• Guyanese President Irfaan Ali will use the country's revenue windfall from crude oil production to increase social spending and public investment in the coming quarters, which may bolster support for his People’s Progressive Party/Civic (PPP).
• Since taking office, Ali’s administration has largely focused on increasing public expenditures in budgetary proceedings and overseeing the country’s COVID-19 response, as the previous government could not enact significant fiscal stimulus in 2020.
• The PPP passed a GYD383.0Bn (USD1.8Bn) annual budget in March 2021. This budget, which increases public spending by 16.1% y-o-y from the emergency GYD330.Bn 2020 budget, enacted in September, passed on a straight-line party vote.
• However, ongoing tensions between the PPP and the opposition A Partnership for National Unity and Alliance for Change coalition will persist, driving political polarization and preventing bipartisan policymaking. That said, Fitch Solutions gives Guyana a score of 54.4 of out 100 in its Short-Term Political Risk Index (STPRI), which places it 24th out of 26 markets in the Caribbean, largely due to low 'social stability' scores.

(Source: Fitch Solutions)

• A more fragmented Parliament following the April 14 snap election in the Cayman Islands will limit policymaking over the coming quarters, particularly as no legislator has been able to form a governing coalition.
• As a result, Fitch Solutions has revised the country’s Short-Term Political Risk Index score down to 68.1 out of 100, from 69.8 previously. This reflects the agency’s weaker assessment of the government's 'policymaking environment' due to the potential for a fragile coalition and gridlock, as well as greater risks to policy continuity.
• While the next Caymanian government is unlikely to deviate from the current policy direction, the legislature's granting of greater autonomy as a British Overseas Territory in December 2020 will allow for more policymaking discretion.

(Source: Fitch Solutions)

• The U.S. economy is going to temporarily see "a little higher" inflation this year as the recovery strengthens and supply constraints push up prices in some sectors, but the Federal Reserve is committed to limiting any overshoot, Fed Chair Jerome Powell said in an April 8 letter to Senator Rick Scott.
• "We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period," Powell said in a five-page response to a March 24 letter in which the Florida Republican raised concerns about rising inflation and the U.S. central bank's bond-buying program.
• Those modifiers - "substantially" exceeding 2% inflation or above that level for a "prolonged" period - help to more sharply define the upper bounds of the Fed's comfort zone as prices rise. "I would emphasize, though, that we are fully committed to both legs of our dual mandate - maximum employment and stable prices," Powell said.
• The Fed slashed its benchmark overnight interest rate to near zero last March after the coronavirus pandemic hit the United States, and has promised to leave borrowing costs unchanged until the economy reaches full employment, and inflation hits 2% and is on track to "moderately" exceed that level for some time.
• Fed policymakers are expected to stick with the super-easy monetary policy at a meeting next week, even as the economy strengthens and increasing COVID-19 vaccinations make a return to more normal life in the United States likely in 2021.

(Source: Reuters)

• The Bank of Japan is set to predict for the first time that inflation will remain well short of its 2% target beyond Governor Haruhiko Kuroda's term through early 2023, say sources familiar with its thinking.
• The central bank is also expected to trim this fiscal year's inflation forecast reflecting cuts in cellphone charges, the sources say, underscoring the challenge it faces in eradicating Japan's sticky deflationary mindset.
• Such projections, to be made in fresh quarterly estimates due out next week, would reinforce expectations the BOJ will maintain its massive stimulus for the foreseeable future. While the BOJ may paint a rosier view on the economy due to robust exports, it will warn of the strains on consumption from a recent resurgence in COVID-19 infections, they said.
• The world's third-biggest economy has emerged from last year's pandemic-induced slump on support from exports. But slow vaccine rollouts and renewed curbs to contain the virus cloud the outlook.
• At the two-day rate review ending on April 27, the BOJ is set to maintain its short-term interest rate target at -0.1% and that for long-term rates around 0%.

(Source: Reuters)

• The March 2021 survey indicated expected point-to-point inflation of 6.0% as at December 2021, which is higher than the March 2021 outturn of 5.2% and at the upper end of the BOJ target range. The expected inflation 12 months ahead fell to 6.5% from 7.2% in the previous survey.
• The perception of inflation control worsened in the March 2021 survey relative to the December 2020 survey. This was largely due to a decline in the proportion of respondents who were “satisfied”, and an increase in the proportion of respondents who were “dissatisfied” with how inflation is being controlled.
• Respondents anticipate that the currency will depreciate over the 3-month, 6-month, and 12- month time horizons at a faster pace relative to the previous survey, as activity in the domestic tourism industry remains depressed, limiting the supply of US dollars. US dollar supplies are not expected to improve significantly until a stronger rebound in the tourism industry begin to boost the Jamaican dollar.
• The majority of respondents continued to believe that the Bank’s policy rate will remain the same over the next three months, as the BOJ maintains that inflation will remain within in target over the next 12-months and that market interest rates will remain attractive - making it cheaper for households and businesses to finance their spending and investing activities. This should help to support growth.
• The Present Business Conditions Index improved while the Future Business Conditions Index worsened reflecting a lower level of optimism compared to the previous survey.

