Who Will Deliver T&T from Disinformation, Default and Darkness?

Moody’s downgraded the Government of T&T to Ba1 (non-investment grade / ‘junk’) over four years ago (long before COVID) on April 25, 2017. S&P downgraded the Government of T&T to BBB in 2019 and BBB- (one notch above ‘junk’) in 2020. In July 2021, S&P put its BBB- rating on negative outlook, which means that a downgrade (in this case, to junk) is their most likely next ratings action, especially if things continue along the current macroeconomic trajectory. Not one of the rating agencies’ actions over the past 6 years has been positive, indicating a steadily increasing probability of sovereign default.

On September 18th 2021, the Jamaica Gleaner carried an article quoting the most recent public expression of my view that The Bahamas and Trinidad & Tobago are the most at-risk of suffering balance of payments crises / sovereign debt defaults in the Caribbean. It would appear that this may have prompted a reaction from the Minister of Finance in T&T, who on September 19th tweeted “I have observed some egregious misinformation published in the regional media about the TT economy. The fact is that through prudent management we have 8.7 months of Import Cover, US$7.1B in Reserves, US$5.6B in the HSF, AND Investment-Grade Credit Ratings, all amid Covid-19” and “The article in today’s Sunday Guardian which claims that T&T will soon default on its sovereign loans is utter rubbish. One month ago, we affirmed our Investment Grade Credit Rating with Standard & Poor’s, a premier sovereign credit rating agency. This is irresponsible journalism.” But by the Minister’s own admission via his tweet on August 24th “T&T’s Foreign Reserves have just been boosted by the equivalent of US$644 Million, as a result of a global distribution by the IMF of Special Drawing Rights designed to help countries cope with the Forex demands of Covid-19. Our Net Foreign Reserves are now back over US$7 Billion.” Surely the Minister wasn’t attempting to take credit for this boost to reserves by citing his ‘prudent management’.

Were it not for USD loans, HSF drawdowns, IMF SDRs, reserves would be USD1.85bn.

Leaving the Minister’s disinformation aside, the facts are that were it not for Government’s USD borrowing of USD2.5 billion since 2014, drawdowns from the Heritage and Stabilization Fund (HSF) of USD2.1 billion, and the USD644 million IMF SDR injection, T&T’s foreign reserves would now stand at a mere USD1.85 billion or roughly TWO MONTHS of import cover. And these USD loans and drawdowns are being used to pay the interest on existing debt and other recurrent expenditure (Transfers & Subsidies, Wages & salaries in particular), but NOT to pay VAT refunds and other arrears that the Government continues to accumulate. This is anything BUT prudent management of reserves themselves, nor the way they are spent.

And this hemorrhaging of USD is by no means a pandemic phenomenon, or a recent one for that matter — the Government has been borrowing and withdrawing from the HSF steadily since 2014. Over the last 12 months alone, we have been burning through our organic reserves (excluding debt, IMF SDRs and HSF withdrawals) at a pace of about USD133 million per month, such that T&T has lost 81% of its organic reserves in the last 6 years. The TTD money supply to USD reserve ratio reached TTD14.56 : USD1.00 in June 2021, versus an official exchange rate of about TTD6.80 : USD1.00, demonstrating high and mounting pressure on the overvalued TTD / exchange rate. This is all anything BUT ‘prudent management’.

Economist and leading advisor on the Caribbean