Trinidad and Tobago: Challenges Ahead

The government has announced an external bond issuance for Q1 2011. We think it’s an appropriate time to review the main credit issues in Trinidad & Tobago; its creditworthiness is closely linked, in the medium term, to the fortunes of its oil and gas sector.

Politics: Growing Pains

After a sweeping victory last May, the People’s Partnership (PP), a coalition government made up of three parties (UNC, COP and TOP) succeeded the PNM in office. The PP government has a comfortable position in parliament, holding 30 out of the 42 seats (Figure 1). As such, it can easily approve bills submitted to parliament. However, as a coalition government, most initiatives have to go through internal discussions which somewhat delay policymaking. For example, after six months in office, the appointments of several boards to several statutory authorities and state enterprises, which are in charge of a significant part of the public sector’s capital expenditure, are facing delays.

The PP’s first few months in office have been complicated by several “skeletons in the closet” left by the previous PNM administration. Chief among those are arrears in VAT refunds and to contractors, the “hot potato” of finding a solution to the Clico saga and the need to adjust wages to public sector unions for the previous three years (2008-2010). We will examine these issues in more detail in the fiscal section. Dealing with these “skeletons in the closet” has distracted the incoming administration from taking on more urgent matters. However, we also suspect that the government is slow not only in making decisions, but also in following up after major policy announcements.

T&T: An Oil & Gas Play, After All

The recent performance of oil & gas production has been mixed. Oil production and exports have been falling for four years running (Figure 2), whereas natural gas production has been steadily rising. Coupled with a relative price increase of oil versus gas, this has paradoxically meant that the gas participation in the tax take is diminishing.

Despite representing almost 90% of the energy complex production, gas only provides 60% of the sector’s taxation. This means that the “marginal buck”, in terms of increased taxation, is likely to actually come from increases in oil production.

Authorities understood this logic, and have announced several changes to the fiscal regime for oil & gas. In a nutshell, the tax changes are likely to promote deep water oil exploration. Industry experts expect higher oil production in a two to three year timeframe; this development would be supportive of T&T’s creditworthiness.

However, the market is concerned with T&T’s declining natural gas reserves, particularly given strong production (Figure 3). As 2011 is set to start, the proven reserves-to-production ratio stands at 8 years, down from 19 years in 2004.

According to industry experts, a proven reserves-to-production ratio between 8 and 12 years is healthy, and can be maintained with “exploration and appraisal drilling with resource pull-through generally offsetting production” (Energy Committee, Trinidad & Tobago Chamber of Industry and Commerce).

We remain bullish on the outlook for the natural gas sector in T&T. While there is oversupply now, the country is a low-cost producer, as infrastructure (pipelines and downstream) is already built and paid for. The regulatory framework is appropriate and the “rules of the game” are respected. We expect industry players to begin replenishing reserves a few years before they need to renew their long-term delivery contracts; the major renewals are due in 2018-19. Starting to replenish reserves now would be uneconomical and actually won’t constitute optimal reserves management.

Despite the recent positive performance of the energy sector, non-oil output remains in the doldrums; it has now contracted for six quarters running (Figure 4). Unemployment remains high, domestic credit is just turning positive (led by strong mortgage lending) and local confidence remains low. As such, we expect GDP growth of 0.6% this year and a further recovery to 2.5% next year; the government expects GDP growth of 2.5% and 2% in 2010 and 2011, respectively.

Fiscal Accounts

Authorities typically build some cushions in the budget at the time of its formulation and are usually achieved by using conservative estimates for oil & gas prices. For example, in the 2009/2010 fiscal year (which ended last September), at the time of the budget exercise a year ago the authorities projected a deficit of 5.4% of GDP. However, as per the most recent projections included in the FY 2011 budget, they revised down last year’s deficit to 3.5% of GDP, as energy-related revenues came in stronger than budgeted. We estimate an even lower deficit of 2% of GDP, as the new authorities reined in fast expenditure by the outgoing administration (Figure 5).

