With the latest economic downgrade to Caa3, Barbados has been placed on the same level as Greece and the Ukraine.
The financial watchdog Bloomberg also reported today that the island had joined the beleaguered group of countries whose dollar bonds yield more than ten per cent after Moody’s Investors Service said the island was likely to default.
Yields on over $500 million of notes due in 2035 rose 0.35 percentage points on Thursday to 10.23 per cent, joining securities from Venezuela, Mozambique and the Republic of Congo with double-digit yields, Bloomberg said, adding that the island’s debt was the worst performer this year among more than 60 countries tracked by its USD Emerging Market Sovereign Bond Index, losing 4.7 per cent, while the gauge rose 2.1 per cent.
It noted that Moody’s downgrade followed a cut by S&P on March 3 and the February 24 firing of Central Bank Governor DeLisle Worrell, who had threatened to stop financing Government spending.
“The Governor being fired would have rattled investors simply because it shows some kind of instability there at a policy-making level,” Royal Bank of Canada economist Marla Dukharan was quoted as saying. “The Governor had started to come out about how bad it really is.”
Dukharan said the island’s 2-to-1 peg with the US dollar was starting to show cracks, and an all-out balance of payments crisis a possibility with Government debt now above 110 per cent of gross domestic product at the end of last year and international reserves falling to $682 million, the lowest level since 2009.
However, Minister of Finance Chris Sincker expects the reserves will rebound on inflows from foreign investors. He has also ruled out a currency devaluation “next year or at any other time in the foreseeable future.
“That is simply not going to happen,” he told reporters at a news conference late last month.
However, with only about $56 million in interest payments due, Andrew Stanners, an investment manager at Aberdeen Asset Management, said Barbados was unlikely to default on international debt this year. Instead, he said Government would continue to rely on the Central Bank to print money, adding to levels of domestic debt.
“The risks are mounting,” said Stanners, who manages about $20 billion in emerging market debt. “They probably can muddle through to 2018.”