Moody’s holds TT credit rating stable

On the same day that Finance Minister Colm Imbert delivered his mid-year review of the 2018 Budget, international credit rating agency Moody’s released its report on the country’s economic outlook. And like Imbert, Moody’s also gave TT a stable rating. But while the Finance Minister foresaw a “bright, sun-shiny day” for the country, Moody’s was more ambivalent.

“The stable outlook incorporates our expectation that capital revenue associated to asset sales would help reduce government borrowing requirements and lead to relatively stable government debt ratios around 64 per cent of GDP. The stable outlook captures the presence of sizeable fiscal buffers that limit downside credit risks, as well as the government’s ample access to a relatively deep domestic financial market,” the New York-based credit agency said.

Moody’s held the country’s Ba1 rating steady, although, according to its rating criteria, that still puts the country at the highest tier of junk bond (high-risk) investment status. Standard & Poor’s, whose rating came out at the end of April, also held its rating steady but projected a negative outlook. S&P’s BBB+ rating is, however, according to their scale, in the mid to low range of investment grade.

“Trinidad and Tobago’s credit profile is supported by large financial buffers, relatively high wealth levels, and significant international reserves, which limit external vulnerabilities. Those credit features mitigate credit challenges related to a policy response that has been unable to offset the impact of low energy prices on government revenue.

A steady rise in government debt ratios has contributed to an erosion of sovereign creditworthiness,” Moody’s said. Imbert did directly address the country’s debt to GDP ratio in his presentation Thursday, saying that increased energy output at the end of last year led to a revised GDP higher than previously reported, and as such, led to an improved debt to GDP ratio, less than 60 per cent even factoring current plans to borrow.

Still Moody’s was on the fence, noting that an economic policy response that proves effective in reversing the rise in government debt levels would be supportive of a rating upgrade.

A sustained increase in oil and gas production, which materially improves medium-term economic growth prospects would also potentially lead to an upgrade.

On the flip side, a downgrade would be likely if limited fiscal consolidation (policy attempts to reign in deficits and borrowing) leads to deficits significantly higher than those it currently envisions. “A material reduction of fiscal buffers – that is, assets held in the Heritage Stabilisation Fund— would undermine creditworthiness and lead to a downgrade,” Moody’s said. Imbert had boasted of a robust HSF with assets of US$5.87 billion, despite withdrawals of nearly US$600 million.