Something similar is likely to happen in the current fiscal year. Not only is the oil price likely to come in higher than budgeted (WTI at $65/barrel), but we also expect authorities to keep primary expenditure under control, running a neutral fiscal stance. Authorities have publicly complained about the previous administration’s lack of fiscal discipline and, as such, are intent on building their own credibility. At the Central Government level, authorities tabled a budget with a 5.5% of GDP deficit. However, we project the shortfall at 1.9% of GDP, led by higher energy revenues and under-execution of public spending. As such, we expect another contribution to the Heritage and Stabilization Fund, which we estimate stands at $3.3 bn (16% of GDP) at the end of 2010.

We expect the Republic to have no problem filling its financing gap for the current fiscal year (Figure 6). The local market is flush with liquidity, as deposit growth stays strong and local credit is just turning the corner. But still the sovereign seems intent on returning to international capital markets, from which it has been absent since 2007, reportedly with USD 500 mn.

After significant deterioration in its debt-to-GDP ratio in 2009-2010, we envision the sovereign returning to more normal debt levels (Figure 7). Authorities are making a major effort to bring under control the capital expenditure by statutory authorities and state enterprises, the main culprits of the fiscal deterioration witnessed since 2009.

Several “skeletons in the closet” inherited from the PNM administration are likely to show up in increased government indebtedness down the road. The settlement of arrears in VAT refunds and to contractors, which amount to 5% of GDP, are likely to put pressure on fiscal accounts in the short term. But the continuing Clico saga is likely to strain accounts further in the medium term: The government is including in the current budget a cash payment of TTD1.5bn, while issuing TTD10.5bn (7.6% of GDP) in zero-interest 20-year bonds as compensation to Clico’s depositors. And the Central Bank had already extended a loan of TTD 5 bn (2.6% of GDP) to Clico when this fiasco came into the open back in January 2009. The Cabinet would send a signal of fiscal rectitude if it can stick to Finance Minister Dookeran’s proposed solution. Another “hot potato” relates to the wage negotiations with public sector unions, relating to the previous three years.

Strategy Implications

T&T is now trading comfortably inside Costar, having traded flat to it only six weeks ago. And it is currently trading just wide to Panama. Despite a higher rating, small issue sizes justify a liquidity discount versus Panama. As such, we view T&T as being fairly priced to slightly cheap.

We are of the view that investors should get involved in the upcoming issuance, particularly if, as expected, authorities launch a benchmark-size transaction and pricing is attractive. T&T is the only commodity play in Central America and the Caribbean, and is an interesting diversification play in a global/EM bond portfolio.

The Travel Foundation cares for the people and places we all love to visit. Sustainable tourism can help protect traditions, culture and the natural environment – the things that make your holiday special. It can also improve the lives of the people who live in tourist destinations so they are happy and able to give you a warm welcome.

And the great news is that all of this gives you an even better holiday experience as well as ensuring there are great places for us all to visit, for generations to come.

We’re changing lives in the Caribbean – Over the next three years, the Travel Foundation will work on the profound social and environmental effect of tourism in the Caribbean, where we fly 800,000 customers a year. They will support entrepreneurial business development among disadvantaged youth, particularly in the areas of craft making, beekeeping and fishing.

Our fantastic beekeeping project will help young people learn about traditional skills so they can produce honey to sell to the tourism industry. This will aid the conservation of the honey bee and give you an even sweeter taste of the Caribbean.

Tilapia fish farming is an educational programme that will teach about over-fishing and help young people develop small businesses, enabling them to sell farmed fish to local hotels and restaurants. This will demonstrate an alternative livelihood to traditional fishing and allow you to enjoy fresh fish from a sustainable source while you’re having a fabulous holiday.

Our craft making project will teach new skills, helping young people produce crafts from recycled materials collected from hotels, thereby reducing waste and offering new business opportunities. So, in the near future, you’ll also get to buy hand-made souvenirs in a new craft centre – a unique reminder of your time away!

