TANA-NOMICS: Debt in the Time of Covid

TANA-NOMICS: Debt in the Time of Covid


The government of Trinidad and Tobago announced that it raised US$500M at a rate of 4.5% for a period of 10 years. According to the press release, in less than 4 hours the issue was more that 2x oversubscribed, meaning investors indicated interest in taking up more than twice the amount being offered. This allowed the government to issue the bond at a lower rate than the initial offer of 4.75%. The funds raised are to be used to repay US$250M coming due this month and the rest for budgetary support.

This is being touted as a significant achievement, which it is, given the poor prospects for the local economy pre-pandemic (low oil prices and what not) and the current prognosis for the economy as we’re in the throws of the fallout as a result of containment measures to flatten the curve.

However (I’m sure you knew there was a however), there were two things I took umbrage to in the media stories related to this issue. The first is that the Minister reportedly said this is as a direct result of the attainment of good international credit ratings during the pandemic. I’ve already demonstrated in a previous post on this page that S&P’s ‘BBB-‘ rating and Moody’s ‘Ba1’ rating aren’t exactly good ratings. One is almost junk and the other is fully junk. Sort of akin to Shurwayne Winchester’s soca career vs KMC…..career.

The thing about these ratings are they are constantly being reviewed and the trajectory for global energy prices as well as how we address the significant debt levels we will end up with will play a key part in any further rating action. So if we aren’t careful we could end up being junk junk in two shakes of a…

The second thing that troubled me was the statement that the government was able to reduce interest rates paid to 4.5% from 9.75% on a bond issued by a previous administration in the year 2000. This reduction in rates is expected to result in annual savings of TT$89 million or almost a billion TT dollars over the 10 year life of the new facility.

While that is certainly commendable, doh pee on my back and tell me it raining. In the year 2000 general interest rate levels were much higher than they are now. At that time 9.75% may have been a good rate given where benchmark rates were. Also, you can’t compare the rate on a 10 year bond to the rate on a 20 year bond. Even a non-financial person would know that borrowing for longer costs more.

So acting like you reduced effective market interest rates on your own is like Moses saying he parted the Red Sea for his people to walk across in their Gladiator sandals from the Drag Mall. We all know how that exaggeration panned out. If we have so much power I say we use it for something more meaningful like making the Saharan dust stay in Africa or teaching Trinis that 6 feet means I shouldn’t feel your stink breath on my neck or the maxi money in your brassiere when we standing in a line.

I know we’re in the silly season and people will take any opportunity to score some points but it bothers me when they try to use financial gymnastics. Anyway, let me go back in my corner and try not to contract Covid, not choke on Sahara dust, lose my license to demerit points and figure out how to celebrate my birthday on Sunday wearing what I call this “sobriety mask”.

Stay safe Loggers.

TANA

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