(Source: BOJ & NCBCM Research)

• Mexico’s economy extended its losing streak in March, shrinking by more than 2%. Analysts expect a rebound in subsequent months as the pandemic subsides and the country benefits from the spillover effects of economic stimulus in top trade partner, the United States.
• The Mexican economy contracted by 2.1% in March compared to the same month last year, preliminary data from national statistics agency INEGI showed on Monday, deepening Mexico’s economic woes.
• Latin America’s second-largest economy was already in a slight recession in 2019 and then contracted by 8.5% in 2020, its deepest dive in almost 90 years, because of the coronavirus pandemic. However, the economy recovered quicker than first estimated in the final quarter of 2020.
• Secondary activities, which include manufacturing, were down 0.9% for the month while tertiary activities such as services slid 3.1%, according to the INEGI estimate.
• A return to modest economic growth is forecast later this year for Mexico’s economy as the United States begins to implement a nearly $2 trillion economic stimulus package enacted by President Joe Biden and his congressional allies.

(Source: Reuters)

• On April 15, Colombian Finance Minister Alberto Carrasquilla formally introduced a tax reform proposal to Congress.
• The proposal will seek an additional COP23.4Tn (2.0% of GDP) in annual revenues beginning in 2022 to help bolster public finances, as the fiscal deficit has widened significantly due to a drop in government revenues and higher spending during the pandemic. Fitch Solutions estimates that the fiscal deficit reached 8.3% of GDP in 2020, from 2.5% in 2019.
• The proposal, which would boost revenues by a greater amount than previously expected, will likely be a starting bid in negotiations between the administration, Congress, business associations, and civil society groups.
• While Carrasquilla and President Iván Duque have long advocated for fiscal consolidation, the administration stresses that the reforms will help finance higher social spending and public investment.
• Increased taxes will reduce consumer and business purchasing ability, however, it will generate more revenues for the government and higher social spending can replace the purchasing power lost by increased taxes. This move is meant to jumpstart Colombia’s economic recovery.

 (Source: Fitch Solutions & NCBCM Research)

• Canada’s budget deficit is forecast to hit C$154.7Bn ($123.7Bn) in the fiscal year ending next March, as Ottawa spends heavily to counter the third wave of COVID-19 infections and plans to bolster the economic recovery, the finance department said on Monday
• The deficit is 27.6% higher than the C$121.2Bn forecast in a fiscal update last November. Ottawa unveiled a C$101.4Bn plan with spending commitments spread over three years and said it would extend COVID-19 benefits as well as bringing in a childcare program and tackling climate change. The spending, aimed at boosting economic growth, is also likely to appeal to voters ahead of an expected election later this year.
• The government said the 2020/21 deficit was now expected to be C$354.2Bn, down from a previous forecast of C$381.6Bn. It forecasts far narrower deficits of C$59.7Bn in 2022/23 and C$51.0Bn in 2023/24.
• The federal debt-to-GDP ratio is forecast to peak at 51.2% in 2021-22, down slightly from 52.6% seen in November, the highest since 1999, before declining to 50.7% and 50.6% in the subsequent two years.

(Source: Reuters)

• After fueling its V-shaped recovery by boosting spending on housing and infrastructure, China appears in no rush to drop its investment-led growth model despite international calls for it to “rebalance” its economy.
• First-quarter data released Friday underlined just how reliant China remains on its current approach: investment spending rose 6% compared with a 4.2% increase in retail sales, based on two-year average growth rates to strip out base effects from last year’s coronavirus lockdowns.
• The International Monetary Fund and others have long argued that China’s unusually heavy dependence on investment in infrastructure and property has led to an unbalanced economy. While it’s helped to fuel decades of rapid growth, critics say it’s also led to a reliance on debt -- which could spark a financial crisis -- and overcapacity in the economy, as has happened in the past in industries like steel and coal.
• Raising the share of household consumption would help to “rebalance” the economy, the argument goes. At about 43% of gross domestic product, China has one of the highest investment ratios of any major economy, while consumption is about 38%.

(Source: Bloomberg)

• COVID-19 containment measures continue to adversely impact passenger travel and Knutsford Express’s bottom-line. For the 9-months ending February 2021, the company reported a net loss of $60.63Mn (EPS: -$0.13) relative to a net profit of $103.18Mn (EPS: $0.21) over the same period last year.
• The deterioration reflects a 50.7% ($468.86Mn) decline in revenues to $456.37Mn. Revenues contracted as the ongoing pandemic continues to affect passenger travel negatively given ongoing curfews, reduced disposable incomes as well as passenger fears around public transportation.  Leveraging the available opportunities, the company expanded its courier services as the demand for e-commerce rose amid the pandemic.
• A 35.5% (or $282.89Mn) reduction in administrative expenses also helped to mitigate the impact of lower revenues on its bottom line.
• Knutsford’s investment in other revenue-generating measures, such as the recent opening of another courier outlet at Sovereign Centre, is expected to provide some relief to the company’s top and bottom-line. It should also benefit from new business initiatives such as the investment in its Drax Hall Business Centre (Phase 1) development, which is now fully tenanted, and the expected completion of Phase 2 in the first quarter of the upcoming financial year.
• A vaccine-led recovery in key source markets and the rollout of the local inoculation program augurs well for international travel and a rebound in local economic activity. These factors will be key determinants of the company’s rebound prospects.
• Following the 36.2% decline in the company’s stock price in 2020, it has declined by a further 5.9% since the start of 2021 and currently trades at a P/B of 4.5x which is in line with the Junior Market average.

(Source: Knutsford Express Financials & NCBCM Research)