That text, taken from the airline’s website, was also included in Virgin’s in-flight ‘Seatback’ magazine, which is where I first saw it. I am incensed by the campaign, however well-intentioned those behind it may purport to be.

Both Virgin and the Travel Foundation appear to think that the only opportunities for ‘disadvantaged youth’ in the Caribbean are in ‘craft making, beekeeping and fishing.’ Gosh, development has just passed those backward-but-smiling natives right by!

Both the language and the substance of the text contrive to reinforce the image of the Caribbean as a homogenous, tourist-dependent bloc, and of its people as suited only to such ‘traditional skills’ as fish farming and craft making. The emphasis on the contributions of these poor, straw-hat wearing Caribbean folk to the hotel and restaurant industries in the region is even more infuriating.

Thanks, Virgin and the Travel Foundation, for reducing the ambitions and potential of an entire generation of young people in the Caribbean to kowtowing to tourists.

It’s not all bad news though – the debt exchange that triggered the rating actions will significantly improve Jamaica’s fiscal footing, and affects virtually all of the country’s J$ denominated outstanding debt.

And as an IMF official quoted by Reuters pointed out, the country is likely to have its ratings *upgraded* once the exchange has been successfully completed – as defined by rating agency criteria.

Here’s a line from Fitch on the prospect of an upgrade:

“In the event that the successful conclusion of the upgrade is followed by approval of an IMF program in support of the government’s fiscal and economic program, Jamaica’s ratings will likely be raised into the single ‘B’ category.”

According to the anonymous IMF official, S&P had also “acknowledged they would raise Jamaica’s credit rating by a number of notchratingses once the debt restructuring was complated,” Reuters said.

The S&P statement:

Jamaica has announced a domestic debt exchange program that officially launches today.

We consider this exchange to constitute a default, so we have revised the foreign- and local-currency sovereign credit ratings on Jamaica to ‘SD’ from ‘CCC/C’ and the ratings on the exchanged bonds to ‘D’.

NEW YORK, Jan. 14, 2010–Standard & Poor’s Ratings Services said today that it revised its foreign- and local-currency sovereign credit ratings on Jamaica to ‘SD’ from ‘CCC/C’.

Standard & Poor’s also said that it revised its ratings on the rated bonds that are included the sovereign’ proposed domestic debt exchange to ‘D’.

The ratings on the government securities not included in the debt exchange remain at ‘CCC’. The recovery rating remains at ’4′.

…

“These rating actions follow Jamaican Prime Minister Golding’s announcement yesterday of the domestic debt exchange and its official launch today,” explained Standard & Poor’s credit analyst Roberto Sifon Arevalo. The offer seeks to exchange all categories of the Jamaican domestic debt except Treasury bills. It does include foreign-currency-denominated domestic debt, which carries foreign-currency ratings, which is why we have revised the foreign-currency credit rating to ‘SD’. External debt is excluded from this transaction

“Overall, the domestic efforts, together with the ongoing multilateral support, should help Jamaica manage its long-standing fiscal and structural problems going forward,” Mr. Sifon Arevalo added. “In this context, we expect to assign a ‘B-’ sovereign credit rating and ‘B-’ debt ratings to the new bonds upon the completion of the debt restructuring and issuance of the new bonds, which is scheduled for Feb. 16, 2010.”

Other Jamaica-related limes are available in the archives.

Long-Term Ratings On The Commonwealth of the Bahamas Lowered To ‘BBB+’; Outlook Stable

The Bahamas’ fiscal position has deteriorated, as the government has increased spending while its narrow revenue base has declined amid economic recession.
This has led to a rise in general government debt, and medium-term growth prospects are subdued because of the dependence on U.S. tourism.
As a result, we have lowered the sovereign credit ratings on The Bahamas to ‘BBB+/A-2′ from ‘A-/A-2′.
The stable outlook reflects a gradual tightening of the government’s fiscal stance and generally stable external financing profile.

