Standard & Poor's gives T&T econmy thumbs up, maintains high credit rating

One of the world’s top credit rating agencies – Standard & Poor’s (S&P) – has reaffirmed Trinidad and Tobago's excellent rating ('A/A-1' long- and short-term foreign and local currency sovereign credit ratings), noting that the economy is picking up after major maintenance and upgrades in the energy sector that had created bottlenecks in energy output.

The stable outlook reflects the agency’s expectation that Trinidad and Tobago will maintain a sound external profile thanks to persistent current account surpluses and largely local financing of the public-sector deficit.

On Christmas Eve Standard & Poor's Ratings Services affirmed its credit rating for T&T, stating that the outlook remains stable. “Our 'AA' transfer and convertibility (T&C) assessment for Trinidad and Tobago is unchanged,” it stated.

The factors that influence the economic stability include:

• the country's net external asset position
• low external vulnerability
• stable political system

“The country's long-established parliamentary democracy and social stability should sustain political consensus on economic policies,” S&P stated, adding that rapid growth led by the energy sector more than doubled T&T's per capita GDP over the last decade to a projected $19,000 in 2013.

Noting that the economy is growing, S&P stated that it expects per capita GDP to rise by 2.6% in 2014 thanks to both recovering energy output and continued growth in the non-energy sector.

“Our projections assume that the country's trend economic growth rate is likely 2.5%-3%, with the caveat that projecting energy output and prices is inherently uncertain,” it said.

The focus for the positive economic news is the energy sector where a large program of maintenance and upgrades in recent years has disrupted both downstream and upstream production, cutting GDP growth.

However, according to S&P, “Energy output is likely to expand in 2014 because of fewer bottlenecks..” It added that changes in tax and other policies in recent years have encouraged more activity in the energy sector, “as we've seen in growing private-sector participation in recent onshore and offshore bidding rounds. As a result, official reserves of gas and oil--which had declined in recent years--may
stabilize in the coming years.”

It added, “The government's Heritage and Stabilization Fund, which holds fiscal assets of about 20% of GDP, and its investor-friendly policy in the energy sector should sustain long-term external and fiscal flexibility.

“We expect the general government to post fiscal deficits of about 2.5% of GDP through 2014-2015, keeping net general government debt (including central bank debt) below 20% of GDP.”

The agency said its stable outlook reflects “our expectation that T&T will continue to enjoy a sound external profile thanks to persistent current account surpluses and largely local financing of the public-sector deficit.

“The increase in exploration activities in the oil and gas sector in recent years should sustain energy production over the coming decade, contributing to economic growth. We expect that a moderate pace of GDP growth--between 2% and 3% annually--over the coming three years and limited fiscal deficits will lead to a stable burden of government debt.

Standard & Poor’s warned that a sustained fall in global energy prices could hurt fiscal revenues, dampen GDP growth, and weaken T&T's external liquidity. “Failure to take timely and sufficient steps to address the deterioration of the country's fiscal and external profile could result in a downgrade,” it said.

Despite the warning it sounded a noted of optimism stating that success in boosting energy exploration and production levels, as well as in enlarging downstream activities, could improve long-term GDP growth prospects.

“That, along with steps to strengthen non-energy fiscal revenues, would gradually improve government finances and reduce the sovereign's debt burden.

"Stronger public finances and better external liquidity would improve the government's capacity to withstand the negative impact of a potentially sharp
fall in energy prices. Under such a scenario, we could raise our ratings on T&T.”