Whichev­er po­lit­i­cal par­ty wins the To­ba­go House of As­sem­bly (THA) elec­tion on De­cem­ber 6 is like­ly to in­her­it a To­ba­go that is fac­ing sig­nif­i­cant eco­nom­ic chal­lenges.

Moody’s In­vestor Ser­vice in its lat­est cred­it opin­ion dat­ed Sep­tem­ber 13, has giv­en the THA a neg­a­tive rat­ing out­look and long term rat­ing of Ba1.

Lim­it­ed eco­nom­ic di­ver­si­fi­ca­tion, very low own-source rev­enue, and weak­ness­es in re­port­ing of fi­nan­cial state­ments have been iden­ti­fied by Moody’s in that re­port as chal­lenges to the THA’s cred­it pro­file over the medi­um to long term.

In 2012 the THA took the de­ci­sion to ob­tain a stand-alone cred­it rat­ing.

The THA was the first such “sub-sov­er­eign” rat­ing to be is­sued in the Eng­lish-speak­ing Caribbean.

“THA’s very low own-source rev­enues are a prod­uct of both its lim­it­ed rev­enue-rais­ing au­thor­i­ty, as well as its lim­it­ed eco­nom­ic base, with more than half of the is­land’s labour force be­ing em­ployed in the pub­lic sec­tor. This re­sults in own-source rev­enues that av­er­aged 1.2 per cent of op­er­at­ing rev­enue dur­ing 2016-2020 and that equalled 0.9 per cent in 2020. THA’s low own-source rev­enue lim­it its fi­nan­cial flex­i­bil­i­ty and leave it high­ly de­pen­dent on trans­fers from the cen­tral gov­ern­ment.

“This lim­it­ed base of own-source rev­enue re­stricts THA’s ca­pac­i­ty to fund long-term cap­i­tal projects and so­cial pro­grams on its own, but al­so con­tributes to rev­enue sta­bil­i­ty in pe­ri­ods of stress,” Moody’s stat­ed.

The most re­cent labour mar­ket da­ta from the Cen­tral Sta­tis­ti­cal Of­fice (CSO) in­di­cat­ed that in the sec­ond quar­ter of 2018, ap­prox­i­mate­ly 60 per cent of per­sons with jobs in To­ba­go were em­ployed in the state sec­tor, with the pri­vate sec­tor em­ploy­ing ap­prox­i­mate­ly 40 per cent.

“The ser­vices sec­tor is the largest and the most dom­i­nant sec­tor in To­ba­go’s econ­o­my. Gov­ern­ment ac­tiv­i­ty ac­counts for the largest share of the econ­o­my, rep­re­sent­ing 45.7 per cent of To­ba­go’s GDP on av­er­age be­tween 2011 and 2018, fol­lowed by ser­vices in­clud­ing fi­nance, in­sur­ance, re­al es­tate and busi­ness ser­vices, and then by the tourism sec­tor,” Moody’s stat­ed.

To­ba­go has launched ini­tia­tives to boost eco­nom­ic di­ver­si­fi­ca­tion and has pro­vid­ed grants and loans to sup­port en­tre­pre­neurs to grow the pri­vate sec­tor.

The THA gov­ern­ment has al­so made in­vest­ments that seek to in­crease pro­duc­tiv­i­ty in the agri­cul­ture sec­tor through train­ing pro­grammes and ini­tia­tives to im­prove land ac­cess.

“How­ev­er, giv­en the is­land’s small size with a pop­u­la­tion of un­der 70,000 and giv­en eco­nom­ic set­backs caused by the pan­dem­ic (pre­lim­i­nary es­ti­mates in­di­cate the THA re­gion­al econ­o­my con­tract­ed 14 per cent in 2020), the low lev­el of eco­nom­ic di­ver­si­fi­ca­tion will con­tin­ue to be a cred­it chal­lenge over the medi­um to long term. Moody’s projects a mod­est re­cov­ery in the T&T econ­o­my in 2021 and 2022, though the re­cov­ery in THA could lag the na­tion­al econ­o­my giv­en on­go­ing lim­its on eco­nom­ic ac­tiv­i­ty re­lat­ed to the pan­dem­ic,” it stat­ed.

