WHILE Moody's rating agency has said pandemic pressures pushed Trinidad and Tobago's debt-to-GDP ratio towards 90 per cent, it was optimistic for a "strong recovery" next year of 5.9 per cent growth, it said in a report last Friday.
However, it also warned of risks to TT based on an over-reliance on oil and natural gas, plus a dire need for economic diversification, including in the non-energy sector. Overall Moody's downgraded TT's rating from Ba1 to Ba2, while improving TT's outlook from negative to stable.
Moody's long-term (for at least one year) ratings address the possibility that a financial obligation will not be honoured as promised, on a nine tier scale from Aaa (best) to C (worst) where Ba is fifth best, and where each tier is divided into three levels from 1 (best) to 3 (worst). Ba1 has speculative elements and substantial credit risk while Ba2 is speculative with a substantial credit risk.
However, in an immediate response on Friday, Finance Minister Colm Imbert said Moody’s report on TT's ratings clashed with a recent IMF report on TT's debt management during the pandemic.
He said, "This decision by Moody’s collides with the policy advice we have received from all international organisations to protect our country and support the recovery in the current circumstances."
Imbert said since 2020, his ministry said the use of fiscal policy to cushion the impact of covid19 on the economy and population was a responsible response.
"It helped avoid destruction of the economic and social fabric and was both sensible and sensitive in our view. What subsequently matters is the determination to bring public debt back under control in a credible manner."
Moody's said the fiscal cost of handling the pandemic had weakened TT's credit profile.
"The Ba2 rating reflects the sovereign's (TT's) diminished shock-absorption capacity in the aftermath of the pandemic, evidenced by a materially higher general government debt burden of 85-90 per cent of GDP over the next three years, up from 62 per cent in fiscal 2019.
"A higher debt burden will result in a weaker credit profile even with a strong economic recovery in 2022 (of 5.9 per cent) and GDP growth of about two per cent in 2023-24 driven to a large extent by both by higher energy prices and hydrocarbon production levels."
Higher GDP growth will help arrest, but not fully reverse, the past decade's loss in real income.
"Stronger economic activity will support the authorities' fiscal consolidation efforts," the report said, "but the mature profile of the hydrocarbon sector and limited progress in economic diversification are structural factors that continue to constrain TT's credit profile.
"The stable outlook incorporates Moody's view that the Government's efforts will prove effective in improving the fiscal position by increasing non-hydrocarbon revenue and curtailing spending."
The report said TT still has sufficient buffers to protect government liquidity and balance of payments risks in the case of adverse shocks.
However Moody's said TT
