Last week, S&P Glob­al Rat­ings re­vised its out­look on the Re­pub­lic of Trinidad and To­ba­go from sta­ble to neg­a­tive, while af­firm­ing at ‘BBB-/A-3,’ its long-and short-term for­eign and lo­cal cur­ren­cy sov­er­eign cred­it rat­ings on the coun­try.

“The neg­a­tive out­look re­flects our view that there is at least a one-in-three chance we could low­er the rat­ings over the next six to 24 months...We could low­er the rat­ings over the next six 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.”

Al­so last week, Stan­dard and Poor’s (S&P) Glob­al Rat­ings up­grad­ed Ja­maica’s long-term for­eign and lo­cal cur­ren­cy sov­er­eign cred­it rat­ings from ‘BB-’ to ‘BB,’ while its out­look re­mains “pos­i­tive.”

S&P said of Ja­maica, “The rat­ing re­flects S&P’s as­sess­ment of Ja­maica’s strength­en­ing in­sti­tu­tion­al and pol­i­cy frame­works, sup­port­ed by con­sen­sus across both po­lit­i­cal par­ties and var­i­ous eco­nom­ic sec­tors on macro­eco­nom­ic poli­cies fo­cused on debt re­duc­tion.

“It is the agency’s ex­pec­ta­tion that the Gov­ern­ment will re­main com­mit­ted to the leg­is­lat­ed debt-to-GDP tar­get of 60 per cent or less by March 2028, fol­low­ing a track record of sus­tained pri­ma­ry sur­plus­es, that has sup­port­ed the steady re­duc­tion in debt.

“S&P fur­ther not­ed that Ja­maica stands out as the on­ly coun­try among 141 rat­ed sov­er­eigns to achieve an an­nu­al pri­ma­ry sur­plus above 3 per cent of GDP for 10 con­sec­u­tive years, de­spite ex­pe­ri­enc­ing ma­jor shocks such as the pan­dem­ic and cli­mate-re­lat­ed events.”

Last week, as well, S&P up­grad­ed its long-term for­eign and lo­cal cur­ren­cy sov­er­eign cred­it rat­ings on The Ba­hamas from ‘B+’ to ‘BB-’ while main­tain­ing a sta­ble out­look. The rat­ing re­flects strength­ened eco­nom­ic per­for­mance, sup­port­ed by the tourism and fi­nan­cial sec­tors, cou­pled with sound fis­cal man­age­ment.

“The grow­ing econ­o­my has sup­port­ed re­duced fis­cal deficits to lev­els more con­sis­tent with those seen be­fore the pan­dem­ic, with the re­port­ed fis­cal deficit for the fis­cal year end­ed June 30, 2024, at 1.3 per cent of GDP. This out­come part­ly owed to im­proved tax col­lec­tion (through a ded­i­cat­ed rev­enue en­hance­ment unit, among oth­er ini­tia­tives) and greater com­pli­ance with prop­er­ty tax­es,” said the New York-based agency said.

“We ex­pect small fis­cal deficits and a grow­ing econ­o­my will lead to a slow de­cline in The Ba­hamas’ fi­nanc­ing needs as a share of GDP, with the in­crease in gen­er­al gov­ern­ment net debt av­er­ag­ing 1.3 per cent of GDP dur­ing 2025-2028,” said S&P, adding “Re­fi­nanc­ing risks have abat­ed, giv­en the gov­ern­ment’s com­mit­ment to fis­cal dis­ci­pline, com­bined with lim­it­ed pri­vate-sec­tor lend­ing op­por­tu­ni­ties.”

It is im­por­tant to note that at BBB-, T&T holds on to its in­vest­ment-grade rat­ing and that BBB- is S&P’s low­est in­vest­ment-grade rat­ing. It is al­so note­wor­thy that both Ja­maica and The Ba­hamas are cur­rent­ly in “junk” bond ter­ri­to­ry.

But, even giv­en the fact that T&T is Cari­com’s high­est rat­ed sov­er­eign, it is cer­tain that T&T’s Min­is­ter of Fi­nance Dav­en­dranath Tan­coo is much less com­fort­able than the min­is­ters of fi­nance of Ja­maica and The Ba­hamas.

That is be­cause S&P is clear­ly sig­nalling to the T&T Gov­ern­ment—and all of the hold­ers of bonds is­sued by (or to be is­sued by) the Gov­ern­ment and by state en­ter­pris­es—that its in­vest­ment-grade rat­ing is at se­ri­ous risk of be­ing down­grad­ed to ‘junk’ bond sta­tus if the Gov­ern­ment fails to im­ple­ment cer­tain mea­sures.

S&P is clear on the time­ly cor­rec­tive mea­sures that T&T MUST take to pre­vent the down­grade to ‘junk’ bond sta­tus:

* Strength­en the sus­tain­abil­i­ty of pub­lic fi­nances;

* En­sure long-term bal­anced eco­nom­ic growth; and

* Main­tain the coun­try’s strong ex­ter­nal pro­file.

While all of three mea­sures are im­por­tant, per­son­al­ly I think that strength­en­ing the sus­tain­abil­i­ty of T&T’s pub­lic fi­nances is cru­cial.

S&P, in ef­fect, is ad­vis­ing the Gov­ern­ment that it MUST re­duce, or bet­ter yet elim­i­nate, its fis­cal deficit and it MUST demon­strate that that shrink­ing of the gap be­tween what the coun­try spends and what it earns can be sus­tained over a three-to-five year pe­ri­od.

