Ratings agency lowers Trinidad and Tobago’s credit rating – but maintains stable economic outlook

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EW YORK, Apr. 22, CMC – International credit ratings agency Standards and Poors (S&P) has lowered its Long Term Sovereign Credit Ratings for the twin island republic to BBB+ from A-.
However the agency has maintained the country’s economic outlook as stable.
S&PIn its ratings announcement, S&P said the change was based on the country’s higher debt burden.
It added that at the same time it was affirming its “A-2” short term sovereign credit ratings and lowering its transfer and convertibility assessment to ‘A’ from ‘AA-’.
In making the changes, S&P said the country’s debt burden increased sharply since 2014, amid the economic recession and while government introduced austerity measures to reduce fiscal imbalances, it expects budget consolidation to be slower than initially anticipated and interest costs to be higher .
In a report issued on Saturday, the agency said that maintaining its stable outlook reflected its expectation that the local economy will recover modestly in 2017 – 2020 based on higher natural gas prices and production, supporting deficit reduction and the stabilisation of the debt burden.
It continued that the downgrade reflected further deterioration in the country’s debt burden, including a higher- than-expected rise in net general government debt to Gross Domestic Product (GDP) and the interest burden over 2017-2020 .
Its analysis said that Trinidad and Tobago’s economic recession stemmed from low oil and gas prices in global markets, disruptions in domestic production (due to plant shut-downs for maintenance and infrastructure upgrades), as well as ongoing US dollar shortages from the banking system .
It said that preliminary estimates indicated output declined by 2.3 per cent in 2016, after falling 0.6 per cent in 2015, as output in the energy sector dropped by 9.6 per cent.
This, in turn, affected the non-energy sector, which declined by 1.8 per cent .
According to the agency, “Our measure of economic wealth– GDP per capita–has continuously dropped since 2013, and we expect it to be $16,346 in 2017 .
Trend growth in real per capita GDP, of 0.7 per cent (average 2011- 2020), remains below other countries with similar GDP per capita .
“We expect domestic natural gas production to rise in 2017-2018 amid fewer planned plant shutdowns and as new gas fields come on stream, particularly from the start-up of the Juniper field facility in third-quarter 2017. We expect global oil and gas prices to slightly increase following the agreement between OPEC members to restrain oil supply,” the agency said.
Economist at UWI, St Augustine campus Professor Anthony Birchwood said he was not surprised the country was downgraded as this was was inevitable.
He added that all major producers of oil in the world have been downgraded so it’s not a funny thing that we had to be downgraded at some point in time because the oil prices continue to be low for an extended period of time so the whole economy is adjusting downwards .
He said the move downward from ‘BBB+’ to ‘A-’ does not mean that the sky will fall .
He said the economy is still strong “because we have healthy foreign reserves and I think that is what is propping it up. We have a healthy foreign exchange reserve and therefore we will not be written off and we will not be reduced to the status of junk bonds like some other countries.” He said the country had sovereign savings in the Heritage and Stabilisation Fund (HSF) and healthy foreign exchange reserves of more than a year while the standard for CARICOM countries was three months of import cover .
He added that even if the country was downgraded, it was downgraded because of its dependence on oil which has suffered a true and sustained depression in the oil prices. According to Professor Birchwood, “I think we have enough still, if we carefully manage our foreign exchange reserves and that is the key now – to carefully manage the foreign exchange reserves and don’t arbitrarily invest in things that will lose our foreign exchange reserves. So we have to be very careful from now on what we do.”
Standard and Poor’s is projecting that the oil price will rise to US$50 per barrel this year, up from US$45 and the price of natural gas at Henry Hub will increase to US$3.00 per million metric British thermal units from US$2.75 .

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