Published On: Thu, Jan 8th, 2015

S&P affirms T&T debt ratings, warns of future danger if oil prices remain low

Standard-and-Poors-buildi-007BRIDGETOWN, Barbados - While Barbados continues to see its public debt ratings sink even further down Standard & Poor’s non-investment grades, the ratings agency on Wednesday maintained its high sovereign credit ratings on Trinidad & Tobago. T&T’s ratings are ‘A and A-1’ for long- and short-term debt respectively, and its outlook remains stable.

The single A rating from S&P assigns a ratings number of 7.5 out of a possible 10, which if assigned for countries whose debt is ranked AAA by the ratings firm.

In addition, T&T got an AA assessment for debt transfer and convertibility.

Giving its rationale, S&P said: “T&T’s net external asset position, low external vulnerability, and stable political system support the ratings. The country’s long-established parliamentary democracy and social stability should sustain political consensus on economic policies.”

Noting that the energy sector is the main driver of T&T’s prosperity and sovereign credit rating, S&P said the rapid growth of the economy, led by the energy sector, had over the last ten years more than doubled T&T’s per capita GDP to where it now stands, at a projected US$21,900 in 2014.

The large energy sector also assured the country of growth over the long-term and brought in so much foreign exchange as to allow the government to keep its debt levels low.

Standard & Poor’s said that the country was likely to maintain an average growth in GDP of two percent over the next four years, although this depended on energy output and prices.

In fact, said S&P, Trinidad’s, the energy sector contributed 43 per cent of gross domestic product (GDP) and 85 per cent of merchandise exports last year, while only accounting for less than four per cent of employment.

T&T Achilles heel, if it has one, is that the other sectors of the economy are only developing slowly, leaving the country more prone to fluctuations in world oil prices. In fact, said S&P: “The country’s public finances are therefore vulnerable to a prolonged and substantial drop in fiscal revenues from the energy sector.”

However, it said, T&T’s external position was likely to remain stable “as current account surpluses balance capital account deficits.”

An additional credit strength for T&T is the government’s Heritage and Stabilization Fund (HSF), which holds fiscal assets of about 19 per cent of GDP invested abroad and should sustain long-term external and fiscal flexibility.

T&T’s net general government debt (including central bank debt) is likely to be about 20 per cent of GDP, said Standard & Poor’s.

But T&T’s apple cart could be upended if the steep fall in oil prices becomes the norm, with S&P warning that a sustained fall in global energy prices would hurt fiscal revenues, dampen GDP growth, and weaken T&T’s external liquidity.

Poor GDP growth could result in a rising general government debt burden, potentially made worse by liabilities from public-sector enterprises.”

Were this to happen said S&P, failure to take timely and sufficient steps to address the deteriorating fiscal and external profile, under such a scenario, could result in a downgrade. On the other hand, success in boosting energy exploration and production levels, as well as in enlarging what it called downstream activities, could improve long-term GDP growth prospects.


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