“Aside from eco­nom­ic con­straints, THA’s in­sti­tu­tion­al frame­work al­so struc­tural­ly lim­its its rev­enue col­lec­tion to the levy­ing of cer­tain fees and rev­enue earned from gov­ern­ment-owned en­ter­pris­es. THA does not have in­de­pen­dent au­thor­i­ty to levy tax­es on its own be­half. Giv­en these con­straints, we ex­pect THA’s own-source rev­enue will re­main in a sim­i­lar low range over the medi­um to long term,” it stat­ed.

Moody’s stat­ed that the THA’s cred­it pro­file re­flects am­ple liq­uid­i­ty, low debt lev­els and re­cur­ring op­er­at­ing sur­plus­es com­bined with a high de­pen­dence on trans­fers from the Gov­ern­ment of T&T to fund both op­er­at­ing ex­pen­di­tures and cap­i­tal projects.

“THA re­cent­ly raised long-term fi­nanc­ing to fund ad­di­tion­al cap­i­tal ex­pen­di­tures through its first bond place­ment which will re­sult in a mod­est but man­age­able rise in debt lev­els,” Moody’s stat­ed.

Moody’s said it ex­pects that the THA will re­port cash fi­nanc­ing deficits av­er­ag­ing 4.1 per cent of to­tal rev­enue in 2021 and 2022 giv­en plans to in­crease cap­i­tal out­lays, but the im­pact on liq­uid­i­ty will be lim­it­ed.

“Fi­nal­ly, T&T’s par­lia­ment re­cent­ly ap­proved cer­tain re­forms to the THA Act, in­clud­ing a for­mal­i­sa­tion of its process for ac­quir­ing new long-term debt. Ad­di­tion­al in­sti­tu­tion­al changes have been pro­posed, though these will not like­ly al­ter our as­sess­ment that THA will con­tin­ue to ben­e­fit from high lev­els of sup­port from the cen­tral gov­ern­ment,” Moody’s stat­ed.

The THA has iden­ti­fied sig­nif­i­cant long-term cap­i­tal spend­ing needs for a broad spec­trum of projects rang­ing from hous­ing de­vel­op­ment and ed­u­ca­tion fa­cil­i­ties to coast­line restora­tion.

“While these projects have his­tor­i­cal­ly been fund­ed al­most ex­clu­sive­ly with fed­er­al trans­fers, the is­land gov­ern­ment is seek­ing to ex­pand its ca­pa­bil­i­ty to fi­nance cap­i­tal projects through debt and pub­lic-pri­vate part­ner­ships. Giv­en the re­cent bond place­ment, we ex­pect THA’s cash fi­nanc­ing deficit will widen to 5.2 per cent in 2021 and three per cent in 2022, com­pared with an av­er­age sur­plus of 1.1 per cent be­tween 2016-2020.

“Cash fi­nanc­ing deficits at these lev­els in the medi­um term will not ex­ert sig­nif­i­cant neg­a­tive pres­sure on THA’s cred­it pro­file, es­pe­cial­ly giv­en its very low debt lev­els, but would be dif­fi­cult to sus­tain over the medi­um to long-term with­out lead­ing to a de­te­ri­o­ra­tion of debt and liq­uid­i­ty met­rics,” it stat­ed.

Moody’s stat­ed that the THA has his­tor­i­cal­ly main­tained very low over­all debt lev­els pri­mar­i­ly as a re­sult of its in­sti­tu­tion­al frame­work, which re­quires that it seek T&T’s ap­proval be­fore ac­quir­ing new fi­nanc­ing.

How­ev­er, in Sep­tem­ber 2019, THA re­ceived au­tho­ri­sa­tion to is­sue for the first time up to $300 mil­lion in bonds to fund cap­i­tal projects and it placed an ini­tial $164 mil­lion tranche in May 2021. The bonds were is­sued at par val­ue at a term of six years with a 5.2 per cent fixed rate.

Cur­rent­ly, To­ba­go has an over­draft fa­cil­i­ty of $250 mil­lion, which is used to bridge the tim­ing gap be­tween THA’s ex­pen­di­tures and the re­lease of funds by the cen­tral gov­ern­ment.

