He said neither he nor Government believes the downgrade properly reflects Trinidad and Tobago’s (TT) macro-economic fundamentals. Indeed, Howai said he and Government consider the downgrade “unjustified.”
Moody’s Investors Services yesterday downgraded the government bond rating from Baa1 to Baa2. In a statement to Parliament yesterday, Howai said Moody’s cited global financial conditions coupled with a drop in energy prices as factors that led to the rating adjustment. However, he said, “there has been no deterioration in the country’s financial position in the last 12 months.” Howai said he had reflected Government’s disagreement with the downgrade to Moody’s and despite their disagreement, Moody’s had assured Government that TT’s bonds are “still comfortably investment grade.”
He said his staff had contacted the other major global rating agency, Standard and Poor’s and they said they had no immediate plans to review this country’s ratings.
“In fact, they (Standard and Poor’s) thought that our performance was better than we had originally indicated because we showed a balanced position for the first half of this year and they had projected that it would be a much larger deficit. In fact, we ourselves had projected a $3.9 billion deficit and they expected at best it would come in at that kind of number so to came in with a balanced budget, I think they felt that we had done very well.” Indeed, he said Standard and Poor’s said at this time “it was the furthest thing from their minds” to make any change to this country’s rating.
“So different ratings agencies have different views and different policies and different approaches to evaluations and so on and at the end of the day Moody’s didn’t criticise us on the financial metrics.”
He said he saw the statement before it was issued and told Moody’s that they had not taken into account the country’s many financial buffers. He said these included an inflow of US$4 billion from the Colonial Life Insurance Company (Clico); and “sinking funds,” savings accounts into which the country deposits money which is later withdrawn and used to repay its debts. He said, for instance, that TT has more than US$5 billion in one such fund “and if you net that off against our loan base, our loan base becomes US$5 billion lower.
“So that there are a number of financial buffers that we have that we thought that they had not taken into consideration and we have indicated that a substantial part of the funds coming in from Clico will be used to create additional sinking funds against the overall debt so that we could keep the debt relatively manageable going forward.”
However, Howai said despite his representations, Moody’s said they had reached a conclusion and they did not intend to change it. He added Government will sit down with Moody’s in a few month’s time to review the whole situation.
Howai dealt at length with Government’s accomplishments, services delivered to the population such as its “water for all” and housing programmes. “Because at the end of the day, my position to Moody’s is that these investments that we make will add to the long-term growth of the country because if you increase productivity to the extent that a person has water in his pipe and he doesn’t have to go down the road to fill a bucket, you have improved his quality of life.” He said he told Moody’s Government could have decided not to borrow any money and not to spend on such services and instead saved the money “and we (would) get a real high rating because we have all the money in the bank, but the purpose of the Government is to find a right balance between ensuring fiscal prudence and a manageable overall fiscal framework while at the same time delivering to the population the goods and the services which are required .”