by Emmanuel Joseph
Barbados’ foreign currency credit rating has plummeted to junk bond status.
International credit rating agency, Standard & Poor’s, today described the country’s external credit status as junk bond, and downgraded it from BBB-/A-3 to BB+/B.
Standard & Poor’s identified three reasons for its decision to send a signal to the investment community, that Barbados’ foreign debt had become more risky. The rating agency expressed concerns over the competitive challenges the island was facing from other destinations in its tourism and international business sectors, as well as the impact which the difficult external environment was having on the economy.
S&P also attributed its downgrade to Barbados’ further accumulation of debt.
But in a hurriedly-called media conference this afternoon by the Central Bank of Barbados, Governor Dr. Delisle Worrell said the ratings agency’s action was unjustified and demonstrated a lack of understanding of the local economy.
Worrell argued that Barbados had been misclassified by the agency, adding that even within its own Investment Committee, there had been a divide.
In addressing the reasons submitted by S&P for downgrading Barbados, the Central Bank boss insisted that the competitive challenges in tourism and international business to which it referred, were being tackled through private initiatives and with the support of various Government incentives.
Regarding the difficult external environment, Worrell explained that this country’s targeted niche marketing strategies in tourism, and policies to address the competitiveness of the IBFS sectors, had been designed to resolve this problem. The Government’s principal economic advisor also took S&P to task for citing further debt accumulation as a reason for lowering Barbados’ foreign currency credit status.
Worrell declared that Barbados did not have a debt problem and that its debt to GDP ratio had in fact declined for the year up to the present moment.
“Unlike countries like Greece, Barbados has taken painful measures to rein in spending and to live within its means. Even S&P acknowledges that Government has made focused efforts to bring down its deficit during these challenging times. S&P’s own analysis therefore, fails to justify its action in downgrading Barbados’ investments,” he pointed out.
Worrell assured Barbadians that the value of its dollar was secure.
“At the onset of the international economic crisis in 2008, our first priority was therefore to sustain the foreign exchange reserves of the Central Bank, so that they remained sufficient to protect the value of our dollar.
“So far, this objective has been fully achieved, and the current foreign reserve level of $1.4 billion provides adequate support to the exchange rate anchor. This was not acknowledged in the S&P report,” argued the Central Bank governor.
He noted that a second priority for Government had been to reduce the fiscal deficit and to bring down the ratio of Government debt to GDP. He stated the Government’s Medium Term Fiscal Strategy, which was devised to accomplish this, had so far resulted in the containment of spending on wages and salaries, and a reduction in its deficit from 9.3 per cent of GDP in financial year 2010-2011 to 4.6 per cent in the last year.
The strategy, Worrell added, remained on schedule. He assured Barbadians that the downgrade would not affect the domestic situation since it was only on the external foreign credit. †He pointed out that he had been in direct contact with the international lending agencies and investment community to which he had shown the facts. In this regard, he was not particularly perturbed about the impact S&P’s downgrade would have on foreign investment in Barbados.
Governor Worrell was of the view that this country remained a secure and profitable market in which to invest and that the economy continued to be stable. [email protected]††