S&P lowers Trinidad & Tobago’s credit rating
International credit rating agency Standard & Poor's (S&P) has revised to negative its outlook on the economy of Trinidad and Tobago.
The agency affirmed its 'A/A-1' long-and short-term sovereign credit ratings on country, but "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 last 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.
Falling energy price
"They are set to decline again this year as a share of GDP," the rating agency said.
S&P says falling energy prices also sharply reduced the country's typically large trade and current account surpluses.
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 one per cent in the past five years, to be just over one per cent over the next three years, assuming a gradual recovery in energy prices and continued investment in the sector," it said.
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.