Jul 2022 Financial News

S&PGR Revises Trinidad and Tobago Outlook To Stable From Neg

Jul 22, 2022

OVERVIEW

• Higher prices for oil, gas, and petrochemicals will spur an economic recovery in Trinidad and Tobago this year and strengthen economic resilience.
• We expect the recovery will lead to strong government revenue growth and more rapid fiscal consolidation.
• S&P Global Ratings revised the outlook on Trinidad and Tobago to stable from negative and affirmed its ratings, including the 'BBB-' long-term sovereign credit rating, on the country.
• The stable outlook reflects our expectation that higher prices of key exports will more than offset the impact of lower-than-expected energy production, returning the economy to growth after six years of contraction, and helping to stabilize debt-to-GDP metrics.

RATING ACTION
On July 21, 2022, S&P Global Ratings revised the outlook on the Republic of Trinidad and Tobago to stable from negative. At the same time, S&P Global Ratings affirmed its 'BBB-/A-3' long- and short-term foreign and local currency sovereign credit ratings on the country. S&P Global Ratings also affirmed its 'BBB' transfer and convertibility assessment.

OUTLOOK
The stable outlook indicates our view that Trinidad and Tobago will benefit from significantly higher energy and petrochemical prices, which will more than offset lower-than-expected energy production. We believe that higher
prices will spur improved incomes and stronger government revenue collection than previously anticipated, helping to stem the rise in government debt.

Downside scenario
We could lower the ratings over the next two years if GDP per capita fails to recover to the degree that we anticipate and the pace of fiscal consolidation is materially slower than expected. Similarly, economic policies that contribute to a weakening of the long-term sustainability of public finances, limit the prospects for balanced GDP growth, or materially worsen the country's external position beyond our base-case scenario could also result in a lower rating.

Upside scenario
We could raise the ratings over the next 24 months if stronger economic performance and favorable long-term GDP growth prospects lead to a sustained decline in government debt and ease external pressures.

RATIONALE
The ratings reflect Trinidad and Tobago's favorable external profile and stable democracy. They also reflect still-solid government financial assets that mitigate the effect of economic cycles on fiscal and external performance. During the past 15 years, the country accumulated savings that have stabilized the economy in the face of downturns. This is particularly relevant for Trinidad and Tobago because the volatile energy sector represented more than one-quarter of GDP and government revenues, and almost 80% of exports, on average, in the past five years. Nevertheless, the mature energy sector, with gas production declining in recent years and lower-than-expected oil production, along with limited monetary policy flexibility and a heavily managed exchange rate, constrain the country's ability to respond to potential future shocks, in our view. Our ratings also reflect poor long-term economic performance, with per capita income growth that is below the average for sovereigns with similar income levels.

CRISIL Global Analytical Center, an S&P affiliate, Mumbai
Friday 22nd July, 2022