T&T Government Seeks To Assure Economy On Sound Footing Despite Downgrade By Moody’s

PORT OF SPAIN, Trinidad CMC – Trinidad and Tobago authorities were seeking to assure the nation that the island’s economy was on a sound footing after the New York-based rating firm, Moody’s Investors Service downgraded government bond rating and issuer rating to BAA2 from BAA1 and changed the outlook to negative from stable.

In a statement, Moody’s said that the main reasons for its decision were the persistent fiscal deficits and challenging prospects for fiscal reforms, decline in oil prices and limited economic diversification to weigh negatively on economic growth prospects, and weak macroeconomic policy framework given lack of a medium-term fiscal strategy; and inadequate provision of vital macroeconomic data.

“At BAA2, the investment grade rating is supported by a strong government balance sheet, underpinned by the country’s Heritage and Stabilization Fund (HSF), and also benefits from a moderate and affordable debt burden and a strong external position,’ Moody’s said.

It said that Trinidad and Tobago’s fiscal accounts have been reporting recurring deficits on the order of two to three per cent of gross domestic product (GDP) since 2009, after consecutive surpluses were observed over the previous eight years.

 

But Finance Minister, Larry Howai, said that Moody’s rating is not a true reflection of the country’s macro-economic fundamentals.

Howai, in a statement to Parliament on Friday, said the key issue is the decline in commodity prices as the other issues raised were not new.

“Government is of the view that this rating action does not truly reflect the country’s macro-economic fundamentals as our financial message remains strong,” said Howai, noting that the Heritage and Stabilisation Fund was at US$5.6 billion while official reserves at the end of the first quarter of 2015 stood at US$10.8 billion.

The finance minister told legislators that the country’s external debt service ratio remains manageable at approximately 8.6 per cent, with total debt to GDP standing at 43 per cent.

He said inflation remains in single digits and unemployment remains at a historic low of 3.6 per cent and noted that Moody’s had cited in its report the decline of oil prices and the diversification of the economy.

The minister said despite the oil decline, revenues for the first half of the current fiscal year were just five per cent below the original budgeted target, because gas prices continue to average better than budget.

He said the energy sector has seen an upsurge in activity as investments continue to be strong with the Juniper Platform US$2 billion investment and Mitsubishi US$1 billion investment.

He said there were now seven offshore rigs here, compared to just one in mid 2010.

“We signed 21 production sharing contracts and licenses in the last five years. This would mean a high level of activity in drilling for the rest of the decade,” he said.

“It is useful to note that WTI (West Texas Intermediate) increased from a low of US$43.39 per barrel on March 17 to $59 this week.

“This strengthening of energy prices suggest that with continued tight control of our expenditure, Government will be able to improve its fiscal performance in the coming quarter,” said Howai.

But Opposition Leader, Dr. Keith Rowley, told reporters that the situation could have been avoided, and the new ratings by Moody’s, fly in the face of everything the Kamla Persad Bissessar government has been saying, in praise of its own stewardship.

““We were going over a cliff and the government was telling us the opposite…this government has been engaging in spend, spend, spend, with no plan. Moody’s has been very critical of the Government’s macroeconomic policies,” he said.

“We (previous administrations) worked so hard to get to where we were, only to find ourselves through Government irresponsibility being downgraded,” Rowley said, adding “we are holding this government personally responsible for this downgrade.

“Our credit-worthiness has been damaged by this government, to the point where we are downgraded (by Moody’s) to negative,” he said, noting that it follows on the heels of the state-oil company, Petrotrin being downgraded by Standard and Poor’s.

Rowley said, the government was trying to postpone the downgrade until after the elections, “because they wanted to continue fooling the population that all was hunky dory and this was a land where only milk and honey were flowing.

“This government has run a deficit in every single budget, meaning that we were spending far less than we earned. And there was no plan to change that around,” he said, adding that the “most galling” issue is the fact that one of the reasons for the downgrade was that government data was either non-existence or unreliable—the absence of the Central Statistical Office (CSO).

“This government has taken active steps to prevent the operations of a Central Statistical Office so we have to rely only on ministerial misrepresentations and half-truths,” he said.

Meanwhile, the Central Bank of Trinidad and Tobago (CBTT) has described the downgrade by Moody’s as “unjustified”.

It said that the sound credit worthiness of Trinidad and Tobago’s natural gas-based economy is firmly supported by the country’s strong, net external asset position, including assets in the Heritage and Stabilization Fund, low external vulnerability and stable political system.

“Central Bank expects Trinidad and Tobago to continue experiencing healthy current account surpluses, and strong foreign direct investment (FDI) flows mainly to the energy sector, despite the sharp downturn in oil prices. The recent increase in oil and gas exploration activities, especially in the deep water acreages, should sustain energy production over the next few years, contributing to moderate economic growth prospects.

“Central Bank, therefore, believes the decision by Moody’s to downgrade Trinidad and Tobago’s credit rating by one notch from Baa1 to Baa2, and change the outlook from stable to negative is unjustified.”

It said Moody’s has taken the current cyclical decline in oil prices, added it to long standing structural issues affecting our natural gas-based economy, to recalibrate downwards Trinidad and Tobago’s position among its Baa-rated peers.

“We maintain the global LNG trade and the long term view of the LNG industry must be central to any forward looking analysis of the Trinidad and Tobago economy, not developments solely in the global oil market.”