Rating agencies are expected to adjust Barbados’ credit rating to “selective default”, following Prime Minister Mia Mottley’s announcement last week that her week-old Barbados Labour Party (BLP) administration was suspending payments due on debts owed to external commercial creditors.
The move has also resulted in some holders of US dollar bonds for Barbados lowering the prices to nearly half, as they seek to bail out.
In making the announcement last Friday, Mottley, whose BLP took hold of the reins of Government following May 24 elections, also said while they were prepared to continue paying all interest payments due on domestic debt, local creditors would be asked to roll over principal maturities until restructuring agreements were concluded.
At the same time, the Prime Minister had explained that the island’s economic situation was worse than previously thought, adding that a major economic restructuring was now necessary with the island’s debt now soaring at 170 per cent of gross domestic product, while its foreign reserves were only US$220 million, or about seven weeks’ of import cover.
Mottley had also announced that as part of the comprehensive economic reform programme aimed at stabilizing the public finances and creating conditions for the return of sustained economic growth to Barbados, balance of payments support would be sought from the IMF.
She also said that contact had been made with IMF Managing Director Christine Lagarde who was briefed on the current state of the public finances, including the national debt and international reserves.
In a joint statement this evening issued by the Barbados Government Information Service (GIS) and the Central Bank of Barbados, Government said it had held discussions with the rating agencies since last week’s announcement, and it was expecting that “Barbados’ credit rating will shortly be adjusted down to Selective Default (SD), as is customary when comprehensive debt restructurings are announced”.
In the meantime an IMF team, led by Bert van Selm, arrived here today for a three-day visit, and will be brought up to date on the current economic and financial situation in Barbados, ahead of discussions with the authorities, on “a potential programme in the coming weeks”.
Today officials from the Washington-based financial institution briefly met with Mottley, who is also the Minister of Finance, as well as members of her economic team.
Government also announced that it had appointed the London-based independent financial advisory firm White Oak Advisory Ltd to act as a financial advisor “in the context of the debt restructuring process” which was announced last Friday.
“The financial advisor is in the process of establishing initial contacts with affected creditors, and is expected to soon commence creditor engagement on the basis of the medium term macroeconomic projections to be finalized by the Government in the coming weeks,” the BGIS statement said.
Over the next two days, the IMF delegation will also hold talks with Central Bank Governor Cleviston Haynes and other senior Government officials, as well as representatives of the private sector and the labour movement.
In the meantime, Barbados TODAY understands that in an effort to shed their US dollar bonds in light of Friday’s announcement, some overseas investors have lowered their bidding price for bonds maturing in 2019 from $98 on Friday, to between $40 and $50 by this morning.
The indicative price today was the same for bonds with a maturity date of 2021 that carried a bidding price of $90 up to Friday.
Bonds with a maturity date of 2035 and a bidding price of $76.5 and an asking price of $79.5 on Friday, were also being traded at $40 on Tuesday.
Yesterday two holders of Government debt – Sagicor Financial Corporation and RBC Royal Bank – also reacted to the Prime Minister’s decision to suspend payments to creditors.
During a teleconference called to report on Sagicor’s performance, Chief Operating Officer Ravi Rambarran said the company expected minimal fallout since the company’s investment in Government paper represented only about five per cent of its total investment portfolio of approximately US$5 billion.
However, in a brief statement to Barbados TODAY RBC Royal Bank said they recognized that it was an evolving issue and they would be following it closely.
“We are proud of our history in Barbados and remain committed to the region and its economic prosperity,” the RBC statement added.