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PORT OF SPAIN – Rating agency Standard & Poor’s (S&P) has downgraded Trinidad and Tobago’s long-term sovereign ratings – the risk associated with investing in the country – from A- to BBB+.
S&P said Friday the downgrade reflects a further deterioration of the country’s debt burden which includes a higher-than-expected rise in Government debt to Gross Domestic Product (GDP) and the interest burden over 2017-2020.
It noted that T&T’s Government debt rose to 35 per cent of GDP in 2016, from 32 per cent of GDP in 2015, and is likely to rise again this year, to 37 per cent of GDP before gradually declining in 2018-2020.
“The net general government debt ratio has risen rapidly from 17.5 per cent in 2014. This reflects, to a large extent, a significant downward revision of both nominal and real GDP in 2014 and 2015, increased open-market operations, and a weaker fiscal stance,” said S&P’s country report.
“The interest burden has also risen, further constraining the government’s fiscal flexibility to adjust to adverse shocks. We now project the government’s interest payments will account for more than five per cent of revenue in 2017-2020 as a result of the increased debt stock and tightening in global monetary conditions. Although the government has less fiscal room to manoeuvre than before, T&T’s debt burden remains moderate and is narrowly exposed to exchange rate and rollover risk as foreign currency-denominated external debt was only around 18 per cent of total debt,” the report said.
Political scene stable, economy difficult
Despite this, the rating agency said the country’s outlook remains stable.
“T&T’s political scene will remain stable over the medium term, despite difficult economic conditions, as efforts by political opposition to tap into discontent will have limited success,” it said.
“T&T’s economic recession stems from low oil and gas prices in global markets, disruptions in domestic production (due to plant shutdowns for maintenance and infrastructure upgrades), and ongoing US dollar shortages from the banking system. Preliminary estimates indicate 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. Our measure of economic wealth – GDP per capita – has continuously dropped since 2013, and we expect it to be (US) $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,” it said.
S&P said it expects T&T’s economic recovery to be tepid in 2017 and to gradually acerbate in 2018-2020 at possibly two per cent on average.
Obstacles to growth
It identified two obstacles to long-term growth – productivity in the labour market and bureaucracy in the public service.
S&P noted that economic contraction and lower fiscal revenues from the energy sector resulted in a general government deficit of five per cent of GDP in fiscal 2015/2016.
At the same time, the energy sector contributed only 15 per cent of total government revenues in fiscal 2015/2016, compared with 58 per cent in fiscal 2010/2011.
“We estimate T&T’s gross external financing needs at 68 per cent of current account receipts plus usable reserves on average for 2017-2020. We project that T&T’s foreign exchange reserves will decline moderately in 2017 before stabilising in 2018-2020,” S&P said.
S&P noted that while the government has proposed new consolidation measures for the fiscal 2016/2017 budget – the introduction of property tax and insurance and gaming legislation and the establishment of a Revenue Authority – it expects the government will again rely predominantly on one-off revenues (around 15 per cent of total revenue) to lower the deficit. (Trinidad Express)