The Moody’s downgrade last week came four days after fellow New York-based Standard & Poor’s Global Ratings (S&P) also downgraded the country, replacing its “A-” rating with a “BBB+” rating.
T&T’s new rating is “Ba1” from Moody’s, down from “Baa3”, putting the country on the same level as Suriname and The Bahamas, but beneath Aruba, the Cayman Islands, Curacao and St Maarten.
Moody’s gave as the top two reasons for the downgrade ineffective management of the economy and steadily increasing borrowings by the Government relative to the country’s output or gross domestic product (GDP).
Moody’s said: “The authorities’ policy response has been insufficient to effectively offset the impact of low energy prices on Government revenues, as fiscal consolidation efforts have mostly relied on one-off revenue measures.”
Secondly, the credit rating agency said: “A steady rise in debt ratios driven by large Government deficits has eroded fiscal strength.”
The other factor: “Declining production from maturing oil and gas fields, coupled with limited investment prospects, in a context of low energy prices, have materially undermined medium-term growth prospects.”
Trinidad and Tobago’s Heritage and Stabilisation Fund (HSF) balance and foreign reserves saved the country from an outlook lower than “stable”.
Moody’s said Trinidad and Tobago faces “moderate external risks” and benefits from “sizeable fiscal buffers in offsetting further downside risks and ample access to a relatively deep domestic financial market.”
The ratings agency said: “In response to the fall in revenues, the Government reduced gasoline subsidies and current transfers. Still, these measures have not changed a rigid expenditure structure, in which wages, subsidies and transfers account for 70 per cent of total Government spending. Furthermore, total expenditures will continue to increase this year amid higher debt servicing costs and larger capital expenditures.”
Moody’s added: “Measures to raise current revenues have yielded very limited results, equivalent to one per cent of GDP this fiscal year. Even though the Government eliminated exemptions from the value added tax (VAT) while lowering the overall rate to 12.5 per cent from 15 per cent, revenues increased less than originally expected.”
On the property tax, Moody’s said: “Changes to the property tax will yield modest results, but these will not be fully reflected in revenues until next year.”
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Moody’s said: “While the Government expects to earn $9.69 billion (6.4 per cent of GDP) from one-off capital measures in 2017 fiscal year, we believe $6 billion (four per cent of GDP) is a more likely outcome given significant implementation risks.”
The agency criticised Government’s management of the economy, saying it showed “weak policy execution capacity” which “limited the effectiveness of the policy response to the energy price decline”.
Moody’s also knocked Government for its poor efforts to diversify the economy away from oil and gas dependence.