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Moody’s says T&T outlook stable

Monday, May 14, 2018

Moody’s Investor Services has given the T&T Government a rating of BA 1. With a stable outlook. In a May 10 credit opinion, the rating agency cited, “large financial buffers, high wealth levels and significant international reserves.”

However,” the agency added: “Those credit features mitigate credit challenges related to a policy response that has been unable to offset the impact of low energy prices on the Government revenue. A steady rise in Government debt ratio has contributed to an erosion of sovereign creditworthiness.”

Moody’s said the stable outlook is based on the expectation that capital revenue related to asset sale will help reduce borrowing requirements and lead to relatively stable debt ratios of around 64 per cent of GDP. It said stable fiscal buffers limit down downside credit risks, along with “ample access to a relatively deep domestic financial market.”

T&T could suffer a rating downgrade if limited fiscal consolidation leads to significantly higher deficits. A reduction in assets held in the Heritage and Stabilization Fund (HSF) would undermine creditworthiness and lead to a downgrade, Moody’s warned.

T&T’s economic strength was assessed as low because of the slow pace of growth and the economy’s relatively small size. However, this was partly offset by high income levels.

“Growth prospects remain subdued given the sluggish recovery in the non-energy sector, while an increase in gas production and higher prices support activity in the energy sector,” the agency said.

The score also reflected limited prospects of further economic diversification away from oil.

Fiscal strength was rated as moderate because “debt burden and debt affordability indicators do not fully capture the heavy reliance of Government revenue on the energy sector and on capital revenue such as asset sales, which cannot be sustained over an extended period,” Moody’s said.

“On balance, the country’ rising debt burden is offset by low foreign-currency debt and moderate debt affordability indicators.

“The Government has accumulated savings in the heritage and Stabilization Fund of around 27 per cent of GDP, which it has used to help finance the Government deficit, limit the increase in debt and keep interest costs down.

Moody’s said the country’s susceptibility to event risk is very low because of limited liquidity risk but said foreign exchange shortages and emergence of a parallel market for US currency were indicators of downward pressure on the exchange rate.

“External pressures, however, are contained given a robust international reserves position of nine months of imports and an External Vulnerability Indicator (EVI) of 19 per cent,” the agency added.


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