S&P downgrades TT over oil price fall

WHILE lowering TT's sovereign credit rating from BBB to BBB- and saying TT's economic outlook is stable, global ratings firm Standard and Poor's (S&P) cautioned that the rating could be lowered "should lower oil and gas prices, or the effects of covid19 on demand, contribute to a larger economic contraction; a deterioration of external liquidity or debt beyond our current expectation."

S&P made this statement in its March 26 research update on TT. The form also said TT's sovereign credit rating could also be lowered, "should balance of payments outflows be larger than expected; or a weaker fiscal position; and if we believe that the government will take longer to unwind the deterioration in public finances expected this year, causing larger increases in the net general government debt or interest burden."

S&P said the stable outlook it placed on TT's economy reflects its expectation that lower oil and gas prices "will lead to larger increases in net general government debt, a fall in exports that will contribute to a moderate current-account deficit, and an economic contraction in 2020."

But S&P added, "Nevertheless, we believe that the government's liquid external assets provide some flexibility to mitigate the impact of "lower hydrocarbon prices and current economic volatility."

S&P expected that Government's sizeable financial assets "will somewhat soften the impact of the downturn, as the government draws down on these assets to partially finance its deficit."

S&P estimated that government liquid assets, the Heritage and Stabilisation Fund (HSF), reached 44 per cent of GDP in 2019.

"Despite some drawdowns, the HSF has accumulated value over the past decade, and we expect that it, along with other government financial assets and central bank reserves, will continue to provide fiscal and external buffers."

Unlike many commodity exporters in the region, S&P continued, TT saved excess fiscal revenues in the HSF during its boom years. While Government used some of the funds to finance deficits in fiscal years 2016-2017 and 2017-2018, S&P said, "We estimate that the fund reached 26 per cent of GDP in 2019, and we expect further drawdowns in 2020 and 2021."

S&P also said lower hydrocarbon prices would adversely affect TT's economic growth, "continuing the country's contraction in real GDP per capita over the past several years."

The firm estimated that that real GDP per capita will fall to about $16,600 in 2020, "which is over 19 per cent lower than in 2014."