Economist Jeremy Stephen has described as “ballsy” a move by the Mia Mottley-led Government to suspend Barbados’ foreign commercial debt payments ahead of Tuesday’s arrival of an International Monetary Fund (IMF) team here for economic restructuring talks.
Last Friday, Prime Minister Mottley, who is also the Minister of Finance, made the announcement against the backdrop of concerns about the island’s high debt which was said to be 175 per cent of gross domestic product and low foreign reserves, which up to last Thursday stood at US$220 million, or just seven weeks of import cover.
However, she had earlier sought to warn the country that “our date with destiny starts from Tuesday with foreign debt payment [to Credit Suisse] between June 5th and 18th, which represents a high point of foreign debt payment for us over the course of the month of June to the tune of $100 million”.
“I understand that it comes down to if . . . we would have enough reserves after we pay out a good deal of money to Credit Suisse and other investors as the year goes on,” Stephen said, adding that “the strategy is, if I could use this term, a ballsy one, because it is known internationally that if you default on debt payments without reason . . . then the external investors can, based on contract, call in the principal”.
Therefore Stephen said while the move was understandable, it had made the island’s creditors jittery.
“Some international investors have claimed that the decision was very unilateral, there was no consultation with them before that statement was made,” he revealed, adding that the Prime Minister would have to act sooner rather than later to put creditors at ease.
“It is important for the Prime Minister to deliver a statement in the two weeks she spoke to . . . . At that time the Prime Minister should explain if they are going to resume payments and or if she’s found a new source of . . . financing to replace or to ease those payments. So the next [couple] of days are going to be very, very important in determining the credit market of this country,” he added.
The move by Government to suspend debt payments immediately triggered a downgrade from the Trinidad based rating agency CariCRIS at the weekend.
It dropped Barbados’ rating to ‘CariC’ on the foreign currency rating and ‘CariC’ local currency rating on the regional rating scale.
Today Stephen warned that more downgrades were likely even as the country made preparations to engage the International Monetary Fund (IMF) to tackle the island’s economic woes.
In the meantime, the economist said he was adopting a wait and see approach to the IMF talks, which are due to commence tomorrow.
“The question comes down to how bad the situation really is in Barbados as more information is being uncovered on our indebtedness and the problems that we have in our financial system and economy and in Government. Things are coming to light and the Mia Mottley administration is seemingly bringing more of these issues to light than the previous administration was willing to share with the public,” he explained.
He however expects the economic situation to be rough in the short term.
“In the short run the adjustments will be hard since the economy — between 16 to 18 per cent of our economic activity is based on Government’s consumption, looking to spend, looking to keep hospitals open, Government looking to educate our children, just spending money. So if they reduce their expenditure greatly, depending how bad the situation truly is, then yeah, it will be bad for sometime. “And depending on the other reforms suggested . . . it could be that in two years the country could recover or it could be slight. It depends again on how strenuous these reforms are expected to be,” he stressed.