NEW YORK Dec. 23, 2009–Standard & Poor’s Ratings Services said today that it lowered its long-term sovereign credit ratings on The Commonwealth of The Bahamas to ‘BBB+’ from ‘A–’. The short-term credit ratings are unchanged at ‘A-2′. At the same time, Standard & Poor’s lowered the transfer and convertibility assessment on The Bahamas to ‘A-’ from ‘A’. The outlook is stable.

“The downgrade reflects The Bahamas’ weakened fiscal profile,” said Standard & Poor’s credit analyst Lisa Schineller. “Its debt and deficits have increased, and the composition of its debt has weakened somewhat. In addition, following three years of economic contraction, The Bahamas’ growth prospects beginning in 2011 are modest.”

The increased pressure on The Bahamas’ fiscal profile stems from the combination of higher levels of debt amid a stagnant growth outlook. The higher debt levels reflect the government’s financing its rising fiscal deficits, a result of countercyclical fiscal spending against a drop in The Bahamas’ already narrow revenue base. Specifically, the government has increased capital and social spending to mitigate the social impact of recession. At the same time, revenues fell by 9.2% in fiscal-year 2008/9 (ending June 2009), and Standard & Poor’s expects them to contract again in 2009/10. Compounding revenue vulnerability is The Bahamas’ reliance on the taxes on international trade and transactions (more than 50% of tax revenue) ); the government aims to minimize their decline by modernizing collection mechanisms, especially at customs.

The country’s dependence on one product (tourism accounts for more than 50% of GDP and employs over 50% of labor force) and one market (U.S. tourists account for more than 80% of total) colors prospects for a robust economic recovery given that Standard & Poor’s forecasts a weak U.S recovery. The Bahamian hotel industry does not expect a meaningful revival of tourism until 2011. In addition, once-buoyant prospects for a major expansion of tourism projects are now far more muted. Although high-end niche projects continue to advance, many others are delayed. In the midst of the slowdown in tourism and construction, unemployment has risen to the highest levels since early 1990s and is projected to close the year at about 14%, a jump from 8.7% in 2008.

The stable outlook reflects Standard & Poor’s expectation of a gradual tightening of the government’s fiscal stance and generally stable external financing profile. The Bahamas’ tourism sector is expected to improve only as the U.S. economy recovers. In the meantime, the government is working to put the offshore financial sector, a second economic pillar, on a stronger footing after it was included on the G-20/OECD grey list of offshore financial centers. The authorities have negotiated 10 Tax Information Exchange Agreements (TIEAs), an important step to getting off the grey list. Although The Bahamas’ external financing gap (defined as current account payments plus short-term debt plus medium- and long-term amortization) is high at 135% of current account receipts and useable reserves, it improved in 2009 amid lower current account deficit and higher international reserves. Importantly, the government’s external amortization needs are low, and the bank’s foreign depositor base remains stable. We expect financing needs to remain, on balance, little changed in 2010-2011.

“The ratings could come under downward pressure if The Bahamas’ fiscal deterioration persists and the economic base erodes more severely,” Ms. Schineller added. “Conversely, the ratings could improve following a more proactive government policy response to reduce debt levels or if the commonwealth’s economic prospects strengthen.”

First Citizens Bank

Last year, Trinidad and Tobago was significantly affected by the meltdown of the largest conglomerate in the Caribbean, the CL Financial Group. This affected the whole of the local financial system and economy, and had a knock-on effect on First Citizens Bank’s loan book. Further, the government-owned bank had to assist with the restructuring of loan facilities, raising new capital and allocating management time to addressing the various issues arising from the crisis.

First Citizens Bank’s solutions not only helped the local economy, they also provided growth for the bank itself. The acquisition of some troubled institutions were turned to the bank’s advantage and confirmed its counterparty credit rating (BBB+/A2) by Standard & Poor’s, the highest among local banks.

