With its credit rating already in unwanted junk territory, the threat of a new downgrade from Standard & Poor’s is hanging over Barbados.
S&P announced late this evening that it had lowered the island’s outlook from stable to negative because the economy “has fallen back into recession” and warned a downgrade was likely “if the wider fiscal deficit is not reversed or if external pressures, associated with persistent current account deficits, mount”.
“Standard & Poor’s Ratings Services revised its outlook on its long-term rating on Barbados to negative from stable. At the same time, we affirmed our ‘BB+’ long-term and ‘B’ short-term sovereign credit ratings on Barbados,” the agency said.
“The outlook revision reflects the potential for a downgrade if the wider fiscal deficit is not reversed or if external pressures associated with persistent current account deficits mount.
“The net general government debt burden is expected to rise to above 70 per cent of GDP in fiscal 2013 from 67 per cent in fiscal 2012 and 60 per cent in fiscal 2011. Barbados uses more than 13 per cent of general government revenues to pay interest on its debt,” it added.
S&P also said Barbados’ economic fundamentals “continue to weaken, reflecting not only the tough global economy, but also competitiveness and other structural shortcomings”.
“Barbados’ narrow and open economy continues to suffer from the 2008 global financial crisis. Results for the first half of 2013 show that Barbados has fallen back into recession after a very weak recovery in 2010-2012, with average annual real GDP growth of just 0.4 per cent in those years,” S&P stated.
“We expect a real GDP decline of about 0.5 per cent in 2013 and a slow recovery in 2014-2015 thanks to tourism and construction (in both the private and public sectors). With a slow recovery, unemployment will likely remain high, after reaching 11.8 per cent in 2012.”
The organisation said Barbados’ ability to get improved ratings was constrained by Government’s “large fiscal deficits and high debt burden, as well as its limited fiscal flexibility and reliance on external financing”.
“However, the country has a stable, predictable, and mature political system, which benefits from consensus on major economic and social issues, including support from the private sector and trade unions for the Government’s ongoing fiscal and structural adjustment program,” it added.
S&P said it’s statement on Barbados was “in accordance with our relevant policies and procedures”, saying its Rating Committee “was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable”.
It also said information provided by Primary Credit Analyst responsible for Barbados, Richard A Francis, was “distributed in a timely manner and was sufficient for committee members to make an informed decision”. (SC)