On average, Barbados has been hit by downgrades twice a year since the Democratic Labour Party (DLP) administration came to power in 2008, and the latest one could be a blow to investor confidence.
Economist and Barbados Labour Party (BLP) candidate for Christ Church East Central Ryan Straughn issued the warning as he addressed branch meeting at the Deighton Griffith Secondary School last night, on the heels of international ratings agency Standard & Poor’s (S&P) lowering of Barbados’ long-term foreign and local currency sovereign ratings to ‘B-‘ from ‘B’.
“Seventeen times in eight years,” Straughn said as he calculated exactly how often Barbados has been in a similar position.
S&P said it was concerned that the island’s fiscal adjustment programme again fell short of stemming another increase in debt to GDP.
Straughn, a former head of the Barbados Economics Society (BES), said this was not good news for investors who might be interested in pumping money into projects in Barbados.
“With the Government continuing to spend at the level they are spending at, then there is not much more to go before people then don’t want to invest in Barbados, don’t want to do any significant transactions with the Government, and the private sector suffers,” the economist said, pointing to a recent example of Sagicor Financial Corporation moving its headquarters to Bermuda to shore up its credit rating.
“The reality is that the fiscal situation has not improved to the extent that one would like it to, and the Government has not significantly addressed its expenditure side of the equation . . . The reality is that the lower you get on the totem pole the less confident businesses will be, the less confident investors will be.”
Straughn warned that while Government has been touting new projects set to get off the ground, the downgrade “completely changes the landscape for attracting that investment”.
He charged that the island’s ability to conduct business with international banks would also be affected.
The other major concern, Straughn added, was the impact on the Government’s repayment of a Credit Suisse loan.
“With the downgrade, there is an additional cost specifically to servicing the Credit Suisse loan, so that is an extra $2.5 million that the Government has to look for from somewhere within its budget to service the Credit Suisse loan. This is on top of the interest costs that the previous downgrades would have introduced,” he said.
Questioning where the additional money would come from, the economist said Barbadians should be worried, as there was already significant stress on social services such as education, health, water and garbage collection.
He asserted that the island was in a bad position as far as ratings go, and “there is not much further to go before the market perceives that the Government of Barbados is likely to default”.