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Trinidad and Tobago Sovereign Rating Lowered To BBB From BBB+ On Economic And Fiscal Stress

Jul 10, 2019

On July 9, 2019, S&P Global Ratings lowered its long-term foreign and local currency sovereign credit ratings on the Republic of Trinidad and Tobago to 'BBB' from 'BBB+'. The outlook is stable. At the same time, S&P Global Ratings affirmed its 'A-2' short-term foreign and local currency sovereign credit ratings on the country. S&P Global Ratings also revised down its transfer and convertibility assessment to 'BBB+' from 'A'.

The downgrade reflects lower-than-expected energy production and economic growth that we believe will weaken the government's revenue base and delay plans to balance its budget by the 2020-2021 fiscal year. It also reflects delays in making institutional reforms to strengthen tax revenue collection and to improve the provision of timely economic data. These factors weaken the country's resilience against external shocks.

The investment-grade ratings continue to reflect Trinidad and Tobago's favorable external profile and stable democracy. They also reflect the country's solid level of government financial assets that mitigate the effect of economic cycles on Trinidad and Tobago's fiscal and external performance. The country accumulated savings over the past decade that stabilize the economy in the face of fluctuating commodity prices. This is particularly relevant for Trinidad and Tobago given the economy's concentration in the energy sector, which represents over one-quarter of GDP, over a third of government revenues, and over 80% of exports. Nevertheless, the sector's sharp downturn over the past several years and the limited effectiveness of policy response--particularly given a heavily managed exchange rate and a small open economy that we believe limit the role of monetary policy--pose risks to the country's ability to respond to shocks. Our ratings also reflect the country's poor long-term growth performance, with a per capita GDP contraction of 0.4% on average over the last ten years.

The revised transfer and convertibility assessment reflects our view of a higher likelihood of Trinidad and Tobago restricting nonsovereign access to foreign exchange needed to satisfy nonsovereign debt service obligations. We now view this risk as only slightly lower than the sovereign foreign currency rating, as informed by the country's persistent foreign exchange restriction, economic policy orientation, and external policy flexibility.

S&P Global Ratings
Tuesday 9 July, 2019


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