Political economist Dr Don Marshall has sought to downplay the importance of downgrades by international rating agencies, stating they ought not be an accurate “litmus test” for the ability of a government to manage its finances.
“Credit ratings management have become the litmus test to which sovereign debt is made into a problem for government and its management an issue of competence and fitness for leadership,” Marshall told a discussion entitled Sustainable Caribbean Futures: Challenges of Sovereignty and Fiscal Governance at the 3Ws Pavilion at the Cave Hill Campus of the University of the West Indies on Tuesday.
“Here, the quest for investment grade and low debt to GDP ratio represent normal and budgetary correctness and are essential to a government’s legitimation.”
Barbados has suffered 21 downgrades over the life of the incumbent Democratic Labour Party, which took office in 2008.
With every new downgrade by Standard & Poor’s (S&P) or Moody’s, local economists and the Opposition Barbados Labour Party (BLP) question the ability of the Freundel Stuart administration to manage this country’s fiscal affairs.
Three months ago S&P announced that it was lowering its long-term local currency sovereign credit rating on the island to ‘CCC’ from ‘CCC+’.
However, while not specifically mentioning the country’s fiscal outlook, Marshall, the head of the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), argued that there was much more to the management of public finance than the “limiting parameters” of the international credit rating agencies.
“If the country has lost investment grade, if the country also is marked by high debt to GDP ratios, we see that as a failing mark on the part of the regime. Now I am not saying that there is something fundamentally wrong with that. What I am saying is that when this is privileged as the central preoccupying test of what national governments are supposed to be about, then it runs counter to an understanding that the responsibility of government is to ensure that there is a robust economic, political and social development plan in place,” he contended.
“This business of reducing government to this litmus test is self-defeating. It normalizes a sort of managerial approach to leadership because state leadership is much more than just bringing down the debt.”
The SALISES head further argued that since the 1990s developing countries have been pushed in the direction of seeking financing from the international capital market, which he described as loan sharks.
He therefore concluded that it was no surprise there was now an explosion of debt, which has adversely affected credit ratings.
“Just know that the international capital markets are waiting not just for individuals but for governments to borrow, and to borrow on the international capital market you need to be rated by credit rating agencies. The same credit rating agency that gave PIGS [Portugal, Italy, Greece and Spain] a AAA rating and led to the financial crisis of 2008 are now supposed to assess the sovereign default risk of countries, never mind that only a handful of countries have ever defaulted,” he stressed.