Last month's downgrade of TT’s sovereign credit rating by global ratings firm Standard and Poor’s (S&P) was hardly surprising, given the steep fall in oil and gas revenues.
However, the drop from a BBB to BBB- leaves TT one notch away from “junk” status.
Therefore, the overall rating should not lull us into a sense of complacency. Instead, the downgrade should be read in the context of an economy that must now operate as if on a war footing given the covid19 pandemic.
We are hardly alone. Ratings for Nigeria, Mexico, Angola, Ecuador and Oman were all cut by S&P, although the major protagonists behind the oil slump, Saudi Arabia and Russia, were spared. Some of these countries are now deeper into junk territory, making Finance Minister Colm Imbert’s relief that we were not downgraded further somewhat understandable.
But Imbert needs to come to terms with the fact that S&P’s outlook for TT was buoyed by the expectation that the Heritage and Stabilisation Fund (HSF), government assets, and central bank reserves will continue to provide fiscal and external buffers. In other words, as long as the rainy-day savings last, we will be relatively okay. But what will happen if the money runs out?
A key takeaway from the downgrade should be the need for measures to shore up the economy as much as possible. This involves more than just reducing capital and operating expenses. Indeed, the problem posed by the covid19 situation is that it now requires the opposite: more spending from the State to ensure workers do not lose their jobs, renters and homeowners are not evicted, companies avoid bankruptcy, and business and trade networks are preserved. This is in addition to the ordinary expenses incurred to run the country on a yearly basis.
For now, the extra money will have to come from our buffer reserves. But as those resources are finite, we need to urgently cultivate other revenue streams, assuming this is possible. Indeed, we have been cultivating such revenue sources over a period of decades, though a debate will now be had as to whether enough has really been done to stimulate non-energy growth.
Bigger economies can easily finance an extraordinary increase in expenditures even as revenues drop. This country has some assets at its disposal that could prove instrumental. For instance, the State is owed billions from Clico and CL Financial entities in relation to the 2009 bailout. Some of the state enterprises also downgraded by S&P have key interests in this regard.
In the end, the downgrade underlines our vulnerable position. The State has little choice but to operate as if our survival depends on it. This means careful management of immediate needs, such as saving lives and mitigating the effects of the sudden curtailment of economic activity. Our social safety net will have to be significantly extended and expanded. The State will have to perform a tightrope act of putting out any fires that could emerge, while keeping an eye on the long run.