The agency has affirmed its ‘A/A-1’ long-and short-term sovereign credit ratings on the Republic of Trinidad and Tobago (T&T).
“At the same time, we revised the outlook on the long-term ratings to negative from stable. Our ‘AA’ transfer and convertibility assessment for T&T is unchanged,” S&P said.
In a report issued on Thursday, S&P said the change in outlook to negative from stable “reflects an at least one-in-three chance that prolonged low energy prices and potentially poor GDP (gross domestic product) growth prospects could result in a steadily rising debt burden, leading to a downgrade in the next two years”.
According to S&P, the public finances of the twin island republic are vulnerable to a prolonged and substantial drop in energy revenues.
“The energy sector contributed around half of total government revenues during the recent boom years, but may contribute less than 20 per cent of total government revenues in fiscal year 2015-2016”.
The report added that fiscal revenues from the energy sector fell to 10.9 per cent of GDP last year from 16.2 per cent in the previous year and were only partially offset by a rise in non-energy revenues.
“They are set to decline again this year as a share of GDP.” S&P says falling energy prices also sharply reduced the country’s typically large trade and current account surpluses.
“T&T’s long-term prosperity is tied to the fate of the energy sector. Rapid growth led by the energy sector more than doubled T&T’s per capita GDP over the last decade to over $20,000 in 2015. GDP likely contracted up to 2 per cent in 2015, mainly because of the spillover of lower energy prices, and could fall by up to 1 per cent in 2016.”
The lending agency said the non-energy sector, which may have fallen into recession in 2015, is likely to perform poorly in 2016.
Concerning the exchange rate, S&P said, “The country’s exchange rate, adjusted for different inflation rates among its trading partners, has appreciated nearly 30 per cent since 2010, potentially affecting negatively T&T’s long-term external competitiveness.”