United States-based credit rating agency Standard & Poors (S&P) affirmed its ‘BBB+’ long-term and ‘A-2’ short-term sovereign credit ratings on the Turks and Caicos Islands.
The report, released on May 26, also sees S&P Global Ratings affirmed its ‘AAA’ transfer and convertibility assessment on the territory. The outlook remains stable.
According to S&P Global Ratings, the report reflects the agency’s expectation that the impact of the COVID-19 pandemic is waning, and the TCI’s economy and government finances will improve in 2021.
Additionally, S&P assumed that the TCI will continue its practice of prudent financial management and limited borrowing, and that reserve balances will recover over the next two years.
On the downside, the sovereign credit rating agency cautioned that it could lower its ratings over the next two years if the rebound in tourism, expected to occur gradually in 2021, is interrupted or turns out to be weaker than expected, leading to prolonged stress on revenues that causes the government to run persistent fiscal deficits.
S&P could also downgrade the ratings in circumstances where the British territory do not achieve financial equilibrium by fiscal 2022, owing to increased government spending above historical levels.
On the upside, S&P indicated that it could raise the TCI credit rating during the next two years if a sustained GDP growth rate for the country achieves pre-pandemic levels thereby boosting prosperity and economic resilience.
In addition to GDP growth rate, the agency indicated that in circumstances where the external economic position strengthens and the quality of TCI data improves it could upgrade territory’s rating.
In arriving at its decision S&P recognised the huge impact that COVID-19 has had on the Turks and Caicos’ largely tourism-dependent economy— equating to the negative 26.8 per cent government forecast in 2020 plunging it into a recession and shrinking government revenues, while health and social needs spurred increased spending.
Unlike many regional peers, however, the TCI entered the pandemic in a strong fiscal position, with sufficient reserves to fund its 2020/2021 fiscal deficit.
The S&P ratings assumes that the TCI economy will gradually rebound in 2021 resulting in a recovery sufficiently strong enough to support necessary government spending thereby limiting the need for debt financing, albeit it is still expected to borrow in financial year 2021/2022 to supplement its’ spending needs.
Based on current trajectory, the credit ratings agency believed the Turks and Caicos is poised to return to its previous practice of maintaining fiscal surpluses and begin rebuilding its cash reserves as the economy strengthens over the next two years’
Premier Charles Washington Misick, reacting to the report on Monday (June 7), confirmed his expectation that the credit rating of the TCI government would remain at investment grade and was pleased that this has now been affirmed by the S&P report.
“My expectation for the future is that barring any new external shocks, including a reoccurrence or resurgence of COVID-19 we are set for the return to surplus budgets, rebuilding our reserves, and an upgrade in our credit rating within the next two years,” he said.