“The in­ter­est rate is a fixed 8 per cent, and it is paid from the tax and non-tax rev­enue col­lect­ed and from the cen­tral gov­ern­ment’s ap­pro­pri­a­tions. THA us­es its over­draft fa­cil­i­ty very oc­ca­sion­al­ly, and it has been re­cur­rent­ly re­paid with­in the next 30 days. We ex­pect THA to con­tin­ue to use this liq­uid­i­ty fa­cil­i­ty in 2021 and 2022,” Moody’s stat­ed.

In Oc­to­ber 2012, Kairi Con­sul­tants Lim­it­ed sub­mit­ted a Com­pre­hen­sive Eco­nom­ic De­vel­op­ment Plan 2013-2017 to the THA.

Kairi Con­sul­tants’ chair­man econ­o­mist Dr Ralph Hen­ry spoke to the Busi­ness Guardian about that re­port.

“Even though there has been a glob­al cri­sis, the likes of which were not fore­seen in 2006, when the first plan was writ­ten, the fun­da­men­tals of trans­for­ma­tion and di­ver­si­fi­ca­tion of the econ­o­my of To­ba­go re­main the same and need to be ad­dressed, but with even more ur­gency, based on in­formed pro­jec­tions of the fu­ture,” it stat­ed.

In that re­port, Kairi Con­sul­tants high­light­ed Tourism, Agri­cul­ture and Agro-pro­cess­ing, Fish­eries, Man­u­fac­tur­ing, as sec­tors that could trans­form and di­ver­si­fy To­ba­go.

“The trans­for­ma­tion of the econ­o­my can­not be re­alised with­out the growth of key sec­tors. The re­al­i­sa­tion of the goals of CEDP 2.0 will de­pend on the de­gree to which the THA and the pri­vate sec­tor in To­ba­go can raise the rate of growth of the econ­o­my over the pe­ri­od of the plan. This might mean a rate of growth of at least five to six per cent or more over the pe­ri­od of the Plan. To the ex­tent that these stake­hold­ers suc­ceed, To­ba­go may well come to rep­re­sent much over 2.0 per cent of the na­tion­al econ­o­my by 2017,” it stat­ed.

“The THA will need to be re­sourced ap­pro­pri­ate­ly to es­tab­lish the rel­e­vant in­sti­tu­tions and to in­vest in the nec­es­sary phys­i­cal and eco­nom­ic in­fra­struc­ture. The im­mi­nent re­form in in­ter­gov­ern­men­tal re­la­tions must take ac­count of the pre­vi­ous un­der-fund­ing of To­ba­go’s de­vel­op­ment over the first half and more of the 20th cen­tu­ry.

“De­vo­lu­tion to a fed­er­al­ist ori­ent­ed mod­el a la Cana­da, will en­ti­tle To­ba­go to pro­ceeds from its mar­itime space that may well dic­tate that it re­ceive in ex­cess of 8.0 per cent of the rev­enue raised by the Gov­ern­ment of the Re­pub­lic of Trinidad and To­ba­go,” it stat­ed.

Hen­ry said if a prop­er in­vest­ment is made in­to To­ba­go then tourism will be able to help the over­all econ­o­my.

He said in the 1980s when the econ­o­my took a nose­dive the tourism sec­tor in To­ba­go helped slow the de­cline

“It was go­ing south fast and when you looked at the date it was the fact that To­ba­go start­ed to earn for­eign ex­change that re­duced the rate of de­cline in the econ­o­my of T&T,” he said.

“Back then we un­der­stood that To­ba­go had enor­mous pos­si­bil­i­ties for gen­er­at­ing for­eign ex­change from the tourism sec­tor,” he said.

“A vi­brant To­ba­go is like­ly to be the lo­cus of faster pace de­vel­op­ment in the next five years, giv­en all the prospects that at­tend the gas-dri­ven econ­o­my of Trinidad. The rapid trans­for­ma­tion of the econ­o­my of To­ba­go may well res­cue T&T from fur­ther de­cline in its rate of growth. To­ba­go has es­tab­lished its ca­pac­i­ty to com­ple­ment Trinidad in the de­vel­op­ment of the na­tion. Over the next five years, through CEDP 2.0, its role in na­tion­al de­vel­op­ment will be­come even more crit­i­cal as the im­per­a­tive of eco­nom­ic di­ver­si­fi­ca­tion emerges as the ul­ti­mate sur­vival and re­vival strat­e­gy for the coun­try as a whole,” it stat­ed.