COURSE CODE AND TITLE: ECON 3007 – INTERNATIONAL FINANCE
STUDENT ID: 816013390
Describe the current debt structure of the T&T economy and how will this affect the mediumterm performance of the economy.
Debt is a two-edged sword as it improves an economy’s growth and welfare when
moderately utilized but is disastrous when in excess. Reasonably, developing countries such as
T&T, cannot experience growth without borrowing to finance technological improvements and
capital accumulation needed for economic progress,(CDB,2013). Essentially, developing
countries consisting of limited capital stocks, can generate greater returns from investment
opportunities than developed countries, once borrowed finances are employed for productive
investments and macroeconomic instabilities are minimized. However, T&T’s debt situation raises
concerns as the economy’s Public Sector debt progressively increased within the last five years
largely due to persistent deficits, requiring the government to borrow internally and externally.
The CBTT evidenced this increase as T&T’s Public Sector debt rose from 47.1% in
September2015 to 65.5% in December2019, and is estimated to rise by a whopping 15.2% to
80.7% ending fiscal 2020, which is expected considering the Coronavirus economic shock and
declined governmental revenues, from TT$57.1bn in 2013/14 to TT$45.6bn in 2018/19 possibly
owing to deficient diversity in revenue generating streams, thus contracting GDP. The IMF
explicates that economies should be cautious of their Public debt ratios increasing above the 5060% of GDP range, as diminishing abilities of policy makers to preserve fiscal solvency via greater
primary balances can occur. T&T should be circumspect in allowing its Public Sector debt to
increase well above the range to an approximated 80.7% as it suggests that debt associated with
government operations has expanded.
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Net Public Sector debt is characterized into three components, Central Government
Domestic debt(46.6%), Central Government External debt(26.0%) and Contingent
debt(27.3%). Accounting for 73.4% of Net Public Sector debt, Public Sector Domestic debt
compromises of direct Central Government and Government Guaranteed debt issued domestically
and is estimated to rise by fiscal 2020 by 17.3%, equating to 59.2% of GDP, according to the
Government Of The Republic Of Trinidad And Tobago,2020, who further explicates that in fiscal
2020, Central Government Domestic debt is estimated to rise by 20.3% equating to 37.6% of GDP.
Throughout fiscal 2020, the government issued eleven new bonds onto the domestic capital market
accumulating to $11,815.1mil, where proceeds are employed for budget financing and debt
repayment.
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New bonds issued on the domestic capital market
$500.00 mil, 4%
$600.00 mil, 5%
$2,000.00 mil, 15%
$268.90 mil, 2%
$1,600.00
mil, 12%
$1,200.00 mil, 9%
$1,000.00 mil, 8%
$1,500.00 mil, 12%
$1,300.00 mil, 10%
$1,700.00 mil, 13%
$750.00 mil, 6%
$400.00 mil, 3%
5-year, 3.85 percent
20-year, 5.74 percent
15-year, 5.65 percent
3-year, 3.30 percent
3-year, 3.30 percent
15-year, 5.50 percent
3-year, 3.30 percent
1-year, 2.50 percent
5-year, 3.35 percent
$102.40
mil, 1%
1-year, 2.65 percent
3-year, 6.30 percent (US$)
1-year, 2.50 percent
12-year, 5.50 percent
Accounting for 26.6% of Net Public Sector debt, Public Sector External debt entails debt
owed to foreign creditors and is estimated to rise by 17.2%, resulting in an increase from 17.4%
to 21.5% of GDP for fiscal 2020, according to the Government Of The Republic Of Trinidad And
Tobago,2020, who also explicates that from this, Central Government External debt is estimated
to rise by 19.6%, accounting for 26% of Net Public Sector debt and 21% of GDP. Throughout
fiscal 2020, the government issued a US$500.0 million, 10-year, 4.50% bond on the international
capital market, where proceeds are employed for budget financing and debt repayment.
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New bonds issued on the international capital market
US $100.00 mil
US $50.00 mil
US $58.40 mil
US $57.20 mil
US $91.50 mil
US $100.00 mil
US $200.00 mil
EUR $106.10
mil
CNY $688.40 mil
12-year, floating rate loan from the Export Finance and Insurance Corporation of Australia
12-year, floating rate loan from the Export Finance and Insurance Corporation of Australia
12-year, floating rate loan from the Export Finance and Insurance Corporation of Australia
20-year, 2 percent fixed rate loan from the Export-Import Bank of China
12-year, floating rate loan from the UniCredit Bank of Austria AG
20-year, floating rate loan from the Corporacion Andina de Formento (CAF)
20-year, floating rate loan from the Corporacion Andina de Formento (CAF)
12-year, floating rate loan from the Corporacion Andina de Formento (CAF)
20-year, floating rate Policy Based Loan from the Inter-American Development Bank (IADB)
Contingent liabilities consist of Government Guaranteed debt of State Enterprises and
Statutory Authorities which is estimated to rise by 10.6% equating to 22.0% of GDP in fiscal 2020;
almost a doubling of debt attributed to state enterprises and statutory bodies. Letters of Guarantee
issued, Letters of Guarantee issued to Statutory Authorities and Letters of Guarantee issued to
State Enterprises were forecasted to rise ending fiscal 2020 by 29.9%, 69.7% and 22.3%
respectively.
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Government Guaranteed Debt of State Enterprises and Statutory
Bodies in 2020
US $5.00 mil
$650.00 mil
$671.30 mil
$750.00 mil
$100.00 mil
$100.00 mil
US $65.60 mil
WASA
HDC
ERHA
CAL
NCC
RDC
NIPDEC
In evaluating debt impact, though external economic shocks and natural hazards are
genuine motivations for T&T’s debt accumulation, significant medium-term consequences can
arise. The impact of public sector external debt can be medium-to long-term blacklisting for
example, declines in T&T’s investment grading produced by S&P Global Ratings and Moody’s.
In 2020, the economy received a downgrading which can make T&T’s borrowing difficult. Also,
challenges at the state enterprise level is evidenced by increases in contingent liabilities. Although
state liabilities add to citizens’ overall welfare, rising debt negatively impacts the population by
perpetuating inefficiencies, such as repudiating hard decisions for public sector reform, and
allowing higher debt levels to persist.
Furthermore, public sector domestic debt is substantially greater than external
debt,(Appendix#3), so as government borrowing increases locally within the domestic sector, less
resources are available for private sector investment. CDB,2013 explicates that bank credits to the
private sector is a proven contributor of economic growth, so as increasing public financing needs
raises sovereign yields, greater funds flow out from the private sector to the public sector, thus
pushing up the domestic interest rate causing a rapid and rigorous crowding-out of private sector
borrowing, which immensely burdens SMEs’ and rural borrowers.
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High debt accumulation has forced the government to reconsider spending decisions.
Significant percentages of GDP needed to service public debt have coerced the government to
curtail expenditures such as recent GATE contractions, and have crowded-out pro-poor and growth
enhancing spending, according to the CDB,2013, who further explicates that social spending and
public sector investment bears the burden of fiscal adjustments in the medium-to long-term. For
example, GATE contractions should be accentuated as new growth theorists emphasized the
significance of quality education to human capital and innovation. Contractions in public sector
investment can be growth-retarding as these reductions such as in physical infrastructure, can
crowd-out private investment, as they are generally complementary to private sector activities.
As many financial institutions immensely reliant on governmental bonds, any default can
affect their solvency (IMF,2013). This together with government debt managers selling more debt
with fixed interest rates and prolonging the maturity of debt instruments to smoothen their risks,
can fuel banks’ liquidity where changes in government domestic debt generates disparities with
bank deposits. Interest rate risks rises to the point where domestic debt instruments progressively
bear fixed rates and possess longer maturity than deposits. With significant increases in interest
rates, these debt management policies risks can cause actual bank liquidity problems, triggering a
banking/currency crisis. Furthermore, T&T is open and vulnerable to natural disasters, as
IMF,2013 illustrates T&T having an 8.9% probability of hurricane strikes on a given year, thus its
counter-cyclical policies is important. High debt service requirements can diminish government’s
fiscal space for these counter-cyclical policies, thereby restraining its ability to alleviate adverse
growth effects of economic shocks, resulting in higher volatility and restricted growth.
Concluding, the IMF indicated that T&T can sustain a debt-to-GDP ratio exceeding 60%
with uncompromised debt payments. Total Central Government debt service is estimated to rise
by 58.8% from fiscal 20192020, of which domestic debt service and external debt service
accounts for 63.3% and 36.7% respectively. This rise in Central government debt service is
evidenced by the intuitive relationship that as Central government revenue declines, the debt
service ratio grows. The threshold signals the economy’s unsustainability risks, however high or
external indebtedness is not a burning cause for concern once debt servicing is uncompromised.
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References

