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BUSINESS GUARDIAN guardian.co.tt APRIL 27 • 2017
Former ministers worried about
T&T debt following S&P downgrade
Former Minister in the Ministry of
Finance, Mariano Browne, is not
surprised that T&T's sovereign
credit rating was downgraded to
BBB+ from A- with a stable out-
look, by New York based rating
agency, Standard and Poor's.
In emailed responses, Browne said the
downgrade was expected and he was grate-
ful it was a one notch downgrade. "Indeed, I
thought that the evaluation was friendly and
could have been much worse."
Citing the S&P's rationale for the down-
grade, Browne said the rating agency expected
a continued deficit.
Secondly, Browne said S&P pointed to reli-
ance on the revenues from the state enterprises
and not, "the revelations of the JSC (joint select
committee) that there are only eight of 60 state
corporations that are profitable, as well as that
virtually all of the profits of NGC have been
used for national budgetary support and state
enterprises now have over $45 billion in debt."
Thirdly, S&P noted that the government's
debt burden is likely to increase as it borrows
in the domestic market to finance its deficit.
"In mitigation of these negatives, S&P relied
on the size of the external reserves and the
HSF. Were it not for these, it's evaluation would
have been much harsher. In addition, it took
some comfort from a recovery in energy prices.
"This confidence is misplaced given the
recent revelation that negotiations between
NGC and bpTT over gas contracts for the future
Browne also noted S&P's warning if there is
no action by the government to improve T&T's
debt position, or if conditions in the energy
sector do not improve, T&T would be given a
According to the S&P announcement, the
rating agency said:
"We could lower the rating in the next two
years, absent a gradual recovery in economic
growth or amid weaker-than-expected fiscal
results. More persistent lower-than-expect-
ed growth could weigh on our economic as-
sessment or the pace of improvement in the
government's general government deficit.
Either could result in downward pressure on
"Conversely, we could raise the ratings over
the next two years should the government ef-
fectively implement structural reform that en-
hances economic diversification and investor
confidence, strengthening T&T's growth and
fiscal profile while containing external vulner-
abilities. Steps to accelerate fiscal consolida-
tion that reduces the fiscal deficit beyond our
estimates could lead us to raise the ratings, as
could sustained improvement in the quality of
T&T's economic and external data."
Asked whether T&T should be concerned
that the rating agency highlighted T&T's debt
position as the rationale for downgrading T&T,
Browne agreed it was an area to be worried
"The government has been depending on
borrowing and dividends to facilitate its ex-
penditure. The report points to continued
reliance on the Central Bank and domestic
borrowing. In this regard, the state enterpris-
es continue to drain state funds; Petrotrin in
particular. And bad news of another oil spill
does not augur well for the future. Whilst we
maybe in a better position than our neighbours,
there is no evidence that our debt profile is
being managed proactively."
Browne noted that the report indicated the
debt service ratios now accounts for five per
cent of all expenditure.
It means, according to Browne: "If the gov-
ernment borrows more, repayments reduce its
fiscal space. This could easily become a tread-
mill if not appropriately managed. In other
words, S&P is raising a diplomatic warning,
a red flag over continued borrowing to finance
Asked whether the downgrade of T&T's
credit rating further sends the signal that T&T
should be increasing its diversification efforts,
Browne said diversification is a long-term ex-
ercise and requires a significant improvement
in the way the government does business.
"Most importantly, it is the private sector
that must diversify and it is government that
must enable. Productivity improvement are
required at every level if we are to remain
Substantiating his comment, Browne said
this is captured by S&P's comment, "However,
obstacles to sustained long-term growth will
persist without further structural reforms to
increase productivity in the labour market and
reduce bureaucracy in the public service."
Now that the countdown for the 2017/2018
national budget is on, Browne said the gov-
ernment has less room to manoeuvre and that
the key issues which are in the spotlight are:
leadership, management and efficiency, "and
in this regard the State must lead."
He added that, "The statutory corporations
are in financial difficulty, therefore, rather than
raise taxes government must enrol the public
in this efficiency process.
"Electricity rates are lowest in the region as
a result of hidden and not so hidden subsidies.
These must be reduced. The diesel subsidy is
in effect a subsidy to the business sector. There
are several areas of overlap and lack of co-or-
dination in government expenditures. Price is
what the market will bear and consumer action
will determine how margins will be affected."
Overall, he said, the existing exchange rate
and the US currency shortages point to imbal-
ances which must be addressed.
"There are parallel rates which indicate that,
on a trade-weighted basis, that the dollar is
overvalued. There will be little progress in the
diversification effort unless this is addressed.
"Business wants certainty and if they are
to invest for the future then foreign exchange
must available. Recent statements by the Min-
istry of Finance, about an allocation system are
neither sensible nor warranted. What it does
require is bold action by the Central Bank not
the Ministry of Finance."
Downgrade may have
Winston Dookeran said the downgrade by
S&P may have been averted if the wage policy
from 2013 and the foreign exchange manage-
ment from 2016, "did not add great stress on
the recurrent expenditure in the public and
In an emailed response, he said other factors
contributed to the downgrade apart from the
challenges surrounding US currency and the
wage policy from 2013.
"A confidence-building fiscal and economic
strategy and the fall in oil prices made the de-
cision of Standard and Poor's an expected one.
Project financing costs will be more expensive
and accessing the external capital markets will
be more costly."
Asked whether foreign direct investment
is likely to be affected, Dookeran said it may
not be significantly affected as energy sector
investment buffers the economy.
"Mitigating the 'fall out' will require a do-
able national investment initiative, a credible
foreign exchange regime, and new measures to
increase the flow of funds into the local econ-
omy, like diaspora bonds, more disbursement
of multilateral funds already in the pipeline,
and a believable strategy for new finance in
the private sector."
How effective is our
Kevin Ramnarine said the levels of T&T's
debt has increased significantly for years.
Referring to the $1 billion bond which was
issued by the Government in August 2016,
Ramnarine said in addition to that, "the gov-
ernment has been borrowing domestically and,
therefore, the question that needs to be asked
is how effective is borrowing?
"We are seeing absolutely no evidence of
that borrowed money being spent on capital
projects in T&T."
He said based on the trend of borrowing of
funds, it appears that the funds may have been
used for recurrent expenditure, "which is a very
ineffective and unsustainable way to use debt."
The existing fiscal incentives for instance, he
said have been criticised by the Government
but according to Ramnarine, it is those same
fiscal incentives which enabled companies like
bpTT to make investments.
"The current government has been highly
critical of the fiscal incentives that were pro-
vided to the companies like BP, that enabled
them to invest in those said projects that now
provide T&T with a stable economic outlook,
according to S&P."
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