Government has taken a US$200 million loan from a Latin American bank to fund the new ANR Robinson Airport. At current exchange rates, that translates to a new TT$1.35 billion loan on the books.
Last week, Finance Minister Colm Imbert said that the upgrades to the Tobago airport were pegged at $1.2 billion.
He said then that the Government would spend $36 million to upgrade the existing building and $870 million to build the new airport terminal. He said the additional TT$300 million was "raised" by the Ministry of Finance for the land acquisition.
However, weeks before Imbert made that statement, Guardian Media reported that the Government got approval for that $300 million loan from Scotiabank to purchase 53 plots of land from residents in the areas surrounding the airport.
With this new loan, it means that T&T's debt to a Latin American bank has now surpassed the country's existing indebtedness to China.
According to the Ministry of Finance's 2020 draft estimate documents, T&T borrowed over US$800 million from the Development Bank of Latin America (CAF) between 2016 and 2018.
At the last count in 2018, Imbert pegged T&T's debt to China at TT$2.2 billion. However, the country's debt to the CAF stands at more than TT$5 billion.
This includes the $1.35 billion loan for the upgrade to the ANR Robinson Airport in Tobago and road works in south Trinidad.
According to the Ministry of Finance Draft Estimate document for 2020, the following list is some of the external debts that the country has incurred:
-US $7,540,000 National Energy Skills Centre
-RMB Yuan 812,000,000National Academies for the Performing Arts
-US $150 million for six fast Patrol Crafts
-US $93,571,620. 75 for the Supply of four Helicopters
-US$550 million. 4.375% Notes ( 2013 - 2024)
- CDB Loan Energy Sector Support Policy-Based Loan
- US $169Mn (TT$1,077Mnl—Construction of the Arima Hospital
- Euro 91.769,213—TT$660Mnl Construction of the Point Fortin Hospital
- US $34.2Mn Chinese Multi-purpose vessels
- EUR 168,532, Damen
- US $300Mn CAF
- US $1. OBn 4.5% f R B 2026
- US$180Mn CAF Policy-Based Loan
- Euro 81.4Mn—Point Fortin Hospital
- US $120Mn CAF Policy-Based Loan—Phase II
- US$200Mn CAF—ANR Robinson Int'l Airport Upgrading
- US$104.3Mn Phoenix Park
- EURO $101 million Sangre Grande Hospital Construction
- US$58.5Mn Incat ferry
- US$57. 2Mn Austal ferry
- US$200Mn CAf—Investment Loan (SWAP)
Back in 2018, the Ministry of Finance pegged T&T's debt to China at $2.2 billion but since then the Government has signed off on two new major loans including over $700 million loan for the development of the Phoenix Park Industrial Estate in 2019 and another more recent $100m loan for a new forensic centre.
The EXIM Bank of China seems to be the go-to loan facilitator for the State as in 2016, the Government accessed another multi-million dollar loan from it, this time to fund the purchase of the "multi-purpose vessel, provision of logistic support for the acquisition of naval assets and maintenance and training for the acquisition of 12 naval assets."
According to the 2016 Public Service Investment Programme, the external funding which totalled $358.7 million was financed from ING (Holland) and EXIM Bank of China.
According to the same document, the loans for the vessels, the training and maintenance were sourced from three institutions: US$30 million loan from ANSA, US $183 million from ING (Holland), and the US $24 million from EXIM Bank (China).
In the same year, the Government also drew down another $120 million from EXIM Bank of China for the construction of the Arima Hospital.
According to the 2018 State Enterprises Investment Programme document, Government also sourced $532 million in loans from the EXIM Bank of China for the National Tennis Centre, Tacarigua, the National Cycling Velodrome, Couva and a multipurpose youth sporting facility, Sangre Grande (formerly construction of three multipurpose sport/youth facilities)
According to the 2020 PSIPs, Chinese investors have also been selected for the sale of 50 per cent of the industrial estates now under the remit of Evolving Technologies and Enterprise Development Company Limited (eTecK).
Chinese investment has also been sought for the partial divestment of 49 per cent of the shareholding of Lake Asphalt of Trinidad and Tobago (1978) Limited.
The 2018 debt figure included the following:
•Construction of the National Academy for the Performing Arts and Southern Academy for the Performing Arts.
•Outstanding debts from loans for the two are $440,295,212 and $180,835,533 respectively.
•Loan for the construction of the Couva Hospital currently stands at $924,511,500.
•The Government is also owing to a finance facility that allowed for the construction of six sporting facilities.
•Then there is a debt for the purchase of a multi-purpose patrol vessel based on a credit facility, amounting to $138,609,487.
No comment from Finance Minister
Guardian Media was unable to find 2011-2014 Draft Estimate documents on the Ministry of Finance website.
Guardian Media also called and texted Finance Minister Colm Imbert for updated figures and emailed the Ministry's Permanent Secretary for a response. Neither of them responded.
One economist and two former government ministers expressed their concern over not only the number of government loans but the fact that it's in the already scarce US dollar.
Guardian Media sent questions to economist Marla Dukharan on Thursday regarding the uptick in loan activity.
Dukharan said US loan means US repayment.
