The latest downgrade of the Barbados economy is an indication the country is approaching crisis levels, according to Chief Executive Officer of the Small Business Association (SBA) Lynette Holder.
Concerned that Government continues to finance the country’s high debt and deficit through the printing of money, Caribbean Information and Credit Rating Services Limited (CariCRIS) lowered its ratings on Government’s $300 million debt issue to CariBBB from CariBBB+ and its foreign and local currency rating from CariA- to CariBBB+.
This brings the number of downgrade to more than a dozen since 2009, and Holder said it was not a good sign.
“[It] suggests that we are near crisis level, if not there,” the SBA executive said.
Holder blamed the recent downgrades on the failure of Government’s fiscal policies, and she called on the Freundel Stuart administration to “come back to the table, engage the public, engage the citizenry and look at what strategies we need to put in place to correct those failures”.
She said it was no longer good enough for the Prime Minister and members of his Cabinet to address important national issues such as the state of the economy at Democratic Labour Party meetings, insisting the entire country ought to be part of the efforts at a solution.
“We have a situation that is national in proportion and therefore we need to hear from the leaders of this country. We need to have national dialogue that will engage business leaders, civil society, trade unions et al, to look at the solutions to getting our country on a growth path. That is really it. It is no longer business as usual,” she said, adding that Government should put politics aside and think about the country’s future.
While the latest downgrade was troubling to business leaders and economists, it did not come as a surprise to any of them.
Among those who saw it coming was President of the Barbados Chamber of Commerce and Industry (BCCI) Eddy Abed who saw the deficit as a huge weight dragging down the economy.
In fact, Abed said unless Barbadians demand a reduction in Government spending the country would continue “on this slippery slope”.
However, he warned that any cuts could lead to “further hardship to those who depend on Government’s welfare and entitlement programmes” in the short term, but Barbadians had to understand that the social programmes were costly and would have to be paid for by user fees, or drastically scaled back.
In any event, Abed said, many of the social programmes were so poorly financed that the quality had fallen and would “only get worse without a medium-term solution that requires all stakeholders to brainstorm as to which of Government services should be maintained, privatized or restructured in a private/public partnership.
“There are no easy solutions and to further kick the can down the road will result in greater hardship as the size of the problem will only get larger,” Abed said.
Similar sentiments were shared by Executive Director of the Barbados International Business Association (BIBA) Henderson Holmes, who expressed concern that continuous downgrades could deal a devastating blow to the island’s attractiveness as a jurisdiction in which to do business.
“No downgrade is good news for Barbados; it just makes our situation worse. There is not much we can say about that other than we are now in a very serious and difficult position in terms of our attractiveness to the rest of the world. We have to be very concerned about that,” Holmes said.
The business executive called for a medium to long-term solution which would include an environment that is conducive to business, warning that additional taxes would not cut it.
“We are not going to improve this by political will or by increasing taxes. There is just so much tax you can get in a reasonable way from an economy of this size, but you have to grow the economy. We have to encourage more business activity. In other words, we have to pay attention to the whole business facilitation or the ease of doing business in the country,” he said.
Meanwhile, commenting on the downgrade in a post on his Facebook page this morning, economist Jeremy Stephen said “the particular debt issue of US$300 million was seen as very problematic” and the downgrade could make it more expensive for Government to borrow regionally.
Stephen also suggested the downgrade meant CariCRIS was “expecting a devaluation without saying that much”.
“Any time you see a rating drop like that it increases the likelihood, in their minds, of a devaluation coming sooner rather than later,” he said.
However, he did not expect Government to take the latest downgrade too seriously, although he thought there would be “a lot of political will this year to get some . . . tourism projects pushed through.
“So let’s put it this way; they are not going to take it that seriously yet they are going to do all that they can to avoid further downgrades,” Stephen said.