Moody's: Government measures may not address forex decline

Finance Minister Davendranath Tancoo. -

MOODY's ratings agency is concerned that measures outlined by government to address the decline in foreign exchange (forex) reserves may not be sufficient to achieve this task.

The firm said this was the reason why it decided to change government's outlook from stable to negative and affirm the Ba2 long-term local and foreign currency issuer and senior unsecured ratings.

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."

Shell's Manatee field was one of the energy projects identified by Moody's that could support forex generation and boost economic growth in 2027.

But before this happens, Moody warned, "The risk of further forex reserve drawdown to critical levels during the next two years is significant."

Moody said it does not consider the assets in the Heritage and Stabilisation Fund (HSF) as part of TT's forex reserves "because they are only accessible under specific conditions and are not readily available for immediate balance-of-payments support or currency intervention."

Moody's said government has not defaulted on bonds or loans since 1983, and a rating committee meeting was held on December 9 to discuss this.

The committee, Moody's continued, observed government's "institutions and governance strength, have not materially changed."

Moody also said government fiscal or financial strength, including its debt profile, has not materially changed.

But the firm warned government "has become increasingly susceptible to event risks."

Moody's outlined factors which could lead to an upgrade or downgrade of TT's credit ratings.

In the case of the former, Moody's said, "Stabilisation and rebuilding of forex reserves to levels that materially reduce external vulnerability, supported by higher hydrocarbon output, would lead to a return to a stable outlook."

A sustained decline in the debt-to-GDP ratio supported by credible fiscal consolidation and structural revenue gains, improving fiscal strength, would also support credit quality.

Moody's said, "Diversification of non-energy exports and evidence of durable policy effectiveness and institutional capacity to maintain these improvements would also support an upgrade."

On the latter, Moody's said, "Downward pressure could arise if forex reserves continue to decline, undermining confidence in the sustainability of the de facto peg."

Moody's added, "Although not our baseline, in a worst-case scenario where the pace of drawdown accelerates and reserves fall below three months of imports, a multi-notch downgrade could materialise over time."

Moody's repeated, "Failure to implement fiscal reforms, resulting in persistent deficits and a debt burden significantly above 85 per cent of GDP, would signal weaker institutions and governance effectiveness, consistent with a lower rating level."

In September, another international ratings agency, Standard and Poor's (S&P), also revised its outlook from stable to negative. The reasons for that revision were similar to the ones advanced by Moody's.

S&P indicated at that time it could revise the outlook to stable over the next two years "if we believe government policies will improve fiscal sustainability, and lead to more favourable long-term GDP growth and sustain the country's external profile."