Newsday
A sovereign credit rating is a grade assigned to a country by a credit rating agency, reflecting the likelihood and ability of that country to repay its debts. The better the rating, the safer the country is perceived to be by lenders and investors. Ratings range from very safe, or “investment grade,” to risky or uncertain, often referred to as “speculative.”
On September 25, the global credit rating agency S&P Global Ratings reaffirmed TT’s credit rating at BBB-. This means the rating remains unchanged, and the country continues to be considered a safe destination for investors to put their money, but it’s at the lower end of that safe range.
However, S&P has revised its outlook for TT from “stable” to “negative.” This does not mean that the BBB- rating has dropped or will definitely drop soon, but it does mean there is a chance the rating could be lowered within the next six to 24 months if certain identified areas are not addressed.
S&P pointed out that the country has several strengths, such as a stable government, steady economic policies, and a strong financial safety net thanks to assets in the Heritage and Stabilization Fund (HSF). However, the agency also sees some challenges, including limited control over monetary policy due to the tightly managed foreign exchange rate; slow economic growth mainly due to a shrinking energy sector; and rising government debt.
S&P cautioned that the credit rating could be lowered if the government fails to take steps to control its budget and spending, stimulate long-term economic growth, and maintain healthy financial reserves, which refers to money the government sets aside to help the country deal with unexpected economic problems. On the other hand, if the government successfully makes important reforms geared toward achieving these objectives, the outlook could return to “stable”.
The negative outlook may cause investors to demand higher interest on new TT bonds. This can benefit investment funds, as they are able to purchase new bonds with higher interest rates (or yields), which may boost long-term returns and overall fund performance. However, rising interest rates can also lead to a temporary decline in the value of existing bonds, since bond prices tend to fall when interest rates go up.
Overall, the prevailing BBB- rating from S&P still affirms TT as an investment grade borrower. At UTC, we continue to monitor both local and global developments closely in order to execute strategies aimed at delivering the best possible returns for our unitholders.
– Report courtesy the Unit Trust Corporation (UTC)
