Standard & Poor’s Downgrade
Standard & Poor’s Financial Services LLC (S&P) is a division of McGraw Hill Financial that publishes financial research and analysis on stocks and bonds. S&P is considered one of the Big Three credit-rating agencies, the other two being Moody’s Investor Service and Fitch Ratings. On December 24, this rating agency made an announcement that it was downgrading T&T. In its report issued on 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”.
S&P has recognized T&T’s vulnerability to prolonged and substantial drops in energy, namely oil and gas prices. 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. Their 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. This percentage is expected to decline even further in this financial year.
Low energy prices also will dramatically affect T&T’s typically large trade and current account surpluses. Rapid growth led by the energy sector more than doubled T&T’s per capita GDP over the last decade to over $20,000 in 2015. S&P does not expect the non-energy sector do very well in the current situation since it may be indirectly affected and its performance is expected to be poor in 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”. 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. It is expected that the economic policy will remain pragmatic, and Imbert said the Government is continuing to work on a package of measures to restore growth to the economy.