A broad con­sen­sus has emerged that the next two or three years will be chal­leng­ing for the do­mes­tic econ­o­my. As re­cent­ly as last Fri­day, S&P Glob­al Rat­ings af­firmed T&T’s ‘BBB-/A-3’ long-and short-term for­eign and lo­cal cur­ren­cy sov­er­eign cred­it rat­ing, and gave the coun­try a sta­ble out­look based on its view that T&T “will con­tin­ue to ex­pe­ri­ence low growth, mod­er­ate fis­cal deficits, and a slow­ly in­creas­ing debt bur­den over the next two years, while en­er­gy ex­ports will sup­port the coun­try’s ex­ter­nal bal­ances.”

In its June 5, 2024 Ar­ti­cle IV con­sul­ta­tion with the T&T au­thor­i­ties, the In­ter­na­tion­al Mon­e­tary Fund (IMF) stat­ed, “The bal­ance of risks is tilt­ed to the down­side in the near term but there are up­side risks in the medi­um term. In the near term, down­side risks stem from ex­ter­nal fac­tors af­fect­ing en­er­gy mar­kets (eg, an abrupt glob­al slow­down) and do­mes­tic sources such as dis­ap­point­ments in en­er­gy pro­duc­tion (eg, de­lays to new projects, or un­ex­pect­ed dis­rup­tions to cur­rent pro­duc­tion). In the medi­um term, up­side risks stem from new nat­ur­al gas projects and the im­ple­men­ta­tion of planned struc­tur­al re­forms which could boost growth.”

The as­sess­ments of S&P Glob­al Rat­ings and the IMF are in ac­cor­dance with Min­is­ter of Fi­nance Colm Im­bert’s view, ex­pressed in his June 3, 2024, T&T Rev­enue Au­thor­i­ty af­fi­davit, that “the next three years will be very chal­leng­ing for the coun­try from a rev­enue per­spec­tive” be­cause nat­ur­al gas pro­duc­tion is not ex­pect­ed to im­prove un­til 2027, “when it is ex­pect­ed that gas from Venezuela should be­come avail­able to this coun­try.”

Mr Im­bert warned that un­less ad­di­tion­al tax rev­enues can be col­lect­ed by way of a ful­ly op­er­a­tional T&T Rev­enue Au­thor­i­ty, “the Gov­ern­ment will soon be faced with very dif­fi­cult choic­es in terms of main­tain­ing the cur­rent lev­els of sub­si­dies, grants, free ser­vices and so­cial pro­grammes.” He not­ed, as well, that even with ad­di­tion­al rev­enues from as­set sales, “the coun­try’s deficit for 2024 is now ex­pect­ed to be as high as TT$9 bil­lion.”

The IMF pre­dicts fis­cal deficits of 2.7 per cent in 2024, 1.9 per cent in 2025 and 1.4 per cent in 2026 and a bal­anced bud­get in 2027.

The deficits in the nine-year fis­cal pe­ri­od from 2016 to 2024—which is the pe­ri­od that Mr Im­bert has served as min­is­ter of fi­nance—have been most­ly fund­ed by debt, a com­bi­na­tion of do­mes­tic and for­eign bonds.

Clear­ly, in the next three years, more do­mes­tic bonds are go­ing to be is­sued. A live ques­tion is whether those bond will be is­sued pri­vate­ly or to the pub­lic.

With re­gard to the do­mes­tic bond is­suance for the pe­ri­od Oc­to­ber 1, 2023 to May 31, 2024, the Cen­tral Bank’s Mon­e­tary Pol­i­cy Re­port May 2024, at page 41 states, “Pro­vi­sion­al da­ta sug­gests that dur­ing the eight months end­ing May 2024, the pri­ma­ry debt mar­ket record­ed 14 bond is­sues rais­ing $9.178 bil­lion. The Gov­ern­ment was the pri­ma­ry bor­row­er, is­su­ing 11 bonds at $8.075 bil­lion VIA PRI­VATE PLACE­MENTS, while three state en­ter­pris­es fi­nanced $1.102 bil­lion (em­pha­sis added). Over the pe­ri­od, the Gov­ern­ment ac­cessed the mar­ket for bud­get sup­port and the re­pay­ment of ex­ist­ing fa­cil­i­ties.”

The three state en­ter­pris­es were Hous­ing De­vel­op­ment Cor­po­ra­tion, First Cit­i­zens In­vest­ment Ser­vices and Na­tion­al In­vest­ment Fund (NIF).

Of the 14 bond is­sued by cen­tral gov­ern­ment and state en­ter­pris­es in the eight-month pe­ri­od of fis­cal 2024, on­ly ONE was pub­lic. That was NIF2, which was is­sued by a com­pa­ny that is 100-per cent owned by Cor­po­ra­tion Sole.

By my cal­cu­la­tion, that means on­ly 4.35 per cent of the funds raised by the cen­tral gov­ern­ment and state com­pa­nies for the pe­ri­od Oc­to­ber 1, 2023 to May 31, 2024, was raised by pub­lic means, while 95.65 per cent of the mon­ey raised was done through PRI­VATE PLACE­MENTS, ac­cord­ing to the Cen­tral Bank re­port (em­pha­sis added).

A pub­lic bond of­fer­ing, such as the NIF as­set-backed bonds that was is­sued in 2018 and again in Feb­ru­ary 2024, is a bond that is avail­able for pur­chase by any mem­ber of the pub­lic.