"When you take on USD debt, you have to repay it in USD, and if you don’t have enough USD, that means you have a balance of payments or debt crisis, and you have to go to the IMF for assistance," she said.
"This may sound far off, but consider this—we have lost USD4.6 billion in reserves since the peak in 2014, and reserves have fallen to just about USD6.9 billion at the end of 2019, which is about seven months of import cover.
"Now, import cover is not just about how much you import to consume, it also needs to take into account the amount of USD you need to repay your debt and other obligations.
"So the more we borrow in USD, the more we must repay, the faster these reserves will be exhausted, and the sooner we default on our obligations and have to turn to the IMF," Dukharan warned.
Commenting on the country's rising level of indebtedness, Dukharan said T&T's level of debt was already "around TT$ 120 billion and rising steadily."
"We exceed the sustainability threshold by about TTD30 billion which means our debt level is 33 per cent over and above that which is deemed sustainable," she said.
"Another indication of our debt’s unsustainability is the fact that we have had a primary fiscal deficit since 2016—this means that we are borrowing just to pay the interest on our existing debt."
Dukharan said despite this, the country continues to pile on more debt.
"This is a grossly unsustainable and unhealthy situation and it means that the clock is now ticking even faster until we cannot repay our debts, and there is a default.
"Our debt is speculative and risky. And it is my view that very soon, S&P (after having downgraded last year already) will downgrade us to junk, just as Moody’s had done. One may be able to argue that debt in TTD is not so risky since the authorities can print the TTD they need to repay the debt.
"But what about the USD denominated debt we have taken on?" Dukharan asked.
She said that the country was forced to borrow in US because the TT dollar "is about 40 per cent overvalued."
"When the official rate is about TTD6.80 but the black market rate is about TTD7.50-TTD8.00 for USD1.00, and this (overvalued) official exchange rate is decided strictly by the authorities, and not even partially by demand and supply forces, it means that the authorities have deliberately, consciously decided to subsidise imports and penalise exports. This means we will earn less USD," she said.
"This means we will continue to have a net outflow of USD. This means that we are more likely to run out of USD faster than if the TTD was not overvalued. And the excuse for maintaining an overvalued currency that the authorities always use—that they wish to protect the purchasing power of the poor man, as a devalued TTD will mean consumers will pay more for their imported groceries for example is an invalid excuse because importers have already priced in a devaluation and are pricing their goods based on the black market rate they already pay for USD," she said.
Dukharan recalled the Prime Ministers interview with Guardian Media's Khamal Georges where he said his reason for not devaluing the TT dollar was because people were hoarding US in hopes of making a quick return.
"This excuse also holds no water, as holders of USD will hold on to USD even more when the TTD is overvalued, and this incentive to buy and hold USD will not exist if the TTD was not so overvalued. The authorities have created the perfect incentive for a black market for USD, and for people to buy and hold USD in the hope of a devaluation," Dukharan said.
Former minister in the ministry of finance Mariano Browne shared Dukharan's view.
Browne also questioned the wisdom of loans in US currency.
"Borrowing in foreign currency makes sense if it is tied to be used to buy foreign inputs to improve forex generation. So that speaks to the purpose of the loans. Borrowing abroad to finance road improvements/resurfacing is a no-no.
"Borrowing to finance the construction/expansion of ANR airport in Tobago makes sense only if there is a valid tourism improvement plan. No government in the last 50 years has had one," he added.
Browne said that foreign borrowing increases the demand for US dollars and places additional stress on the system since there isn’t enough to go around. This creates a self-reinforcing dynamic that put pressure on the forex system, including the rate.
He said that T&T was experiencing a primary deficit on an ongoing basis.
"Meaning that revenue is insufficient to meet operational costs and debt service. That means to meet debt service requirement we are borrowing. This is unacceptable generally but tolerable in the short term if there is a way out or a methodology.
"There is none that I can see except that we are waiting for a turnaround in the energy sector which is not going to happen any time soon."
Browne said that any borrowing increases the debt to GDP ratio.
"What is bad about the increasing debt to GDP ratio over the last five years is that the foreign debt component is rising at an alarming rate. The difficulty with this is the competition for foreign exchange with the non-energy sector and the exposure that it brings to forex risk if the rate depreciates as it must in these conditions," he said.
"The foreign debt load is what pushed the closure of the refinery as that burden would have fallen to the State.
"Any foreign borrowing at this time must be adequately justified from a business and economic angle. In the scheme of things political, the two Tobago seats are important to the current administration. But that is not an economic justification. It is a political one," Browne said.
Another former minister, Vasant Bharath also agreed with both Browne and Dukharan.
"They are having to borrow as there are no new revenue streams to replace that lost from lower production levels of oil and gas as well as depressed prices," Bharath said in response to questions from Guardian Media.
"In fact, we are now borrowing to pay interest on existing debt, robbing the productive sector of much-needed capital."
"Additionally, it is the first time since 1986 that the economy has suffered three consecutive years of negative growth and all financial projections point to a fourth. "Total exports have declined by over $6bn for the period January to June 2019 cf the same period in 2018. There has been zero FDI in the non-energy sector and forex reserves have dwindled to US$7bn from US$11.4bn. The situation is dire. At the current usage rate four or possibly five years are left," he warned.