Sep 2006 Financial News

Wall Street worries about Trinidad's spending

Sep 18, 2006

WITH A BOOMING ECONOMY and energy dollars flowing into Trinidad and Tobago's treasury at a fast clip, the spending habits of the government in Port-of-Spain are beginning to worry Wall Street.

As a matter of fact, Moody's Investment Services, one of the world's leading credit rating firms, is sounding a note of caution about the Manning Administration's spending binge.

"The energy boom has led to a large rise in revenues that has been matched by the increasingly aggressive expansion in expenditures," the firm warned in an assessment of Trinidad and Tobago's economy.

"At this stage it is not clear whether the rise in expenditure will be easily reversed, if needed," was the way Alessandra Alecci, a Moody's analyst on Wall Street, put it. "Moody's will continue to carefully monitor off-budget activities that have led to a build-up of contingent liabilities as the government has created public entities to carry out an ambitious capital and social expenditure programme."

In the meantime, most of the economic engines are firing on all cylinders. Some of Moody's assessments and figures tell the story:

l Real economic growth should reach at least ten per cent this year, up from seven per cent in 2005.

l The current account surplus is estimated to have reached 18.6 per cent of GDP last year – twice the size of 2003.

l Unemployment is the lowest in decades.

l Per capita income GDP has been rising at double-digit pace, on both a nominal and PPP (purchasing power parity) basis.

l Foreign exchange reserves are twice as large as the country's entire external debt stock.

l Apart from the energy sector, manufacturing and agriculture are making steady progress due to prudent macro-economic management.

"The country's external payment position is particularly impressive in light of continued growth in energy exports and sizeable foreign direct investment that should help sustain growth in coming years," said Alecci.

But there are some potentially worrying signs on the horizon, according to Moody's:

l Last year the cost of living jumped by seven per cent but it should fall to 4.5 per cent this year and four per cent next year.

l Sharp increases in the non-energy fiscal deficit suggest public finances are increasingly exposed to potential swings in the energy cycle.

l "Off-budget" spending has led to contingent liabilities and may be trouble in the long run.

l Any loss of competitiveness in the non-energy sector would exacerbate economic vulnerability in the energy sector.

l A sharp reversal of foreign direct investment in Trinidad and Tobago could force a downgrading of the country's stellar credit rating.


Source:

The Nation News Barbados
Monday 18th September, 2006

http://www.nationnews.com/story/291512990500226.php