The international ratings agency Standard & Poor’s (S&P) today affirmed its ‘BB-’long-term and ‘B’ short-term sovereign credit rating of Barbados, while stating that its outlook on the island remains negative.
In a statement this evening, S&P said the ratings on Barbados reflect its large fiscal deficits and high debt burden, as well as its limited fiscal flexibility and a decade of weak economic growth.
However, it noted that 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 programme.
“We are affirming our ‘BB-/B’ sovereign credit ratings on Barbados,” S&P said.
It also explained that its negative outlook reflects “the potential for a downgrade if the Government fails to meet its fiscal adjustment targets or if there are signs the economy may fail to grow next year”.
S&P noted that the island’s economic fundamentals remain weak, with average annual real GDP growth of just 0.3 per cent during 2010-2013, which is slightly negative on a per capita basis.
“We expect no growth in 2014 and a slow recovery in 2015-2016 based on a pickup in tourism and construction (in both the private and public sectors). The Government’s fiscal adjustment strategy, announced in December 2013, will constrain domestic demand, raising the importance of stimulating private investment (especially in tourism projects) to achieve the projected higher GDP growth averaging 1.5 per cent to 2 per cent over the next several years. With a slow recovery and public sector layoffs, unemployment will likely remain high, after reaching 11.7 per cent in 2013,” S&P noted.
The ratings agency is also projecting that Government’s debt burden will rise to above 80 per cent of GDP in fiscal 2014 (ending March 2015) from 75 per cent in fiscal 2013 and 67 per cent in fiscal 2012.
In terms of the current shortfall, it noted that, including National Insurance Scheme (NIS) surpluses, the deficit rose to 9.7 per cent of GDP in fiscal 2013 from 6.2 per cent in fiscal 2012.
However, S&P expects the overall deficit to fall “to nearly seven per cent in fiscal 2014 as a result of the Government’s fiscal consolidation plan, and further to 4.4 per cent in 2015”, even though it said “risks remain from the sluggish outlook for the country’s main economic sectors, especially in the context of the fiscal adjustment programme already underway, high unemployment, and mounting spending pressures”.
External pressures remain as well.
However, S&P expects the Barbados dollar peg to hold — a key assumption underpinning Barbados’ creditworthiness.