International rating agency Standard & Poor’s (S&P) is not surprised that the Freundel Stuart administration has missed the March 31 deadline it had set for sending home some 3,000 public sector workers.
And it is warning that a further downgrade of the Barbados economy could be in line if the deficit is not lowered and Government’s fiscal adjustment programme does not bring about improvement by the time the agency is ready to issue another rating.
Government had announced the retrenchment programme last December as part of its fiscal measures aimed at reducing the deficit. The retrenchment exercise was to be completed by March 31. However, it is still not clear how many workers have been sent home, a day after the deadline officially passed.
Back in mid-February, the International Monetary Fund’s mission chief for Barbados, Nicole Laframboise, told journalists that based on the figures they received, 1,800 persons had already been laid off, with 1,200 still to go.
Speaking today to Barbados TODAY, Richard Francis, the S&P lead analyst for the island, said up to last week the figure they had been given by Barbados authorities was just over a half of the 3,000 target.
“They are somewhat more than half way from what they announced. They are currently in the process of looking for other cuts as well,” reported Francis.
“At least they are making progress. I understand from a political and tactical aspect it is obviously a difficult process. So I am not that surprised that they are somewhat behind schedule. I guess I am not surprised [but] at least they are making progress. That is how I read it,” said the director, who is familiar with the Barbados market.
He said what was key, and could create some level of worry, was what the impact on the budget for the current financial year will be, given the fact that severance packages are to be paid, especially as it relates to permanent workers.
“And that is going to be an upfront cost,” said Francis.
“Obviously, over time that is going to save money but it’s not clear at least now what the savings will be for the fiscal year that just started. So I think over the medium term it is obviously key and hopefully they will be able to get back on track. There have been some shortfalls as well on the revenue side, especially from the corporate income tax. So that again is another worrisome development. It is just a difficult process and it remains to be seen what the outcome is going to be,” added Francis.
November last year the rating agency moved Barbados’ long-term credit rating from BB+ to BB- with a negative outlook, in response to a persistent current account deficit and a high fiscal deficit.
Asked if recent developments could affect the next rating of the island, Francis said there were two main things the agency would be looking out for.
“One is if the Government is able to make the fiscal adjustments that it is aiming for, which is pretty ambitious and [lowering] the deficit which widened last year actually. And secondly, just to see if there is any further pressure on the balance of payments. I think those are the two areas that we are going to be keeping an eye on basically. Until we see some improvement I don’t think the outlook will change. If there is further deterioration then there could be further downgrade,” warned Francis.
The good news, however, said Francis, was the indication of major construction projects, particularly the Sandals upgrade, as well as the lowering of the Air Passenger Duty which should impact positively on the tourism industry.
He said another key factor in determining what rating the island would receive was based on what was happening with regard to the overall economy.