Arjoon: Moody's outlook shift a warning signal, not a downgrade

Dr Vaalmikki Arjoon. - File photo by Rishard Khan

UWI economist Dr Vaalmikki Arjoon said the decision by Moody's to revise Trinidad and Tobago's outlook from stable to negative must be taken in the proper context in relation to global energy cycles.

Former minister in the ministry of finance Mariano Browne said, "Moody’s report was to be expected. I am intrigued by what the final figures for the fiscal position would like."

They made their respective comments on December 13.

While TT's credit ratings with Moody's and Standard & Poor's (S&P) have not changed, Arjoon said this is a moment when government must make an honest analysis of TT's economic situation and take the necessary steps to maintain and strengthen the country's economic position.

In a statement, Arjoon said, "Our ratings and outlook tend to move with the energy cycle – improving when higher production and prices support export foreign exchange (forex) earnings and fiscal revenues, and coming under pressure when production declines or prices weaken."

He added, "It's crucial to understand that our credit rating itself remains unchanged by both S&P and Moody’s.We have not been downgraded, but the outlook adjustment signals that both agencies have placed our rating under review, essentially putting us on watch as they assess whether future economic conditions warrant maintaining our current standing."

In this context, Arjoon continued, the new outlook reflects heightened caution regarding our forex reserves levels, falling from about US$11 billion in early 2015 to roughly US$4.6 billion by October, driven largely by a prolonged decline in natural gas output. "Gas production dropped from over 4 bscf/d in January 2015 to around 2.7 bscf/d today, as upstream activity relied mainly on mature fields amid insufficient new investment."

He said, "The absence of exploration block awards for seven consecutive years (2015–2022), combined with fiscal rigidity, policy uncertainty, investor caution, delayed commercial negotiations, and ageing infrastructure, weakened the pipeline of new gas projects. Arjoon added, "Given that energy commodities account for 80 per cent of export earnings, this sustained production declines translated directly into lower export receipts, reduced forex inflows, and declining reserve – key factors underpinning the deterioration in the outlook."

He observed efforts are being made to partially arrest some gas declines by giving more priority to smaller, lower-cost, faster-to-market gas fields with shorter lead times.

Arjoon said this is being done while projects such as Manatee, Ginger, and Coconut are expected to deliver first gas from 2027 onward. "Together, this sequencing will improve foreign-exchange inflows and strengthen forex reserves over the medium term, hopefully supporting an improved rating outlooks by 2027, as higher and more sustainable gas production is realised."

He also suggested the new blueprint plan proposed by government "can drive further diversification and attract FDI (foreign direct investment) helping to generate new forex earnings."

"Ultimately, lasting improvement in the rating will depend on continued structural adjustment – expanding non-energy export capacity and attracting FDI that generates sustainable foreign-exchange earnings."

Mariano Browne. - File photo by Faith Ayoung

Browne said, "The reality of unsettled wage demands cannot be escaped. The absence of any realistic market based approach to solving the foreign exchange (forex) crisis has led to rapidly declining reserves."

He added this means the pressure on forex will continue.

"The wage settlements will add to the demand for forex and exacerbate this situation."

Browne said this is a case of two pressures leading in the same direction.

"Worsening the deficit and the forex position simultaneously worsening the overall situation."

He recalled in September, S&P revised TT's outlook from stable to negative and "said that they will reduce TT’s rating if there is no improvement in the fiscal management."

Browne said the recent changing of the boards of commercial banks and the firing of Export Import (Exim) bank Navin Dookeran cannot address the economic structural issues which ratings agencies assess in determining credit ratings and outlooks for countries.

He added the situation is also not helped by managers being forced out of state enterprises.

"There are policy gaps and weak measures that do not address the fundamental issues. They merely give the appearance of effort without addressing the basics."

Browne said, " If you don’t have the revenue you have to cut expenditure. If your aren’t earning enough foreign exchange you have to address the pricing.

In its report, Moody's said, "The change in outlook to negative reflects rising external vulnerability, as liquid forex reserves (defined as gross reserves excluding gold and special drawing rights; forex reserves) have fallen by 24 per cent over the past year to $3.2 billion as of August 2025, below our previous projection for stabilisation at about $4 billion."

This, Moody's continued, has intensified forex shortages and reduced coverage of upcoming external debt payments.

"While we expect new hydrocarbon projects to bolster foreign exchange inflows and, consequently, reserves, this is unlikely before 2027."

Moody's said, "The negative outlook reflects the risk that the implementation of the new government's announced measures, such as enhancing Eximbank's focus on key exporters, advancing transfer pricing legislation, strengthening the fight against financial crime, and intensifying economic diversification efforts toward non-energy exports, are insufficient to arrest the decline before new energy projects come on-stream."

He said, "At the same time, strengthening tax compliance, reducing revenue leakages, and improving fiscal efficiency will be critical to lowering reliance on the energy cycle and and builds more economic resilience that rating agencies reward."