“First Citizens, as a bank owned by the government, was called upon to assist with the management of the crisis,” says chief executive Larry Howai. “The end result has been the maintenance of stability within the local financial system. In addition, the bank was able to acquire a solid base of new customers from the [troubled] CL Financial Group and also acquired [Caribbean Money Market Brokers], one of the premier brokerage houses in the Caribbean. This has resulted in increased profitability, a 70% increase in the bank’s asset base and a presence in several Caribbean islands.”

Last year’s results have encouraged the bank to aim even higher for the future and to look at acquisition targets in the region.

“Our main focus in the coming year will be on risk management, close monitoring and management of our loan and investment portfolios and strategic expansion in key markets,” says Mr Howai. “This latter will include potential acquisition opportunities both locally and in the Caribbean region.”

Barbados Outlook Revised To Negative On Deteriorating Public Finances; ‘BBB’ And ‘A-3′ Foreign Currency Ratings Affirmed

– We believe the timeliness and magnitude of Barbados’ fiscal consolidation is uncertain because of a worse-than-anticipated economic recession.

– We’re revising the outlook on Barbados to negative from stable.

– We’re affirming the ‘BBB’ long-term and ‘A-3′ short-term foreign currency sovereign credit ratings.

– The negative outlook reflects the possibility of a downgrade if the authorities fail to consolidate the general government deficit (estimated at 7.1% of GDP in 2009) and to curb the rising debt. We forecast net government debt at 52% of GDP this year, up from 42% just three years ago.

NEW YORK, Nov. 13, 2009–Standard & Poor’s Ratings Services said today that it revised its outlook on Barbados to negative from stable. At the same time, we affirmed the ‘BBB’ long-term foreign and ‘BBB+’ long-term local sovereign credit ratings. The short-term ratings remain at ‘A-3′ for foreign currency and ‘A-2′ for local currency. The transfer and convertibility assessment for Barbados is ‘BBB+’.

“The outlook revision on Barbados to negative is due to our view that the timeliness and magnitude of the government’s fiscal consolidation, necessary to preserve Barbados’ credit fundamentals at the current ‘BBB’ level, is uncertain because of a worse-than-anticipated economic recession in the country,” said Standard & Poor’s credit analyst Olga Kalinina. Results for the first three quarters of 2009 underscore a rapid deterioration in Barbados’ public finances, at a faster rate than we had previously assumed, and a sharper economic contraction. We have revised Barbados’ real GDP estimate to negative 4.8% in 2009 (from our previous estimate of negative 2.5%), with a further decline of 1% expected in 2010, before a return to growth in 2011.

Also, we have made a significant revision to our expectations for the government’s fiscal deficits, both for 2009 (based on three quarters of 2009 data) and for the last three years (based on new information on the off-budget activities). We now expect the general government deficit at 7.1% of GDP in fiscal 2009 (ending March 31, 2010), up from 5.6% last year, 6% in 2007, and 3.8% in 2006. This encompasses the central government deficit of 9.1% of GDP (including 0.5% of off-budget deficit) and the National Insurance Scheme (NIS) surplus of 2%.

Our projections incorporate an assumption of a gradual reduction in the fiscal deficits starting in 2010, although the debt is likely to peak in 2010 at 55% of GDP (on a net basis), before starting to decline in 2011. We note that there is support across the political spectrum, private sector, and unions for fiscal tightening and that the government is preparing a medium-term framework to address the situation. The risk to our projections, however, is the timeliness and efficiency of the anticipated measures amid a slowing economy and rising unemployment.

The negative outlook reflects the possibility of a downgrade if the authorities fail to contain fiscal deficit widening this year and reduce fiscal deficits starting in 2010. Conversely, rapid consolidation of public finances, most probably accompanied by a return of foreign investment, would restore strength to Barbados’ balance sheet and support the stable outlook. We will closely watch the trends in Barbados’ international reserve levels in order to identify any potential stress on its external liquidity position and currency peg.