The $400 mil­lion 2024 NIF2 bond was is­sued at a fixed rate of 4.50 per cent for a five-year pe­ri­od. Ac­cord­ing to the Cen­tral Bank’s May 2024 Mon­e­tary Pol­i­cy Re­port, “The bond was sig­nif­i­cant­ly over­sub­scribed (267 per cent), re­flect­ing the de­mand for in­vest­ments of these tenors. The NIF2 bond is ful­ly backed by Re­pub­lic Bank Hold­ing Com­pa­ny Ltd (6,546,417) shares.”

In a state­ment is­sued on Feb­ru­ary 15, 2024, Mr Im­bert de­scribed the NIF2 bond as “a tremen­dous suc­cess” adding, “As of yes­ter­day, the to­tal ap­pli­ca­tions for the $400 mil­lion avail­able in NIF2 bonds had crossed $1 bil­lion in­clu­sive of over $700 mil­lion in ap­pli­ca­tions from a to­tal of 3,644 in­di­vid­ual in­vestors, with more ap­pli­ca­tions to be tal­lied to­day....

“The suc­cess of NIF2 is an over­whelm­ing vote of con­fi­dence in the Na­tion­al In­vest­ment Fund and by ex­ten­sion a vote of con­fi­dence in the Gov­ern­ment’s man­age­ment of the as­sets ac­quired by the Gov­ern­ment in re­turn for the mon­ey spent in the Cli­co bailout.”

By pri­vate place­ments, I am as­sum­ing that the Min­istry of Fi­nance still sends out a re­quest for pro­pos­als (RFP), for an arranger, to lo­cal fi­nan­cial in­sti­tu­tions and then se­lects the com­pa­ny that is will­ing to pro­vide the most com­pet­i­tive in­ter­est rate, at the most agree­able terms. For pri­vate place­ments, the suc­cess­ful fi­nan­cial in­sti­tu­tion would take up some of the bond of­fer­ing and oth­er fi­nan­cial in­sti­tu­tions would take up the bal­ance.

The im­por­tant point here is if there is such de­mand for pub­lic bond of­fer­ings, why did the Gov­ern­ment opt to sell bonds di­rect­ly to the pop­u­la­tion on on­ly one of 14 times cen­tral gov­ern­ment and state com­pa­nies raised funds for the first eight months of the 2024 fis­cal year?

The ad­van­tage of the Gov­ern­ment is­su­ing pub­lic bonds is that the in­di­vid­ual in­vestors get to hold the pa­per them­selves. So, in the case of the NIF2 bond, the 3,644 in­di­vid­ual in­vestors would re­ceive an an­nu­al re­turn of 4.5 per cent. That is a fixed rate that is high­er than any of the in­come mu­tu­al fund op­er­at­ing in T&T.

Some of the coun­try’s in­come mu­tu­al funds in­vest in Gov­ern­ment bonds at, for ex­am­ple, 4.5 per cent, but in­vestors in those funds do not re­ceive that re­turn.

For ex­am­ple, as at De­cem­ber 31, 2023, Re­pub­lic Bank’s Mon­ey Mar­ket Fund (RMMF) held a to­tal on $8.94 bil­lion in to­tal as­sets, of which $5.62 bil­lion (63 per cent) were se­cu­ri­ties is­sued by the cen­tral gov­ern­ment or state-owned com­pa­nies. RMMF’s cur­rent yield is 1.30 per cent.

The Unit Trust Cor­po­ra­tion’s TT Dol­lar In­come Fund’s (TTIF) net as­sets to­talled $12.21 bil­lion, as at De­cem­ber 31, 2023, with $6.88 bil­lion (56.3 per cent) be­ing held in gov­ern­ment and gov­ern­ment guar­an­teed se­cu­ri­ties. Ac­cord­ing to the TTIF’s list of its top 10 hold­ings, those in­vest­ments pro­vide nom­i­nal in­ter­est rates of up to 6.55 per cent. The cur­rent yield on the TTIF is 2.68 per cent, ac­cord­ing to the UTC’s Live Chat yes­ter­day.

I be­lieve there is a strong mar­ket for pub­lic Gov­ern­ment bonds. The suc­cess of NIF and NIF2 proves that point.

In my view, NIF is the best thing Mr Im­bert has done for this coun­try. I can’t un­der­stand why he does not ex­tend the NIF idea to tax-free Gov­ern­ment bonds that are trade­able on the Stock Ex­change, in the same way as the NIF bonds.

There is al­so leg­is­la­tion that al­lows the Gov­ern­ment to of­fer sav­ings bonds. It’s called the Gov­ern­ment Sav­ings Bond Act from 1962. Up­dates to the Act in 2015 and 2016, fa­cil­i­tate the Gov­ern­ment of­fer­ing Na­tion­al Tax-Free Sav­ings Bonds and Tax-Free Hous­ing Bonds.

A Feb­ru­ary 2009 Cen­tral Bank pam­phlet ti­tled ‘The Gov­ern­ment se­cu­ri­ties mar­ket­ing Trinidad and To­ba­go’ states, “Gov­ern­ments some­times see it as in both their own and the na­tion­al in­ter­est to pro­mote the sav­ings habit in the pop­u­la­tion at large through the is­sue of sav­ings bonds. This can oc­cur if the gov­ern­ment wish­es to en­cour­age a na­tion­al sav­ings ef­fort for par­tic­u­lar pur­pos­es, for ex­am­ple, to fi­nance hous­ing.”