Mar 2017 Financial News

Barbados Government responds to S&P downgrade

Mar 08, 2017

BRIDGETOWN, Barbados (CMC) — The Barbados Government says it regrets the decision by the US-based rating agency, Standard and Poor’s (S&P) to downgrade the island to ‘CCC+/C’, based on the Government’s limited financing alternatives and low international reserves.

In a statement, the Ministry of Finance said that the downgrade lowers the credit rating one notch, which puts their rating in line with that of Moody’s.

“The downgrade was expected and largely driven by the decline in our international reserves reported in the recent Central Bank Economic Report,” the ministry said, adding that the “decline in the reserves was largely due to legal and administrative delays in public inflows linked to various projects, as has been explained before.

“The Government’s expectation is that this situation will begin to ease shortly, leading to a restoration of reserves to more comfortable levels.

In the coming week, Government will release its fiscal out-turn figures for the financial year ending March 2017 and estimates for the coming Financial Year 2017-2018.

“In both cases, it will be noticed that not only has Government met its fiscal target for the current fiscal year, but it has planned its budget to realise a further reduction in the deficit for the coming fiscal year.

This should ease Government’s financing requirements for the coming financial year and lead to a clawback in the level of Central Bank accommodation of the fiscal deficit going forward.”

The US-based international rating agency warned that unless the Barbados Government does a better job at controlling its debt and restoring foreign reserves, the island’s local currency is at risk of devaluation. If the conditions do not improve, there will be a further downgrade within the next year, S&P warned in issuing a negative outlook for the island.

“As a result, we are lowering our long-term foreign and local currency sovereign credit ratings on Barbados to ‘CCC+’ from ‘B-’. “We are also lowering our short-term foreign and local currency sovereign credit ratings to ‘C’ from ‘B’,” the ratings agency said.

S&P also explained that its negative outlook reflected its view that Government was either unable or unwilling to take timely steps to redress the situation.

“The negative outlook reflects the potential for a downgrade over the next 12 months should the Government fail to make additional progress in lowering its high fiscal deficit or, if external pressures worsen with persistent and large CADs (current account deficits).

“This scenario would likely lead to further deterioration in the availability of deficit financing and pose challenges for the fixed exchange rate,” it said in its outlook for the economy.

S&P said it could revise the outlook to stable within the next year if the Administration is able to stem further slippage in its fiscal accounts, “be it from implementation of fiscal measures or a stronger- than-expected rebound in growth; [or if it] improves its access to financing, especially and globally; and stabilises the country’s external vulnerabilities and bolsters international reserves”.

In its statement, the Freundel Stuart Government said it expects growth levels in the domestic economy to continue to accelerate behind stronger performances in key sectors such as tourism, international business and financial services, construction, and wholesale and retail services.

It said this progress is already being seen this year and forecasts are for at least two per cent growth for 2017.

“Throughout this process, the Government of Barbados remains committed to sensible and responsible fiscal adjustment that achieves our ultimate objectives of a balanced budget, stable and growing reserves, increased economic output, and a cohesive, integrated social fabric that promotes the well-being of all its citizens while protecting the most vulnerable,” said the Ministry of Finance.

Source:
Jamaica Observer
Wednesday March 8, 2017

http://www.jamaicaobserver.com/business/Barbados-Government-responds-to-S-P-downgrade