NEW YORK, United States (CMC) – International credit rating agency Standard & Poor’s has revised to negative it’s outlook on the economy of Trinidad and Tobago.
The agency has affirmed its ‘A/A-1’ long-and short-term sovereign credit ratings on the Republic of Trinidad and Tobago (T&T).
“At the same time, we revised the outlook on the long-term ratings to negative from stable. Our ‘AA’ transfer and convertibility assessment for T&T is unchanged,” S&P said.
In a report issued on Thursday, S&P said the change in outlook to negative from stable “reflects an at least one-in-three chance that prolonged low energy prices and potentially poor GDP (gross domestic product) growth prospects could result in a steadily rising debt burden, leading to a downgrade in the next two years”.
According to S&P, the public finances of the twin island republic are vulnerable to a prolonged and substantial drop in energy revenues.
“The energy sector contributed around half of total government revenues during the recent boom years, but may contribute less than 20 per cent of total government revenues in fiscal year 2015-2016”.
The report added that fiscal revenues from the energy sector fell to 10.9 per cent of GDP last year from 16.2 per cent in the previous year and were only partially offset by a rise in non-energy revenues.
“They are set to decline again this year as a share of GDP.”
S&P says falling energy prices also sharply reduced the country’s typically large trade and current account surpluses.
“T&T’s long-term prosperity is tied to the fate of the energy sector. Rapid growth led by the energy sector more than doubled T&T’s per capita GDP over the last decade to over $20,000 in 2015. GDP likely contracted up to 2 per cent in 2015, mainly because of the spillover of lower energy prices, and could fall by up to 1 per cent in 2016.”
The lending agency said the non-energy sector, which may have fallen into recession in 2015, is likely to perform poorly in 2016.
“We project that the country’s average per capita GDP growth rate, which has been less than 1 per cent in the past five years, to be just over 1 per cent over the next three years, assuming a gradual recovery in energy prices and continued investment in the sector.”
Concerning the exchange rate, S&P said, “The country’s exchange rate, adjusted for different inflation rates among its trading partners, has appreciated nearly 30 per cent since 2010, potentially affecting negatively T&T’s long-term external competitiveness.”
It also noted that economic policy is expected to remain pragmatic after the change in government earlier this year.
“The People’s National Movement government, elected in September, has taken initial steps to address the fiscal problem, including raising some taxes and administered prices, reducing some spending, and plans to take further measures in its midyear fiscal review in March 2016.”
In response to the report, Finance Minister Colm Imbert says it is neither “unexpected nor surprising” given the fact that oil and natural gas prices have collapsed and therefore a negative outlook based on current and projected oil prices is “not unfair”.
Imbert said the Government is continuing to work on a package of measures to restore growth to the economy.
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