Moody’s upgrades Trinidad and Tobago’s credit outlook

21st July 2023

Moody’s Investors Service has upgraded Trinidad and Tobago’s credit rating outlook to positive from stable, while affirming the country’s long-term issuer and senior unsecured ratings at Ba2.

The international credit ratings agency noted that the positive outlook reflects the expectation that the country’s fiscal consolidation momentum triggered by windfall gains from energy prices will be sustained through structural spending and revenue measures.

“The positive outlook reflects improved prospects that Trinidad and Tobago’s (T&T) fiscal consolidation momentum triggered by energy price windfall gains will be more sustained than projected in Moody’s baseline scenario, despite lower gas prices, owing to the implementation of structural spending and revenue measures aimed at reducing fiscal accounts’ sensitivity to energy prices,” said Moody’s.

The agency also noted the potential for economic expansion, supported by increased oil production and diversification efforts.

“A sustained return to economic expansion after several years of contraction, supported by the projected increase in oil production starting this year would also enhance economic resiliency, as would continued diversification efforts in the non-energy sector. The government’s adopted structural fiscal and economic reforms are reflected in an improving institutions and governance strength assessment as a driver of this action,” wrote Moody’s in its report.

In a statement, Finance Minister Colm Imbert said that he considers the upgrade a welcomed development because it acknowledges the positive outcome of the efforts of the country throughout the several different shocks that have taken place over the recent years, such as oil and gas prices shocks and the severe adverse effects of the COVID-19 pandemic.

“This improvement in our outlook is a first step in the convergence and harmonisation of our international credit ratings. It is also clear that our credit rating dynamics and momentum are now positive, which is of significant importance in a world of more elevated interest rates. Better credit ratings will positively influence the cost of funding for the Government and State Enterprises and the economy of T&T as a whole,” argued the Finance Minister.

In its rationale, Moody’s acknowledged the Rowley Administration’s plans to “slow the weakening energy production trend” has the potential to improve the country’s economic growth prospects, by expanding oil production and the onboarding of several gas projects such as Shell’s Manatee field.

“Part of the government’s strategy to mitigate the declining domestic gas supply trend is to promote T&T’s role as regional energy hub by collecting, processing, and re-exporting natural gas from other Caribbean countries. This strategy builds on T&T’s comparative advantage as the only Caribbean nation with significant LNG and ammonia/methanol production capacity in place to supply world markets,” said Moody’s.

Of particular interest is the ongoing negotiations with the US Government and Venezuela on the development of the Dragon gas field.

“The two-year licence granted by the USA, Government of (Aaa stable) to T&T in January 2023 to develop the 4.2tn cubic foot (tcf) Dragon gas field offshore Venezuela, Government of (C stable) via an Office of Foreign Assets Control (OFAC) waiver from sanctions represents an important development that will test the viability of this strategy,” Moody’s stated.

Trinidadian Energy Minister, Stuart Young, recently held meetings with Shell’s Executive Vice President of LNG, Cederic Cremers during an energy conference in Canada. The discussions with Shell focused on topics including the development of the Dragon Gas field in Venezuela, the restructuring of Atlantic LNG, and Shell’s operations in T&T.

Young also met with Methanex’s Chairman and CEO to explore the potential of T&T as a bunkering port for methanol as a cleaner fuel for shipping, given that the company has two plants in the country and is the world’s largest producer and trader of methanol.

Moody’s upgrade of the economy comes on the heel of a relatively positive IMF Article IV review for 2022, which put projected 2023 real GDP growth at 3.2% and anticipated lower inflation.

On 30 June 2023, the T&T Central Bank held the repo rate at 3.50%, keeping the rate unchanged since June 2020. The Bank said that inflation trended downward over the first five months of 2023, with the Index of Retail Prices slowing to 5.7% in May 2023, compared with 6.0% one month prior and 8.7% in December 2022. Private sector credit showed a year-on-year growth rate of 6.5% in April 2023, while business credit expanded by 6.4%.

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Photo: Trinidad & Tobago Guardian