S&P Revises Trinidad and Tobago’s Outlook to Negative

• S&P Global Ratings has revised Trinidad and Tobago’s outlook from stable to negative, while maintaining its investment-grade rating at BBB-. The agency cited ongoing fiscal weaknesses, falling energy production, and increasing debt as factors that could lead to a downgrade within two years. Further, limited monetary flexibility, including a heavily managed exchange rate, constrains the country's ability to respond to potential shocks. Per capita GDP growth is also below the average for sovereigns with a similar income level, constraining the rating.
• The negative outlook reflects S&P’s view that there is at least a one-in-three chance it could lower the ratings over the next 6-24 months. The country’s fiscal and external buffers have been gradually weakening over time, and its long-term economic growth has been low.
• It further highlighted that despite many efforts, there has been only limited progress by previous administrations in diversifying the economy, leaving it vulnerable to volatile energy prices, while output from the oil and gas sector has recently declined.
• S&P’s rating could be lowered over the next 6 to 24 months if the government fails to take timely corrective steps to strengthen the sustainability of public finances, ensure long-term balanced economic growth, and maintain the country’s strong external profile. Failure to address a prolonged weakening of public finances and diminution of foreign exchange reserves could reflect institutional shortcomings that limit the government’s capacity to build buffers that enhance the country's ability to respond to negative shocks.
• However, the outlook could be revised to stable over the next 24 months if it believes government policies will improve fiscal sustainability, lead to more favourable long-term GDP growth prospects, and sustain the country's external profile.
• S&P expects economic growth to remain weak for the next two to three years, as oil and gas production have fallen in recent years. The volatile energy sector typically represents more than one-quarter of GDP and government revenues, and almost 80% of exports, on average, in the past five years. The ratings also reflect a moderate government debt burden, which has risen in recent years, and shortcomings in timely economic data

(Source: S&P Global)