The IMF, which has been negotiating the terms of a $1.2 billion stand-by facility with Jamaica for several months, said on Friday after fund officials spent several days in Kingston, that discussions would continue in Washington next week. The focus, said the IMF, is “on how to reduce the large fiscal deficit and put the debt on a clear downward path.” There was no clarification with respect to the timing for finalizing the discussions.

A delay in reaching an agreement with the IMF could have potentially adverse credit consequences given Jamaica’s continued fiscal underperformance. An agreement with the IMF is crucial to provide essential multilateral funding to strengthen Jamaica’s external position, shore up confidence and meet financing obligations.

A sizeable fiscal adjustment required to stabilize debt dynamics is presenting a major challenge to the government as the majority of expenditures are devoted to wages – which have already been frozen – and interest payments while revenues are declining amid depressed economic activity. This year’s fiscal deficit is projected at 8.7% of GDP and public debt is expected to reach some 120% of GDP.

The government has repeatedly expressed its commitment to service its obligations in both local and foreign currency and has a long track record of timely debt service even during difficult times. However, Jamaica’s limited resources relative to the size of the public debt raise the possibility of a debt restructuring in order to place the government financial position on a sustainable path.

Jamaica’s B2 rating, among the lowest assigned by Moody’s to a sovereign nation, already reflects significant concerns about the government’s ability to honor obligations given its limited policy options to deal with the effects of the on-going economic downturn. High levels of public debt and vulnerability to interest and exchange rate movements limit the country’s flexibility in meeting these challenges.

S&P: National Commercial Bank Jamaica Counterparty Credit Rating Lowered To ‘CCC’; Survivability Assessment Lowered To ‘B’

* On Nov. 2, 2009, we lowered the long-term sovereign rating on Jamaica to ‘CCC’ from ‘CCC+’.
* We are lowering our ratings on NCB, including the long-term counterparty credit rating, to ‘CCC’ from ‘CCC+’. We are also lowering our survivability assessment on NCB to ‘B’ from ‘B+’.
* The outlook on NCB remains negative, mirroring that on Jamaica, as a result of the bank’s concentration in government debt securities and loans to public entities in the country.

MEXICO CITY Nov. 4, 2009–Standard & Poor’s Ratings Services said today that it lowered its ratings on National Commercial Bank Jamaica Ltd. (NCB), including the long-term counterparty credit rating, to ‘CCC’ from ‘CCC+’. At the same time, we lowered our survivability assessment on NCB to ‘B’ from ‘B+’, as assigned on Aug. 6, 2009. The outlook is negative.

[In rating agency speak, the survivability assessment is "a current opinion on the likelihood that over the medium-term, a bank will either directly or through a successor organization, remain in operation, regardless of whether it is solvent or insolvent, paying all of its obligations on a timely basis or not."

Moreover: "A relatively low survivability assessment does not constitute an opinion by Standard & Poor's that a particular bank is likely to fail; rather it indicates a vulnerability to adverse circumstances which could affect the bank's ability to meet its financial obligations on a timely basis, without special circumstances which would clearly enhance the likelihood that it would continue to operate in such an event. "

And here's what S&P means by a "B" rating in this area: "A bank with a survivability assessment of 'B' is VULNERABLE. Adverse business, financial or economic conditions will likely impair the bank's ability to maintain operations in which case the bank may become subject to regulatory intervention."]

The rating action followed the downgrade of the long-term sovereign credit rating on Jamaica (CCC/Negative/C) to ‘CCC’ from ‘CCC+’.

“NCB has a very large exposure to Jamaican sovereign-debt securities and loans to public entities,” said Standard & Poor’s credit analyst Alfredo Calvo. “Also, Jamaica’s deteriorating economic situation and the more-challenging conditions for the Jamaican banking system will continue to pressure the financial performance of the bank.”

The action on the survivability assessment was based on the downgrade of NCB and our view that vulnerabilities in the government’s debt profile have grown significantly from previous years, narrowing the government’s capacity to support the bank in times of stress.