Caribbean Development Bank. (2013). Public Sector Debt In The Caribbean: An Agenda For
Reduction
And
Sustainability. https://file:///C:/Users/shavani%20mahase/Desktop/International%20Finance/P
ublic-Debt-in-the-Caribbean-An-Agenda-for-Reduction-and-Sustainability.pdf

Cecchett, S. G., Mohanty, M. S., & Zampolli, F. (2011, September). The real effects of debt.
Bank

Central
for
Bank
International
of
Trinidad
and
Settlements. https://www.bis.org/publ/othp16.pdf
Tobago.
(2020). Debt
annual. https://www.central-
bank.org.tt/statistics/data-centre/debt-annual

Doodnath, A. (2020, October 1). Budget 2021: UWI economist outlines 7 measures to tackle
national
debt.
Loop News. https://www.looptt.com/content/budget-2021-uwi-economist-
outlines-7-measures-tackle-national-debt

GOVERNMENT OF THE REPUBLIC OF TRINIDAD AND TOBAGO. (2020). REVIEW OF
THE ECONOMY 2020 RESETTING THE ECONOMY FOR GROWTH AND INNOVATION.
Ministry
of
Finance. https://file:///C:/Users/shavani%20mahase/Desktop/International%20Finance/Revie
w-of-the-Economy-2020.pdf

IMF. (2013, February 20). CARIBBEAN SMALL STATES:1 CHALLENGES OF HIGH DEBT
AND
LOW
GROWTH2.
International
Monetary
Fund. https://file:///C:/Users/shavani%20mahase/Desktop/International%20Finance/IMF%202
013%20Debt.pdf
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Appendix
Appendix #1
Appendix #2
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Appendix #3
(The majority of T&T’s debt is domestic debt or quoted in TT currency. By the end of 2020, 64%
of T&T’s overall debt is attributable to the domestic market and 33% is attributable to the US
dollar.)
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