“En­er­gy sec­tor rev­enues have rep­re­sent­ed more than one-quar­ter of to­tal gov­ern­ment rev­enues in the past five years, high­light­ing the vul­ner­a­bil­i­ty of pub­lic fi­nances to en­er­gy price volatil­i­ty,” said S&P in its re­port on T&T last week.

“We ex­pect the gen­er­al gov­ern­ment deficit will be 6 per cent of GDP in fis­cal 2025, down from 6.1 per cent in 2024...There­after, we ex­pect the deficit will av­er­age 2.3 per cent for fis­cal years 2026-2028. We fore­cast the change in net gen­er­al gov­ern­ment debt will av­er­age 3.1 per cent of GDP from 2025-2027,” the rat­ing agency added.

How coun­tries get up­grad­ed

S&P ex­plained how T&T’s out­look can be im­proved, by stat­ing, “We could re­vise the out­look to sta­ble over the next 24 months if we be­lieve gov­ern­ment poli­cies will im­prove fis­cal sus­tain­abil­i­ty, and lead to more fa­vor­able long-term GDP growth prospects and sus­tain the coun­try’s ex­ter­nal pro­file

It is clear to me that the rea­son both Ja­maica and The Ba­hamas have been up­grad­ed is that they have im­ple­ment­ed poli­cies that are re­sult­ing in a down­ward trend in their fis­cal deficits, which is trans­lat­ing to a re­duc­tion in their debt lev­els over time.

That link be­tween deficits and debt is im­por­tant be­cause rat­ing agen­cies like S&P ex­ist to pro­vide as­sess­ments of the risk to bond­hold­ers of own­ing the debt of a coun­try or com­pa­ny.

A coun­try that has had a pro­longed pe­ri­od of fis­cal deficits—such as the fact that 16 of T&T’s last 17 bud­gets have been in deficit—will ex­pe­ri­ence ris­ing debt lev­els. For T&T to strength­en the sus­tain­abil­i­ty of its pub­lic fi­nances, it must prove to the in­ter­na­tion­al rat­ing agen­cies that it can sus­tain the re­duc­tion in the gap be­tween what it spends and what it earns over the medi­um term, which is three to five years.

Most coun­tries re­duce their fis­cal deficits by in­creas­ing rev­enue and cut­ting ex­pen­di­ture. This will be dif­fi­cult for Mr Tan­coo be­cause he rep­re­sents an ad­min­is­tra­tion that emerged vic­to­ri­ous in the April 28, 2025 gen­er­al elec­tion, based on the promis­es made dur­ing the elec­tion cam­paign.

In the April 3 edi­tion of this pub­li­ca­tion, the com­men­tary un­der the head­line, ‘Can T&T af­ford Kam­la’s promis­es?’ out­lined sev­en of the promis­es made by the cur­rent ad­min­is­tra­tion dur­ing the 2025 elec­tion cam­paign:

1) In­crease the com­pen­sa­tion of pub­lic sec­tor em­ploy­ees by no less than 10 per cent;

2) Low­er cor­po­rate tax­es by 5 per cent ini­tial­ly;

3) Re­move val­ue-added tax (VAT) on 7,000 ba­sic food items;

4) Elim­i­nate the prop­er­ty tax;

5) Re­moval of the 7 per cent on­line tax;

6) In­crease the fu­el sub­sidy;

7) Re­move tax­es on re­tire­ment ben­e­fits and pri­vate pen­sions

Of those sev­en promis­es, the Gov­ern­ment has ful­filled on­ly one, which is the elim­i­na­tion of the prop­er­ty tax. It is cer­tain­ly not go­ing to be able to make much head­way in de­liv­er­ing the oth­er promis­es in the fore­see­able fu­ture.

T&T has the ben­e­fit of its Her­itage and Sta­bil­i­sa­tion Fund, which can be tapped to ad­dress fis­cal im­bal­ances. But that is a short-term mea­sure and does not come near to ad­dress­ing the struc­tur­al is­sues in the econ­o­my.

Sink or float?

In the short term, it is clear to me that a man­aged flota­tion of the US to T&T ex­change rate will im­me­di­ate­ly ad­dress two of the three is­sues S&P iden­ti­fied Mr Tan­coo needs to start fix­ing in the 2026 bud­get:

* Im­prov­ing fis­cal sus­tain­abil­i­ty

A flota­tion of the ex­change rate pro­vides the Gov­ern­ment with more TT dol­lars, there­by re­duc­ing the deficit im­me­di­ate­ly. At the cur­rent ex­change rate of US$1 to TT$6.75 (buy­ing rate), US$2 bil­lion in tax­es on the sec­tor would pro­vide the Gov­ern­ment with TT$13.5 bil­lion. If the ex­change rate is ini­tial­ly float­ed to $8.75, T&T’s tax­es on the en­er­gy sec­tor would be worth TT$17.5 bil­lion. That means the Gov­ern­ment would have an ex­tra $4 bil­lion to spend, which au­to­mat­i­cal­ly re­duces the deficit to more sus­tain­able lev­els;.

* Main­tain the coun­try’s strong ex­ter­nal pro­file

The flota­tion of the TT dol­lar re­duces de­mand for for­eign goods ser­vices AND it will al­so low­er the sale of US dol­lars from the coun­try’s net of­fi­cial for­eign re­serves by the Cen­tral Bank