However, we are still maintaining our survivability assessment at three notches higher than the counterparty credit rating on NCB. This reflects our continuing expectation that the government could give certain assistance to the bank if needed because of NCB’s significant market share in the country, adequate financial performance, and large branch network and deposit base.

If the liquidity and market share of the bank shrink significantly, we could further adjust our survivability assessment.

The ratings on NCB are limited by the bank’s large exposure to Jamaica’s government; greater loan concentration than peers; operation within a relatively small and nondiversified economy with high debt; and the more challenging environment for the Jamaican banking system.

However, the bank’s leading market presence in the Jamaican banking system, adequate but pressured performance under more-challenging conditions, and consistent improvements in its operating performance support the rating.

From rating agency Standard & Poor’s on Monday, highlighting mine:

Jamaica Long-Term Ratings Lowered One Notch To ‘CCC’, Outlook Negative

– Jamaica’s Central bank governor, who was the lead negotiator on a possible standby facility from the IMF, has resigned.

– We are lowering the long-term foreign and domestic currency ratings on Jamaica to ‘CCC’ from ‘CCC+’.

– The negative outlook on the ratings signals the growing risk of a debt exchange operation that could be an event of selective default under our distress debt exchange criteria.

NEW YORK, Nov. 2, 2009–Standard & Poor’s Ratings Services lowered its long-term foreign and domestic currency ratings on Jamaica to ‘CCC’ from ‘CCC+’. The outlook on the ratings is negative.

We kept the recovery rating on the senior unsecured debt at ’4′ and the country transfer and convertibility (T&C) assessment at ‘B’.

The downgrade on Jamaica follows the resignation of Central Bank governor Derick Latibeaudiere, who was the lead negotiator within the framework of a possible standby facility from the International Monetary Fund (IMF).

On Aug. 5, 2009, we downgraded Jamaica’s domestic and foreign currency long-term ratings to ‘CCC+’ with a negative outlook. At that time, we highlighted the fact that Jamaica’s severe fiscal situation as well as the vulnerabilities in the government’s debt profile may give it incentives to renegotiate with its creditors, particularly its resident creditors that hold the larger bulk of Jamaican debt.

“Since then, the government’s room to maneuver continues to narrow as it becomes increasingly difficult to further cut public expenditures–as reflected, in part, in the recently amended budget–in order to sustain an interest burden of about 60% of general government revenue,” said Standard & Poor’s credit analyst Roberto Sifon Arevalo.

The negative outlook on the ratings signals the growing risk of a debt exchange operation that could be an event of selective default under our distress debt exchange criteria. While the government’s engagement with the IMF is a positive effort to address the long-standing structural issues in Jamaica, recent events highlight the complexity of the negotiation process and create more uncertainty about the timeframe for reaching an agreement with the Fund.

S&P: Republic Bank Ltd. Counterparty Credit Ratings Affirmed At ‘BBB-/A-3′ With Stable Outlook

* The bank’s financial performance has been stable through a period of tough economic conditions in the Caribbean region.
* We are affirming the ‘BBB-/A-3′ counterparty credit ratings on RBL.
* The stable outlook reflects the bank’s likely maintenance of its financial profile in 2009 and 2010.
* A downgrade could result from rising nonperforming assets or falling profits, or an upgrade could result from a curtailing of further nonperformers.

MEXICO CITY Oct. 2, 2009–Standard & Poor’s Ratings Services said today that it affirmed its ‘BBB-/A-3′ counterparty credit ratings on Republic Bank Ltd. (RBL). The outlook is stable.

“Our ratings on RBL are based on RBL’s leading market position in Trinidad and Tobago, stable financial performance, and geographic diversification in the Caribbean,” said Standard & Poor’s credit analyst Alfonso Novelo. “However, we believe that strain on the quality of assets through 2010 will pressure profits, the balance sheet relies on short-term funding, and the bank faces strong competition in the region.“