Business
Trinidad & Tobago rating stable – Moody’s Investor services
International credit rating agency, Moody’s Investors Service, has affirmed Trinidad & Tobago’s Baa1 government bond rating, adding that the twin-island republic’s economic outlook “remains stable”.
The Wall Street-based Moody’s said the “key drivers” of the rating action are “continued resilience of the government’s balance sheet,” despite some deterioration of government debt metrics, and “significant fiscal savings in a sovereign wealth fund and a strong external position supported by persistent current account surpluses and a large foreign exchange reserve buffer”.
In addition, Moody’s said a “challenging growth outlook contingent on the resumption of activity in the energy sector following a protracted recession” contributed to the rating action.
The rating agency said Trinidad & Tobago’s Baa1 sovereign rating continues to be supported by the government’s “robust balance sheet, fiscal savings, and a strong external liquidity position that mitigate susceptibility to event risk; a solid institutional framework with a high degree of policy coherence and continuity; and relatively high income per capita”.
Moody’s, however, said that the rating is constrained by the relatively small size of the economy, a limited degree of diversification, concerns about medium-term growth prospects and the relative deterioration of fiscal and debt metrics.
“The government’s balance sheet continues to be a source of strength for the rating, despite some recent deterioration as debt metrics remain in line with those of its rating peers,” it said, adding the government responded to the economic downturn with an “aggressive fiscal stimulus program”.
In this context, Moody’s said the execution of public sector capital projects “has been weak while current expenditure has increased, driven by wages and transfers to public enterprises”.
As a result, Moody’ said the Trinidad & Tobago government debt increased to 46.9 percent of Gross Domestic Product (GDP) in 2012 from 23.4 percent in 2008.
It said over half of the increase, about 13 percent of GDP, was due to domestic debt issued to settle fiscal liabilities, “stemming from the bailout of CL Financial, a systemically important financial conglomerate that collapsed in 2009”.
Moody’s said although it expects the fiscal deficit to average around 5 percent of GDP in 2013/14, compared to an average surplus of 1.3 percent in 2004-2008, “the rate of government debt accumulation should moderate in the coming years.
“The government benefits from low funding costs, a favorable debt maturity profile that limits rollover risk, and a broad non-energy revenue base,” it said.
Moody’s said Trinidad & Tobago’s credit resilience is supported by “significant buffers in the form of fiscal savings, a high level foreign exchange reserves, and low external debt ratios relative to peers”.
It said the Heritage and Stabilization Fund (HSF), a core fiscal institution created to manage excess fiscal revenues from the oil sector, has accumulated a balance equivalent to 19 percent of GDP as of 2012.
Moody’s said the country’s international reserve cushion of 42 percent of GDP is “superior to most Baa1-rated peers”.
But despite “these strengths”, Moody’s said there are concerns about Trinidad & Tobago’s growth prospects.
It warned that the economy “continues to face headwinds even after GDP contracted at an average annual rate of 1.4 percent between 2009 and 2012”.
Moody’s predicts that growth of less than 1 percent in 2012 will be followed by a “modest recovery in 2013, given a projected 2 percent increase in GDP.
“Risks to this forecast remain tilted to the downside, driven by an uneven performance in the energy sector, weak domestic demand, and poor regional growth prospects,” it said.
“The stable outlook balances the recent deterioration in fiscal and debt metrics and downside risks to growth, against significant fiscal savings, recurring current account surpluses, and a strong international reserve position,” it added. – (CMC)