Chris Sinckler must be breathing a lot easier this week.
After the rather grim prognosis issued by Moody’s back in June as it downgraded Barbados’ bond rating by three notches to B3 from Ba3, it would have been a lot less unsettling for the Minister of Finance and his team of economic advisers to hear the far more conservative statement of this island’s economic performance presented late last week of Standard & Poor’s –– never mind that the outlook by both of these international ratings agencies is actually negative.
However, the mere fact that S&P did not go the way of Moody’s and issue yet another damning downgrade, is enough to get Mr Sinckler –– if not Prime Minister Freundel Stuart, who is on record as saying that ratings agencies are not always right –– believing and trusting in them again.
That is not to say that we are out of our very treacherous economic woods by any stretch of the imagination.
While S&P did not go the route of a negative downgrade, it has warned that the potential for a downgrade still exists, if the Government fails to meet its fiscal adjustment targets, or if there are signs the economy may fail to grow next year.
And when we strip away the economic jargon for what lies behind its “BB-” long-term and “B” short-term sovereign credit rating of Barbados, we see that there is still a lot of concern about the size of this country’s deficit, which according to S&P rose to 9.7 per cent of GDP in fiscal 2013 from 6.2 per cent in fiscal 2012.
Interestingly, Moody’s had put the deficit figure at 11 per cent of GDP for fiscal year 2013/2014 and had also projected that the Government’s overall debt ratio would increase to over 100 per cent of GDP by fiscal year 2014/2015. But using much more conservative estimates, S&P is currently projecting that the total deficit will fall “to 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”.
In terms of the country’s high debt burden, Moody’s expects it to rise to level of 100 per cent of GDP by the end of the current fiscal year, while S&P, again more conservatively, projects an increase to just above 80 per cent of GDP, up from 75 per cent in fiscal 2013 and 67 per cent in fiscal 2012.
Whether we take Moody’s assessment or that of S&P’s, the fact of the matter is that there is currently limited fiscal space within which the Government is operating, coupled with a prolonged situation of weak economic growth.
At the moment our tourism performance can be best described as flat; so too all our major economic sectors for which the outlook is also sluggish.
Thankfully for us though, as S&P pointed out, the Barbados dollar peg, which is a key assumption underpinning this island’s creditworthiness, continues to hold, putting paid to the argument by our Central Bank Governor Dr DeLisle Worrell and others that there is no real economic crisis to speak of.
But with hope seemingly waning in the Government’s 18 month Fiscal Consolidation Programe, it remains to be seen if we will eventually be forced to go the route an International Monetary Fund-backed structural adjustment programme, as per the recommendation of financial analyst Peter Boos.
With the island’s economic fundamentals remaining weak, we look forward with great anticipation to Mr Sinckler’s next budget presentation, a date for which is yet to be set but which we already expect will address the whole question of tax exemptions based on the IMF’s recent tax policy report.
And given the slow recovery process that now lies ahead, there is every likelihood of more job losses and higher unemployment, which ultimately translates into more bitter economic medicine, save and except we strike oil, for instance, or benefit from some lucrative Arab deal.
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