An­drea Perez-Sobers

Se­nior Re­porter

an­drea.perez-sobers@guardian.co.tt

When S&P Glob­al re­vised T&Ts sov­er­eign out­look from sta­ble to neg­a­tive, many in the busi­ness com­mu­ni­ty turned their at­ten­tion to the im­pli­ca­tions for the  up­com­ing na­tion­al bud­get.  

But, ac­cord­ing to econ­o­mist Pro­fes­sor Karl Theodore, the con­ver­sa­tion should go far deep­er than the size of any pro­ject­ed deficit.

“Peo­ple must not get hooked on what the deficit is,” Theodore told the Sun­day Busi­ness Guardian. “Deficits are not the end of the world. In fact, in any giv­en year, about 150 out of 190 coun­tries tracked by the In­ter­na­tion­al Mon­e­tary Fund (IMF) run deficits. The re­al ques­tion is not how big the deficit is, but what you are do­ing with it.”

For Theodore, a deficit is a pol­i­cy in­stru­ment with three po­ten­tial us­es: to pre­vent the econ­o­my from col­laps­ing, to stim­u­late pro­duc­tive growth, or to sim­ply dis­trib­ute hand­outs. On­ly the first two, he ar­gues, can gen­uine­ly strength­en the econ­o­my. If you use a deficit to get pro­duc­tion go­ing, the econ­o­my ben­e­fits. If you use it just for splurg­ing pur­pos­es, it’s go­ing to hurt you,” he said, echo­ing lessons first set out by No­bel Lau­re­ate Sir Arthur Lewis more than half a cen­tu­ry ago.

That dis­tinc­tion, he sug­gest­ed, is al­so at the heart of how rat­ing agen­cies like S&P in­ter­pret gov­ern­ment spend­ing.

“Any­time you see they give us a neg­a­tive out­ook, it’s be­cause their as­sess­ment is that we are not us­ing the deficit in a way that gets the econ­o­my to grow. They are ful­ly aware that every­body runs deficits,” Theodore ex­plained. “What con­cerns them is how we are man­ag­ing it.”

He urged cit­i­zens to judge the 2025 bud­get not by the head­line deficit fig­ure, but by two deep­er mea­sures: how the deficit is be­ing used to build pro­duc­tive ca­pac­i­ty, and how well the bud­get aligns with the coun­try’s long-term de­vel­op­ment plan.

“A bud­get is on­ly a one-year doc­u­ment, but it should be read as the an­nu­al state­ment of how the de­vel­op­ment plan is pro­gress­ing,” he stressed. “If it doesn’t con­nect to di­ver­si­fi­ca­tion, to long-term growth, then it is just num­bers in a vac­u­um.”

En­er­gy sec­tor ex­po­sure

While Theodore fo­cus­es on fis­cal choic­es, en­er­gy gov­er­nance spe­cial­ist An­tho­ny Paul sees the down­grade’s im­pli­ca­tions most acute­ly in the coun­try’s state-owned en­ter­pris­es. S&P linked its as­sess­ment of Trinidad and To­ba­go di­rect­ly to the out­look for Re­pub­lic Bank, First Cit­i­zens, and the Na­tion­al Gas Com­pa­ny (NGC) all com­pa­nies in which the state has a ma­jor­i­ty stake.

“Many times, these en­ti­ties’ rat­ings are tied to the sov­er­eign,” Paul said. “If the State faces pres­sure, they go back to the sov­er­eign cred­it rat­ing, or to the sov­er­eign guar­an­tee, if such ex­ists. That means all state-owned com­pa­nies in the sec­tor may face sim­i­lar risks.”

His­tor­i­cal­ly, some firms, such as NGC, en­joyed rat­ings high­er than the sov­er­eign. But Paul said that varies de­pend­ing on debt lev­els and the ex­tent of gov­ern­ment back­ing.

“Some com­pa­nies may have more debt backed by the State, cre­at­ing a clos­er link­age. Oth­ers may be less af­fect­ed. But the com­mon thread is that state own­er­ship makes them vul­ner­a­ble to sov­er­eign shifts,” he said.

