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Tuesday, September 26 2017 @ 02:05 PM AST

Trinidad & Tobago's debt burden hits 10-year high

T&T's debt burden is at its highest in 10 years, according to analysis in a Moody's report on the Government of T&T dated April 14. Moody's published a chart showing the country's debt burden as far back as 2003, and tables showing the general government direct debt to gross domestic product (GDP) ratio hitting a 45.5 per cent high in 2013.
Figures from the Central Bank of T&T's January 2014 Economic Bulletin support the Moody's report, showing total public debt rising to $96.1 billion as at December 2013, up from $92.5 billion as at September 2013. Previous economic bulletins show similar jumps in every reporting period for the last nine bulletins.
The Central Bank in its January 2014 Economic Bulletin said: "Preliminary data showed that total public sector debt stood at $96.1 billion at the end of December 2013, equivalent to 55.3 per cent of gross domestic product (GDP). Excluding treasury bills, notes and bonds issued for open market operations (OMOs), public sector debt as a per cent of GDP was 40.6 per cent at the end of December 2013."
The International Monetary Fund said in its Article IV Consultation Staff Report of October 2013: "Public debt rose to 45.6 per cent of GDP in 2012, but is already on decline as debt related to the CLICO settlement is exchanged for units in the CLICO Investment Fund. Approximately $3 billion of government debt was exchanged during the first quarter of 2013. In addition, a debt management committee has been formed to provide oversight to debt strategy formulation and implementation, develop an annual borrowing plan and ensure coordinated operations among key institutions involved in debt management."
T&T reached the debt burden ten-year record high in 2013 with the help of another record high - external debt, which, thanks to a US$550 million bond issued in December 2013 pushed the country's External Debt to GDP ratio up to 35.8 per cent by the end of 2013. In 2012, the External Debt to GDP was 35.2 per cent.

WHAT THE CENTRAL BANK HAS SAID

Around the time of issuing the US$550 million bond, in a December 18 speech, Central Bank Governor Jwala Rambarran explained: "Some commentators have questioned the rationale behind this bond issue. One concern relates to the government's decision to access the international capital markets rather than use the ample liquidity available in the domestic financial system. Another concern is that this bond issue could jeopardise our public debt situation. Let me put to rest these concerns.

"First, T&T enjoys the second strongest credit rating in Latin America and the Caribbean, after Chile. We need to leverage our investment grade credit rating to differentiate ourselves from other countries in the region, who are still struggling from the global crisis, and to highlight the quality of our economic management amidst the global uncertainty.

"Second, it is true that government could have easily raised this volume of financing on the domestic capital markets, but this option would not have allowed us to exploit our credit rating to re-establish a presence on the international capital market by issuing a benchmark bond. Moreover, it is important to note that the 2013/2014 budget, which was approved by Parliament, projected that almost $3 billion of the near $6.4 billion deficit would be financed through foreign borrowing including commercial borrowing.

"Third, even with the bond issue the country's external debt dynamics stay well within comfortable levels. External debt is projected to rise slightly to a still very manageable nine per cent of GDP from about 8 per cent of GDP prior to the bond issue. External debt service is expected to consume just about two per cent of export earnings from 1.5 per cent prior to the bond issue. Few countries in the world can boast these impressive debt metrics.

"So the Eurobond issue allows us to differentiate ourselves from our neighbours, re-establish a presence on the international markets and does not compromise our hard won prudent debt profile."

WHAT THE FINANCE MINISTRY HAS SAID

Similarly selling it as a good thing to increase the country's external debt, the Ministry of Finance and the Economy in a December 6, 2013 statement said Finance Minister Larry Howai and senior officials of the ministry and the Central Bank left the country on December 5, "to conduct roadshows targeted toward potential institutional investors in major financial centres in the United States and London. The objective of the roadshows would be to broaden the potential investor base for the bond and set the stage for the transaction by highlighting the positive economic performance of T&T, and the country’s many attributes in a quality-focused market."

The statement said the bond "is part of the financing for the 2014 Budget and proceeds would be utilised to support the government’s operations during fiscal year 2014."

The Ministry of Finance said it considered "it prudent at this time to raise funds in the international market since current market conditions present the government with a timely opportunity to access the international debt market, where low United States treasuries and yields presents potentially attractive financing opportunities for emerging markets."

The opposition People's National Movement has said little or nothing on the topic. The Finance Ministry statement pointed out in its statement: "This is not the first occasion that the Republic of T&T has accessed the international markets and the Republic currently has two outstanding international bonds: a US$250 million bond due 2020 and a US$150 million bond due 2027."

MOODY'S FORECASTS

In other forecasts for the T&T economy in 2014, Moody's said it expects the country's nominal exchange rate to strengthen by two cents, down from TT$6.45 to US$1 in 2013, back to the 2012 level of $6.43. The credit rating agency expects the country's current account balance to have a US$3.6 billion surplus, weaker than 2013's US$3.7 billion. Moody's analysts expect T&T's current account balance-gross domestic product (GDP) ratio to fall to 12.4 per cent in 2014 from 14.3 per cent in 2013. The analysts expect the external debt to GDP ratio to also fall from 35.8 per cent in 2013 to 32.2 per cent in 2014.

In interest paid on external debt (how much the government has had to pay out on US dollar bonds), T&T paid US$780 million in 2013, up from US$710 million in 2012, and US$450 million in 2011, according to the analysts. In 2014, Moody's forecasts T&T will pay out US$790 million in interest on external debt.

Meanwhile, the net foreign direct investment to GDP ratio is expected to fall from seven per cent in 2013 to 5 per cent in 2014. In 2010 it was 2.7 per cent. In 2011 it was 3.3 per cent. In 2012 it was 3.2 per cent.

Bolstered by the US$550 million bond, official foreign exchange (forex) reserves surged to US$9.5 billion in 2013, from US$9.2 billion in 2012, and is expected by Moody's to hit US$10 billion in 2014. The net foreign assets of domestic banks fell in 2013 to US$2.3 billion, from US$2.4 billion in 2012.



SOURCE: Moody's

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