Jul 2006 Financial News

Barbados Outlook Revised to Stable

Jul 28, 2006

Standard & Poor’s (S&P) Rating Services has revised its outlook on Barbados to stable from negative. S&P has also affirmed its ‘BBB+’ long term foreign, ‘A-’ long-term local and ‘A-2’ short-term currency sovereign credit ratings on Barbados.

In a Statement issued Wednesday S&P’s credit analyst Richard Francis said the change in outlook reflects a fiscal adjustment that is currently underway. This is expected to lead to a small surplus of 0.2 per cent of GDP in the 2007 calendar year, up from a deficit of 0.9 per cent (including the large surpluses of the National Insurance Scheme) in 2006, as capital spending- much of which is associated with the preparation of the 2007 World Cricket Cup- tapers off.

Standard & Poor’s said that the improvement is expected to lead to gradually lower net general government debt, falling to 37 per cent of GDP in 2007 from 40 per cent in 2005 and a gradual fall in the interest burden of over 11 per cent, versus the ‘BBB’ median’s 5 per cent.

“Buoyant growth prospects for 2007, the result of a pick-up in Tourism combined with lower capital expenditure, will lead to an improving current account position (to an average of five per cent of GDP during 2008-2009 and six per cent in 2007, down from eleven per cent in 2006) and the lowering external vulnerabilities that have built up over the past three years,” the release stated.

Francis explained that the ratings on Barbados balance still-high external pressures and limited fiscal flexibility with political stability and strong governance within both the public and private sectors. “The government has played a central role in shifting the economic focus from manufacturing and agriculture toward services and recently took important steps to reform the pension system, improve the tourism infrastructure and liberalize telecommunications,” he said. “A key challenge for the country will be to increase tourism prospects and to diversify into new service sectors to generate solid economic growth after 2007,” he added.

S&P said that the stable outlook reflects the expectation that the public sector debt burden will continue to decline over the medium term as economic growth remains buoyant and the government slowly tightens public spending. It also anticipates that the current account deficit will ease moderately over the medium term, particularly if equity inflows ebb.


The Trinidad Guardian
July 28, 2006