Latin Finance - May/June 2011 - 47

Caribbean trinidad

Energy to the Rescue
by Taina Rosa

il and gas exporter Trinidad and Tobago (T&T) is expected to post a budget deficit this year. But soaring energy prices are likely to increase revenues for its quasi-sovereign energy companies and raise tax receipts from private and energy projects,” he says. energy companies, helping to reduce the deficit’s size. To cover the gap, the An Attractive Investment finance ministry has already said it If T&T does decide to tap the international might tap the international markets via markets, it is not expected to have a hard time a bond issue. Analysts who study the raising funds. The sovereign is rated Baa1 by country say that raising the necessary Moody’s, one of the highest for a Caribbean funds should not be a difficult task for nation, three notches into investment grade the investment grade sovereign. territory. The rating has a stable outlook. S&P According to estimates from the has an A rating for T&T. local central bank, the energy sector “Trinidad has a strong balance sheet. accounted for about 35.8% of T&T’s When you look at the government’s assets and GDP in 2009 and 35.7% in 2010. It its liabilities, you see that the debt burden is also accounts for 80% of exports. moderate,” says Carl Ross, managing director “The government’s fiscal year 2011 of investments at Oppenheimer & Co. “It has (FY11) budget envisions a deficit of a lot of oil and gas reserves so, especially with $1.3 billion, or 5.5% of GDP, based on energy prices going up, I think there is little conservative energy price assumptions concern about the credit.” of WTI [Western Texas Intermediate] Arora agrees. “If Trinidad does issue a oil at $65/bbl and natural gas at Trinidad has room to maneuver: Torres global bond, it could be favorably received $2.75/mmbtu,” says Neeraj Arora, given the sovereign’s strong balance sheet.” a vice president of EM research at T&T’s government debt as a percentage of GDP was 31.9% in JPMorgan. The firm expects WTI oil and natural gas prices to 2009, according to Moody’s. The ratings agency estimates that average $97/bbl and $4.34/mmbtu in 2011, respectively. in 2010 it rose to 34.0% and expects it to increase to 36.0% in The sovereign has said that it would seek to finance $860 2011. By comparison, in Mexico, also rated Baa1, government million from external sources. In late 2010, it obtained $560 debt as a percentage of GDP was 28.5% in 2009. Moody’s million in loan commitments from the IDB, chopping the forecasts it will have fallen to 27.6% and that it will increase to amount needed to cover the gap down to $300 million. 27.8% in 2011. “In our view, the energy price assumptions in the budget Torres says that T&T is one of the few Caribbean countries appear conservative and the government will likely undershoot that have sizable fiscal savings. The country has invested about its deficit target in FY11. Nonetheless, a lower-than-expected deficit may result in either less or no external debt issuance than 10% of GDP in its sovereign wealth fund known as Heritage and Stabilization Fund, about $2 billion equivalent. He says this the $300 million issuance penciled in the budget for this year,” is comparable to Chile, a much larger economy with a higher Arora explains. rating of Aa3. Chile’s sovereign wealth fund has about $20 Moody’s vice president and senior credit officer Gabriel billion equivalent. “Trinidad has room to maneuver,” Torres Torres says higher than-budgeted oil prices will allow for an says. increased accumulation of assets in T&T’s stabilization fund. “For now, we are keeping our deficit forecast at between 2%“The government has also announced a series of policy measures 3% of GDP,” Arora says. However, upside risks for the deficit do seeking to bolster the economy, including new infrastructure

Trinidad & Tobago could see its budget deficit shrink thanks to rising oil and gas prices. International investors are likely to welcome the twin-island nation with open arms.

May/June 2011

LatinFinance 47

Latin Finance - May/June 2011

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