For pri­vate, multi­na­tion­al play­ers in the en­er­gy in­dus­try, how­ev­er, the sov­er­eign shift in out­look is less of a di­rect con­cern, since their fi­nanc­ing tends to be in­ter­na­tion­al. The im­pact is con­cen­trat­ed on the state sec­tor, and that, Paul ar­gued, un­der­scores the need for the gov­ern­ment to dri­ve new growth in oil and gas.

Dri­ving growth, not just rat­ings

“The oil and gas sec­tor is still the sin­gle biggest part of the econ­o­my,” Paul said. “If we are try­ing to re­vive or grow this econ­o­my, we must be do­ing some­thing about the sec­tor. Ul­ti­mate­ly, gov­ern­ment rev­enues rise on­ly if we in­crease pro­duc­tion, ben­e­fit from stronger prices, or low­er costs through ef­fi­cien­cy.”

Those, in turn, re­quire new ex­plo­ration and in­vest­ment. But Paul point­ed to lack­lus­tre li­cens­ing rounds and weak en­force­ment of ex­ist­ing com­mit­ments as sig­nals that T&T is not com­pet­ing ef­fec­tive­ly for cap­i­tal.

“Peo­ple are find­ing oil in old basins all over the world, all the time. We shouldn’t take it for grant­ed that be­cause our basin is ma­ture, in­vestors won’t come. The ques­tion is: why aren’t they com­ing here?”

The an­swer, he sug­gest­ed, lies in lead­er­ship. Oil and gas are dri­ven by the Min­istry of En­er­gy. The op­por­tu­ni­ty for the in­dus­try and the econ­o­my to grow is to make sure the min­istry is work­ing ef­fi­cient­ly. That is where the in­ter­ro­ga­tion has to be­gin.”

As Fi­nance Min­is­ter Dav­en­dranath Tan­coo pre­pares to de­liv­er the Bud­get, both Theodore and Paul agree that the num­bers alone tell on­ly part of the sto­ry. For Theodore, the key test is whether the deficit is used to stim­u­late pro­duc­tion and whether it aligns with long-term plans for di­ver­si­fi­ca­tion.

For Paul, the chal­lenge is to repo­si­tion the en­er­gy sec­tor so that state com­pa­nies, tied so close­ly to the sov­er­eign rat­ing, be­come en­gines of growth rather than fis­cal vul­ner­a­bil­i­ties.

In late Sep­tem­ber, S&P Glob­al Rat­ings re­vised this coun­try ’s eco­nom­ic out­look from sta­ble to neg­a­tive while af­firm­ing its in­vest­ment grade rat­ing at BBB-. The agency warned that per­sis­tent weak­ness­es in pub­lic fi­nances, de­clin­ing en­er­gy pro­duc­tion, and ris­ing debt could trig­ger a down­grade in as soon as six months.

The agency point­ed to a loom­ing US$1 bil­lion bond re­pay­ment in 2026 as a ma­jor pres­sure point, not­ing T&T’s large sov­er­eign wealth fund, the Her­itage and Sta­bil­i­sa­tion Fund, re­mains a cush­ion. The HSF, to­geth­er with oth­er state as­sets, equals about half of GDP, lim­it­ing fi­nanc­ing risks in the near term.

While the rat­ing is un­changed, S&P cau­tioned that fail­ure to strength­en pub­lic fi­nances, man­age debt, and broad­en eco­nom­ic growth could lead to a down­grade. It al­so warned that pro­longed for­eign ex­change short­ages con­tin­ue to sti­fle busi­ness ac­tiv­i­ty and com­pli­cate di­ver­si­fi­ca­tion ef­forts.

Tan­coo wel­comed the af­fir­ma­tion of in­vest­ment-grade sta­tus, call­ing it proof of the econ­o­my’s re­silience and at­trac­tive­ness to in­vestors. But he ac­knowl­edged the neg­a­tive out­look high­lights the ur­gency of re­forms.

In his mid-year bud­get re­view on June 18,  Tan­coo in­di­cat­ed there was a pro­ject­ed $9.67 bil­lion deficit for the 2025 fis­cal year, with a re­duc­tion in rev­enue of $556.7 mil­lion.