New York, June 26, 2019 -- Moody's Investors Service ("Moody's") has today
affirmed the Government of Trinidad & Tobago's Ba1 long-term
issuer and senior unsecured debt ratings and maintained the stable outlook.
The affirmation of the Ba1 ratings is supported by the following factors:
1. Sizeable fiscal buffers, balanced against an elevated
debt ratio relative to peers
2. Economic recovery driven by the energy sector, but limited
prospects for economic diversification and institutional constraints limit
shock absorption capacity of the economy
3. Low susceptibility to external financing risks given high reserve
coverage of external debt payments
The stable outlook captures Moody's expectations that risks to the
rating are balanced. On the upside, prospects of a sustained
increase in oil and gas production would materially improve medium-term
growth prospects contributing to fiscal consolidation efforts, which
would stabilize government debt ratios. Alternatively, institutional
constraints continue to limit policy execution and the country's
fiscal profile remains vulnerable to future commodity price shocks.
Trinidad & Tobago's long-term foreign-currency
bond ceiling remains unchanged at Baa3. The foreign-currency
bank deposit ceiling remains at Ba2, while the local-currency
bond and bank deposit ceilings remain at Baa2. The short-term
foreign-currency bond and bank deposit ceilings remain unchanged
at P-3 and Not Prime (NP), respectively.
RATINGS RATIONALE
RATIONALE FOR THE AFFIRMATION OF THE Ba1 RATINGS
SIZEABLE FISCAL BUFFERS BALANCED AGAINST A STILL ELEVATED DEBT BURDEN
RELATIVE TO PEERS
The decision to affirm Trinidad and Tobago's Ba1 rating is underpinned
by the government's sizeable fiscal buffers, with close to
$6 billion in assets in the Heritage and Stabilization Fund (HSF)
as of fiscal 2018, which is equivalent to over 25% of GDP.
A large stock of liquid assets provides the government fiscal flexibility
when oil prices decline, contributing to lower government liquidity
risk as well as external vulnerabilities. HSF assets are liquid
and can in principle be used to finance the deficit.
Government debt ratios have stabilized over the past two years,
and Moody's expects the debt burden to remain stable around current
levels, supported by moderate fiscal deficits in the order of 2.5%
to 3.5% of GDP in 2019-20. An increase in
energy-related revenue, along with continued expenditure
restraint, underpin these forecasts.
Although government debt, at 63% of GDP, is above the
Ba median of 50%, associated credit risks are mitigated by:
(i) the government balance sheet's limited exposure to exchange
rate risk given a moderate share of foreign-currency-denominated
debt (29% of total government debt); (ii) strong debt affordability
despite rising government debt, with the ratio of interest payments
to government revenues at around 10%; (iii) a low weighted
average interest rate on central government debt, which at 3.68%
as of April 2019, is relatively low for an emerging market economy
that relies primarily on domestic financing and has only a small portion
of concessional debt.
ECONOMIC RECOVERY DRIVEN BY THE ENERGY SECTOR, BUT LIMITED PROSPECTS
FOR ECONOMIC DIVERSIFICATION AND INSTITUTIONAL CONSTRAINTS LIMIT SHOCK
ABSORPTION CAPACITY
After a steep contraction in output, with real GDP declining by
8% between 2015 and 2017, economic growth has now stabilized.
Moody's expects the economy to expand by around 1.5%
in 2019, and to expand between 1.5%-2.5%
over the subsequent two to three years. Increased gas production
beginning in 2017 reversed the long-term decline in production,
and initially supported the economic recovery. Moody's expects
gas production to stabilize as output from new gas fields offset declining
production at existing fields. Exploration in the energy sector
will support growth prospects over the next two to three years.
However, Moody's sees limited prospects of economic diversification
away from the energy sector. The business environment remains weak
due to structural factors like high crime rates, skills mismatches
in the labor force, limited access to finance, and climate-related
risks, which pose challenges to the development of more robust non-energy
economic sectors. Government bureaucracy also weighs on the investment
climate.
