narrowing
of the differential between the Trinidad and Tobago and US short-term (3 month) Treasury instruments and its implications for the direction of capital flows.

The Government of Trinidad and Tobago TT dollar yield curve has displayed a downward trend on the longer end of the curve. Alongside this, credit demand
MONETARY CONDITIONS Stable
growth decelerated to 1.9% yoy in January 2017 - the slowest growth rate since January 2013 - with loans to businesses declining by 2%. Liquidity in the banking
system remained fairly stable, with Commercial banks' excess reserves at the Bank averaged TTD3.3 billion in May 2017, slightly lower than the TTD3.4 billion for
the previous month.

A year after downgrades by Moody’s and S&P, the Trinidad & Tobago’s ratings deteriorated further in April, 2017. In the most recent rating action, Moody's
Investors Service downgraded Trinidad and Tobago's issuer and senior unsecured debt ratings to ‘Ba1’ (non-investment grade) from ‘Baa3’ on April 25 and
assigned a Stable outlook. The rating action was based on the following key drivers:
1. The authorities' policy response has been insufficient to effectively offset the impact of low energy prices on government revenues, with heavy reliance on one-
off revenue measures
2. A steady rise in debt ratios driven by large government deficits has eroded fiscal strength
3. Declining production from maturing oil and gas fields coupled with limited investment prospects, in a context of low energy prices, have materially undermined
RATINGS ACTION Negative
medium-term growth prospects
The stable outlook considers sizeable fiscal buffers in offsetting further downside risks and ample access to a relatively deep domestic financial market.
On April 21, 2017, S&P Global Ratings lowered its long-term sovereign credit ratings on the Trinidad and Tobago (T&T) to 'BBB+' from 'A-'. The outlook is stable.
The downgrade reflects further deterioration in T&T's debt burden, including a higher-than-expected rise in net general government debt to GDP and the interest
burden over 2017-2020. The stable outlook reflects expectation that T&T's economy will recover modestly in 2017-2020 on higher natural gas prices and
increased gas production.
Therefore Moody's has assigned a non-investment grade rating to Trinidad & Tobago whilst Standard & Poor's maintained an investment grade. The Government
is now considering pursuing ratings from a third rating agency to offer a more "more balanced" perspective on the country's ratings. The Minister of Finance has
indicated that Fitch Rating Agency will provide a credit rating by October 2017 following the budget address for fiscal 2017/2018.

OUTLOOK
The 2016/2017 Budget incorporated a broad mix of austere and economic growth enhancing measures and in our view spreads the share of burden across all of the different classes in society. With oil and gas production
expected to see some uptick by the second half of 2017, energy revenue should see a slight rebound in the 2017 fiscal year. In relation to the improving gas production outlook, it is expected a similar uptick in LNG exports from
Trinidad & Tobago, with volumes rising from multi-year lows in 2016. The recent announcement by BPTT of exploration success at both the Savannah and Macadamia exploration wells is positive for the country's gas production
in the medium term. The results of these wells have unlocked approximately 2 trillion cubic feet of gas in place and represent solid prospects for future development. In particular, both discoveries are situated in shallow water,
close to existing gas infrastructure including the Juniper field and the Cashima field. Undoubtedly, the revenue shortfall and the self-imposed cap on public sector debt, at 65% of GDP, would limit the ability of the Government to
implement some of its desired initiatives. Conclusively, the national conversation must include a plan that is developed through effective fiscal reforms and institutional changes aimed at reducing dependence on energy revenues
and containing government expenditures through redirecting expenditure away from subsidies and discretionary transfers and towards spending on essential economic infrastructure. Lack of urgent fiscal reform can place the
country's credit rating profile under pressure and can limit its ability to borrow from the international market.

TTD Yield Curve Net Official Reserves vs. Import Cover Quarterly GDP Index
7.00% 10500.00 14
5.0%
6.00% 10000.00 12 2.2%
Import Cover (months)

0.0% 0.0%
5.00% 10 -1.7% -1.6% -1.4%
9500.00 -2.7%
US$ Millions

8 -5.0% -5.2%
4.00%
9000.00 -8.1%
3.00% 6 -10.0%
8500.00 -10.8%
Dec-16 Mar-17 Jun-17 4
2.00% -15.0%
8000.00 2
1.00%
7500.00 0 -20.0%
Sep-14

Sep-15

Sep-16
Nov-14

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Mar-16
Oct-14

Feb-15
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Oct-15

Feb-16
Jan-16

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Dec-14

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May-16

0.00%
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Jan-16

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Feb-16

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Energy Sector Non-Energy Real GDP

Net Official Reserves - US$ Millions Import Cover (months)

DISCLAIMER
This report has been prepared by First Citizens Investment Services Limited, a subsidiary of First Citizens Bank Limited. It is provided for informational purposes only and without any obligation, whether contractual or otherwise. All information contained herein has been
obtained from sources that First Citizens Investment Services believes to be accurate and reliable. All opinions and estimates constitute the author’s judgment as at the date of the report. First Citizens Investment Services does not warrant the accuracy, timeliness,
completeness of the information given or the assessments made. Opinions expressed may change without notice. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein. The securities discussed in this report may not be
suitable to all investors, therefore Investors wishing to purchase any of the securities mentioned should consult an investment adviser.