Being positive about S&P negative outlook

Customers waits to buy fruits and vegetables from a market vendor in Scarborough, Tobago on August 3. Consumers are being spared price increases as headline inflation remained contained at 1.1 per cent, according to the Central Bank. Photo by David Reid -
Customers waits to buy fruits and vegetables from a market vendor in Scarborough, Tobago on August 3. Consumers are being spared price increases as headline inflation remained contained at 1.1 per cent, according to the Central Bank. Photo by David Reid -

The decision of international ratings agency Standard and Poors (S&P) to change its economic outlook for TT last Thursday from stable to negative has triggered mixed views.

Minister of Finance Colm Imbert has noted S&P reaffirmed TT’s investment grade of BBB-, in a sign that the country remains a safe investment space. He further said high absorption capacity, brought about by savings and large financial buffers, remains pertinent in the ratings agency’s outlook.

“This decision validates our strategy to support the economy in the short term while having a clear plan to put our public finances back under control,” Mr Imbert said.

However, former UNC minister in the Ministry of Finance Vasant Bharath said the change reflected the Government’s long-term failure to stimulate economic activity in the five years preceding the pandemic.

Others, like economist Dr Vaalmiki Arjoon, linked the changed outlook to an economic decline of over eight per cent in 2020 with a fiscal deficit of $16.8 billion in the last year alone. Taxes on the private sector fell, as did energy sector production, he noted.

However, Dr Arjoon argued while S&P considered buffers such as the Heritage and Stabilisation Fund, the Government should not use these funds to service short-term debts but rather, they should be used to develop economic activity.

S&P’s changed outlook was hardly surprising given the shutdown of the economy and earlier signals sent this year.

In March, the ratings agency lowered TT’s sovereign credit rating ratings from BBB to BBB- and warned further downgrades could be forthcoming, given a range of factors including oil and gas prices, external liquidity or debt, balance-of-payments outflows and the net general government debt.

Also mixed was the latest Central Bank monetary policy update. Headline inflation has remained contained at 1.1 per cent (year-on-year) as at April 2021, meaning consumers are being spared price increases. But at the same time, the bank is under no illusion that this is a difficult moment for business generally. It noted, in understated terms, “the need for continued monetary support towards a domestic economic recovery at this time.”

This need should be the guiding principle behind the Government’s economic policy, which must balance short-term relief with finding ways of reopening the economy. If we are yet to eradicate the covid19 virus, we must find a way to live with it safely.

The sluggish pace of vaccination as well as the ambivalence in some quarters over the issue of mandatory inoculation poses hurdles to the swift reopening of business, and therefore to our economic prospects.

We don’t need S&P to tell us that these are among the most crucial areas that require urgent attention now.

Comments

"Being positive about S&P negative outlook"

More in this section