Trinidad's institutional and execution capacity remain a rating
constraint, despite some improvements in the government's
policy response and effectiveness. Spending cuts enacted over the
previous four years -- which amount to a more than 20% reduction
in nominal spending -- have reduced fiscal imbalances and better
aligned spending with revenue. Furthermore, in late 2018,
the government announced a restructuring of state-owned energy
company Petrotrin, which included the closure of its sole refinery,
as part of a broader revamp of Petrotrin's operations. This
resulted in the creation of a new company -- Trinidad Petroleum --
aimed at improving the company's weak financial position.
While there are risks to Trinidad Petroleum's new business model,
Moody's views the government's decision to close the refinery
as a positive step in improving the operations of one of the country's
most important state-owned companies.
Policy predictability and effectiveness remain constrained by poor data
quality and uncertainty over medium-term fiscal projections,
informing Moody's low assessment of institutional strength.
Data quality remains weak, adversely affecting the timeliness of
the government's policy response to economic shocks and medium-term
planning. Continued reliance on asset sales and dividends from
state-owned enterprises to generate revenue limits the reliability
and predictability of revenue streams, and introduces an element
of uncertainty to medium-term fiscal prospects. Measures
to broaden the tax base and reduce the government's reliance on
energy-related revenue -- e.g., establishment
of a single Revenue Authority, introduction of a property tax --
have had limited success to date and continue to be subject to prolonged
implementation delays.
LOW SUSCEPTIBILITY TO EXTERNAL FINANCIAL RISKS GIVEN HIGH RESERVE COVERAGE
OF EXTERNAL DEBT PAYMENTS
The stock of international reserves continues to provide a significant
financial buffer to external shocks. For instance, Moody's
projects the external vulnerability indicator, which compares short-term
external debt payments to available reserves, to remain low at 22%
in 2019, indicating a high level of coverage of external debt payments.
Despite low external vulnerability risk, international reserves
have declined to $7.3 billion as of April 2019, down
from a peak of $11.5 billion in December 2014. Moody's
expects the decline in reserves to continue over the next two years,
despite the presence of a large current account surplus of around 6%
of GDP, driven by financial outflows and significant errors and
omissions. Consequently, the rating agency also expects continued
shortages of foreign exchange in the domestic market, which affect
small and medium-sized enterprises and weigh on non-energy
growth prospects.
WHAT COULD CHANGE THE RATING UP
Over time, a reduction in government debt ratios and improved fiscal
performance, particularly if supported by an increase in non-energy-related
government revenue and improved tax collection rather than asset sales
- or drawing down on fiscal buffers - would result in an
upgrade. Material progress in institutional and economic reforms
that increase competitiveness and the economy's shock-absorption
capacity would also likely result in a higher rating.
WHAT COULD CHANGE THE RATING DOWN
The rating would be downgraded if government debt ratios were to materially
deteriorate, which would be counter to Moody's expectations
for stable debt ratios. The need for mounting government support
for state-owned enterprises, resulting in a material increase
in government debt, would weaken the government's balance
sheet and likely result in a downgrade. A weakening of the balance-of-payments
position would increase external vulnerability risks over time,
and could also lead to a downgrade.
GDP per capita (PPP basis, US$): 32,254 (2018
Estimate) (also known as Per Capita Income)
Real GDP growth (% change): 1.4% (2018 Estimate)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1% (2018
Actual)
Gen. Gov. Financial Balance/GDP: -4.1%
(2018 Estimate) (also known as Fiscal Balance)
Current Account Balance/GDP: 6% (2018 Estimate) (also known
as External Balance)
External debt/GDP: 46.8% (2018 Estimate)
Level of economic development: Low level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 21 June 2019, a rating committee was called to discuss the rating
of the Trinidad & Tobago, Government of. The main points
raised during the discussion were: The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The issuer's institutional strength/framework, have materially increased.
The issuer's fiscal or financial strength, including its debt profile,
has not materially changed. The issuer's susceptibility to event
risks has not materially changed.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in November 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
David Rogovic
VP-Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
