Barbados appears to have been spared some immediate negative fallout from Standard & Poor’s controversial decision to downgrade its credit rating to junk status.
Central Bank of Barbados Governor Dr. DeLisle Worrell, who publicly criticised the demotion when it was announced last month, has reported that “to date”, “Barbados’ bond prices have not been significantly affected by the downgrade”.
And the respected economist has also suggested it would be business as usual as far as the island’s maintenance of economic policy independence was concerned.
Worrell expressed these views in an August 8, 2012 analysis under the subject Maintaining Policy Independence.
“The downgrade of Barbados’ external debt by Standard and Poor’s does not affect access to international
financial markets. Many sovereigns, including some Caribbean appropriate, judged by the criterion of reserve adequacy”.
borrowers, are rated lower than Barbados,” he said. Those listed in this regard included Suriname, Grenada,
Jamaica and Belize, while others like Trinidad and Tobago and Aruba had better ratings.
The governor’s document contained information through which he sought to show the island’s bond prices were virtually unchanged following the S&P move to remove Barbados investment grade status.
He used select Barbados international bond prices for March 30, June 29, and August 3 this year, with the data showing the related bonds due to mature at times ranging from June 8, 2019 to December 5, 2035 were not altered in a major way.
Offer levels and yields for the bonds based on ratings by Moody’s and S&P were practically the same in the time that has passed since last month’s action.
The main reasons cited for the downgrade were weakening economic fundamentals, challenges to the island’s competitiveness, other structural shortcomings of a narrow economy, a “weak” fiscal stance, and a rising debt burden, off-budget spending, and outstanding contingent liabilities.
In response, Worrell said Barbados’ fiscal performance “is
“Tighter fiscal policy would probably add to foreign reserves, but at the expense of weaker economic growth. There are no new contingent liabilities likely to impact on Government budget in the current fiscal year, and there is no spending which is unaccounted for,” he said.
The official also said having a “narrow economy” was inescapable and therefore the appropriate strategy for Barbados was “to grow the foreign exchange sectors, to provide for needed imports, rather than attempt to widen the range of things produced, a strategy which will ultimately be frustrated by economies of scale and insufficient resources”.
“The ‘narrow economy’ is a fact of life, but it is not a ‘weakness’ if appropriate policies are pursued, and it does not limit the potential for growth, if growth strategies are based on the country’s comparative advantages in the foreign exchange sectors,” he stated.
Worrell added, however, that “it is accepted that the response in many areas is in need of further upgrade. Barbados’ economic policies are fully articulated, with supporting documentation which is publicly available to Barbadians and foreign investors”. (SC)