The United States-based credit rating company Standard and Poor's (S&P) has given T&T a grade "A" rating for Q1 2012, which T&T has maintained since 2008, says Olga Kalinina, director, sovereign ratings. This has put T&T in the same category with countries like South Korea, Oman, and the Slovak Republic in Europe. Kalinina was speaking two Tuesdays ago at a presentation on S&P's rating of T&T at an RBC breakfast seminar held at the Hyatt Regency Trinidad hotel, Port-of-Spain. "Your rating structure has been stable and positive. You are the second highest in the Latin American and Caribbean region, so that is very impressive." Other S&P's categories include the "AA" rating. Countries which fall under this category include Kuwait, Qatar and Abu Dhabi. Then there is the "AA-" category, which includes China, Chile and Slovenia. The "A-" category includes Aruba, Botswana, Malaysia, Poland and Malta. Among Caribbean countries, Barbados moved from a "BBB+" in 2008 to a "BBB-" in 2012, in the same period, Jamaica moved from "B" to "B-". T&T remained steady.
Sovereign rating
Kalinina defined S&P's sovereign rating system as an assessment of a sovereign government's ability and willingness to service its commercial debt on time and in full, and a reflection of medium-term fundamentals through economic and political cycles. "The issue of rating through economic recession is much more challenging." However, she said S&P's rating is not, as many believe, based on a country's risk rating or investment. Neither is it based on a recommendation to buy or sell a security. Kalinina said S&P's rating is not an endorsement of a set of government policies, except to the extent of an impact on the ability to service debt. S&P's Sovereign Rating Analysis Methodology Profile (RAMP) is based on a number of factors, among them the political risk of an economy and willingness to pay, the income and economic structure and growth prospects of a country, the external liquidity and debt burden, the general government debt and the country's monetary analysis. According to Kalinina, several factors account for T&T's "A" rating. She said the Government's policy-making is generally effective. On the downside, she said, transparency, checks and balances and accountability are weaker than those of T&T's peers. Crime is also "a major concern." Speaking on T&T's political risks, Kalinina said this country is somewhere in the middle of the continuum compared to other countries. "The middle-range risk is that T&T is better than Middle Eastern countries or African countries rating peers with higher political and security risk, but worse than some other regional peers, like Aruba and Curaçao."
Competitiveness
Kalinina referred to World Bank indicators and showed T&T's place on the Corruption Perception Index. "T&T is placed in the mid-60s percentile for government's effectiveness, voice and accountability, and regulatory quality. But mid-40s percentile for rule of law and control of corruption. On the Corruption Index, T&T is at number 91, which is behind Barbados, which is at 16th place, Qatar stands at number 22, Oman at number 50, Panama at 86 and Kazakhstan at 120." She gave T&T's ranking on the Doing Business Rating. "In the investment climate and competitiveness, T&T ranks 68th in doing business, behind regional peers like Malaysia, Thailand, Kazakhstan, St Lucia, Antigua and Barbuda, Dominica and Panama."
Growth
Kalinina compared T&T's economic growth to other regional countries, which showed T&T lagging. T&T's average real growth domestic product (GDP) from 2008 to 2011 averaged 0.5 per cent. This growth lagged behind other regional countries, including Barbados, which averaged 0.8 per cent for the same period, Belize averaged 1.7 per cent, Grenada averaged 1.5 per cent, Jamaica 0.9 per cent, while the Bahamas averaged 1.1 per cent. She divided T&T's credit profile for its economy into three sections.
T&T's income levels is on par with its peers.
In terms of economic diversity, she said T&T could be more efficient in its diversification thrust.
In the area of reform implementation, she said the pace has been slow and can lead to risks.
"The slow pace of the decision-making process, including the Clico resolution may lead, if not addressed, to increased financial risks."
Credit
Kalinina listed T&T's main credit strengths as its net external asset position, low external financing needs and one international bond outstanding of US$250 million due in 2020.
Speaking about T&T's credit profile and fiscal performance, she noted several factors:
• the cushion the Heritage and Stabilisation Fund provides
• prudent budgeting and fiscal discipline
• qualitative weaknesses with regards to arrears to suppliers and VAT refunds
She highlighted as a risk the sensitivity of fiscal revenues to commodity prices and rigidity of spending, such as wages, transfers and subsidies. Kalinina said T&T cannot be complacent, as it needs to create fiscal resources and find spending adjustments in case of commodity shocks or gradual decline in prices. Speaking about debt, she said despite the cost of the bailout of Clico depositors, net general government debt remains low. In concluding her presentation, she said T&T's "A" rating is because of T&T's strong external position, low debt and generally prudent macroeconomic framework.
"T&T is in a healthy position right now. The most important thing is the dynamism of addressing the challenges."