Maroc - NEWSDAY.CO.TT - A la Une - 07/Sep 16:17

S&P report: Low growth due to declining hydrocarbon sector

ON September 6, S&P Global Ratings affirmed its 'BBB-/A-3' long- and short-term foreign and local currency sovereign credit ratings on Trinidad and Tobago. "The outlook is stable. At the same time, S&P Global Ratings also maintained its 'BBB' transfer and convertibility assessment," S&P said. "We expect declining near-term hydrocarbon production will drive marginal GDP growth over the next few years, which will challenge the government's fiscal consolidation efforts, resulting in a rising debt burden slightly higher than expected last year." Nevertheless, stable institutions and still-strong external assets offset these risks and support the ratings. S&P said it expects that economic, fiscal and debt metrics will stabilise near current levels over the next two years before improving when major new gas fields come online. The stable outlook reflects S&P Global Ratings' view that TT's economy will continue to experience low growth, moderate fiscal deficits and a slowly increasing debt burden over the next two years, while energy exports will support the country's external balances. "We expect broad continuity in key economic policies after national elections due next year," S&P said. The downside scenario, it added, could lower the ratings over the next two years if GDP per capita fails to rise in line with our forecast. Similarly, failure to take timely corrective steps to ensure long-term balanced economic growth and the sustainability of public finances could erode the country's capacity to respond to economic or other challenges, resulting in a lower rating that reflects institutional shortcomings. This could lower the rating if TT's external position materially worsens beyond its base-case scenario. It noted, however, that the rating can rise over the next 24 months if stronger economic performance and favourable long-term GDP growth prospects lead to a sustained fall in the government's net debt burden and improve the country's external profile. S&P said it expects economic growth will remain weak for the next two-three years due to declining production in the country's important hydrocarbon sector. Low growth will contribute to fiscal deficits and rising debt in the near term. TT's economic, fiscal, and debt metrics are weaker than last year, highlighting the importance of boosting economic performance through, among other things, increased hydrocarbon production and greater economic diversification to stabilise its financial profile in future years. Recent developments, it said, led S&P to believe that natural gas production will increase after 2026, supporting GDP growth and government revenues. The ratings also reflect a favourable external profile, including a strong external creditor position, which includes assets of the government's Heritage and Stabilisation Fund. "TT's economy is heavily dependent on oil, gas and petrochemicals, therefore, it remains exposed to global price volatility in those sectors, while facing declining production in the near term. "The country's oil and gas reserves are declining, highlighting the importance of sanctioning new gas projects to maintain output. New projects will likely occur in deeper waters, which can be more difficult and costly. Until new projects come online, likely in 2027 and later, we expect gas production will decrease modestly." S&P projected economic growth of 0.3 per cent in 2024 and 0.4 per cent next year. "In the medium term, we expect global energy prices will continue to create fluctuations in TT's economy." Declining hydrocarbon reserves and the global energy transition away from oil will weigh on the country's economy, emphasising the importance of economic diversification. The report noted that declining hydrocarbon production has dampened economic performance in recent years. "We have lowered our natural gas price forecasts, and now forecast Henry Hub natural gas will average US$2.50 per million Btu (/mmBtu) for the rest of 2024, compared with US$3.25/mmBtu in our previous forecast. Our 2024 price forecast for West Texas Intermediate (WTI) remains an average of $US80 per barrel (/bbl), and for Brent an average of US$85/bbl for the remainder of 2024," S&P said. S&P, however, noted US dollar shortages have constrained economic activity, weakening local businesses' ability to pay suppliers and obtain key imports. A heavily managed exchange rate and a small open economy effectively limit the role of monetary policy. The Central Bank, it said, has sustained a quasi-fixed exchange rate since 2016. The bank lowered its repurchase rate to 3.5 per cent from five per cent at the start of the pandemic in a more accommodative monetary policy stance, and has kept the rate at that level since. The interest rate differential between local securities and US treasuries has narrowed but remains negative. Inflation has historically been low, averaging 2.8 per cent over the past five years. However, TT, like many other countries, faced higher-than-usual inflation in 2023 (4.6 per cent), "We expect price-level growth will average 1.6 per cent in the next three years." In a news release on September 6, Minister of Finance Colm Imbert commended S&P for "its balanced and measured view of our country and its validation of the Government's prudent handling of the economy and sound management of our fiscal accounts." Imbert said the report was based on presentations he made to S&P earlier this year. He said, "It is clear that the presentations made by the Minister of Finance and his team of technocrats at the Ministry of Finance, to S&P, during its annual credit rating visit earlier this year had sufficient credibility for S&P to maintain its investment grade rating for TT." "The Government reiterates its resolve to continue taking responsible financial actions and the correct decisions to build a stronger TT for a better future, as we navigate through turbulent financial conditions," Imbert said. The post S&P report: Low growth due to declining hydrocarbon sector appeared first on Trinidad and Tobago Newsday.