T&T
international ratings on the high road
By Roxanne Stapleton
Trinidad Express
Port
Spain
Petroleumworldtt.com
05 20 07
WHETHER
TRINIDAD and Tobago is able to maintain its A-
stable outlook rating, issued last year
by international sovereign ratings agency, Standard
and Poor's (S&P), or is upgraded to an A or
downgraded remains to be seen.
Last year's rating was the second highest in the
Caribbean and Latin America, surpassed only by
Chile's A rating.
But
nagging concerns persist however, S&P's
Sovereign Ratings associate director, Roberto Sifon-Arevalo
and his colleague, S&P director, Joydeep Mukherji
agreed.
Trinidad
and Tobago's economic and developmental growth "is impressive... and it shows",
Sifon-Arevalo said, as he cited the booming energy
sector, declining Government debt and a strong
net public sector external position.
However,
what bites and is tugging at his side, is this
country's "little economic diversification
that poses risk of Dutch disease, contingent liabilities
posed by the high cost of public enterprises and
significant non-energy deficit, compounded by rapid
growth on operational expenditures", the economic
analyst said.
"Most
of this growth is driven by energy but the energy
sector employs a very small number
of your population.
"When
you look at the reliance of the Government on
energy revenues it has grown quite a lot.
"Also when you look at the pace of expenditure
that the Government has been doing, that also has
grown dramatically," Sifon-Arevalo said.
The
two were here last week for consultations, part
of its extensive process to issue a fresh
sovereign rating which is carded to be released "around
August", Minister in the Ministry of Finance,
Conrad Enill told Business Express.
They met with Government Ministers, Members of
the Opposition, multinationals, other private and
public sector leaders and staff and numerous other
stakeholders.
Prime Minister, Patrick Manning maintains that
diversification of the economy remains high on
his agenda.
Sifon-Arevalo
also pointed to inflation as an issue they "want to see solved",
adding that he is pleased that the Central Bank
stepped
in with bond issuances to better manage liquidity.
The inflation rate stood at 10 per cent in October
2006 and sat at eight per cent in March 2007.
"Before bonds, the main tools used for monetary
policy were the Repo Rate and open market operations,
both of them short term, clearly implementing bonds
has had a positive impact," Sifon-Arevalo
said.
Asked
if crime could be a hindrance to economic growth,
he said that "big companies, can afford
private security and afford things that can isolate
them from crime related problems, but where you
see it as important, is where you want to see more
economic diversification and the way you do that
is to grow small and medium enterprises and I think
for those people, the guy opening the restaurant,
a little store, for them crime is a problem."
Regardless of different Governments (in Trinidad
and Tobago), macroeconomic policy in the key areas
has been quite conservative, maintaining cohesion
and stability, he said.
"We have examples of other places that have
the same blessings as Trinidad and Tobago has in
energy and they have governments that have not
been able to keep this stable macroeconomic policy
level. Bolivia, they have huge reservoirs of gas
but their growth levels are nothing like you see
here because for the last 20 years they've had
radical changes in policy and in many ways that
has been a deterrent to investors coming to develop
the sector," Arevalo said.
Speaking
about S&P's credit rating, Enill
explained that it is an objective assessment of
an entity's credit-worthiness, relative to other
debt issuing entities.
"The Standard and Poor's international scale
rating compares Trinidad and Tobago's credit-worthiness
to all energy-producing and debt-issuing countries
in its peer group, such as Mexico, Malaysia, Oman
and Qatar," he said.
S&P's
ratings aim to provide an internationally relevant
risk assessment of entities and the debt
that they issue within a wider context of an analysis
of economic trends and financial developments,
Enill said.
"This will significantly improve an investor's
ability to compare sovereign and corporate credits
on an international scale. For borrowers, S&P's
ratings will enhance credibility and expand access
to funding sources.
"International investors operate under strict
investment guidelines and these guidelines increasingly
require that foreign investments, whether they
are denominated in local currency or foreign currency,
be rated by an internationally recognised credit
rating organisation," Enill noted.
He explained that the smaller the investor pool,
the less liquid the securities and investors will
pay more to place them.
Favourable
ratings he added, can reduce the Government's
cost substantially by lowering the cost of debt, "as
we have seen in the case of Trinidad and Tobago."
Capital
market investors he said, use ratings to supplement
their own credit analysis and to
compare relative value between securities, hence
favourable credit ratings from S&P will only
serve to reinforce this country's position in attracting
international flows.
"Of even greater short-term significance
is the fact that an improved sovereign debt-rating
for Trinidad and Tobago will greatly influence
the cost of borrowing for the private sector mega-projects,
now being or shortly to be financed in the oil,
gas and chemical sectors," Enill said.
This country's GDP growth for 2006 stood at 12
per cent, the highest in the region and one of
the highest across the globe.
Trinidad
Express
Wednesday, May 16th 2007
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©2007 Trinidad Express. All Rights Reserved.
