The latest downgrade of the Barbados economy by international ratings agency Standard & Poor’s (S&P) has come as no surprise to the less than two-week-old Mia Mottley led administration.
Delivering her first ministerial speech since the new Government came to power following the May 24 general election, Minister in the Ministry of Foreign Trade Sandra Husbands said the move by S&P was expected given the island’s economic performance indicators, which she said were “heading in the wrong direction”.
Husbands also said the downgrade was an indication “that we need to increase our competitiveness, and that means we need transformation of our enterprises”.
However, in lowering the island’s long-term foreign credit currency rating to “selective default” on Wednesday, S&P pointed to the June 1 announcement by Prime Minister Mia Mottley that Government would be immediately suspending its foreign debt service payments and seeking to make interest payments on its domestic debt while negotiating a restructuring agreement with domestic creditors.
As a result, Barbados failed on June 5 to make an interest payment due on its 6.625% notes due by 2035, and S&P said “we do not expect such a payment to be made”.
“We also believe that Barbados will fail to pay its other outstanding external debt obligations as they come due while it negotiates a restructuring agreement with external creditors,” the United States-based ratings agency said in lowering the island’s long-term foreign currency sovereign credit rating to selective default down from ‘CCC+’ and its long-term local currency rating to ‘CC’ from ‘CCC’.
“We are also lowering our long-term foreign currency issue rating on Barbados’ 2035 notes to ‘D’ from ‘CCC+’,” S&P said, while announcing that “another four long-term foreign currency issue ratings and the local currency sovereign issuer credit and issue ratings are on CreditWatch negative, reflecting our view that the sovereign could miss payments on its foreign and local currency debt within the next three months”.
The international ratings agency also warned that it could lower the local currency sovereign issuer credit rating to selective default if Barbados fails to make debt service payments on its local currency debt or executes an exchange with bondholders.
However, without making any reference to the suspension of debt payments which created a level of unease in the international markets as well as among domestic creditors, Husbands told the Barbados chapter of the Caribbean Institute of Certified Management Consultants (CICMC) that the new Barbados Labour Party (BLP) administration, which swept all 30 seats in the May 24 general election, was deeply committed to changing the economic performance indicators and taking Barbados “back to where it needs to be”.
While insisting that it could not be business as usual if the island were to achieve the desired turnaround, she told participants that Government was banking on their support.
“Our region needs you now more than ever and in particular in Barbados. We are in deep need of your skills, your expertise and commitment,” Husbands told those gathered at the Savannah Hotel for CICMC’s Excellence in Management Consulting conference held on International Consultants Day.
“Our region is facing one of its most difficult periods in terms of our economic performance and none more so than Barbados who is at the moment [fourth] from the bottom across the world in terms of its [debt]. And we feel this very keenly in our enterprises and we feel it very keenly in our households.
“So Barbados now has a task as to how it is going to raise economic development and produce the type of growth that will cause our country to be able to go back to where it was, where we were punching above our weight,” she said, adding that “it is not just that we were punching above our weight, we were guaranteeing our citizens a quality of life that was envied across the world. That is now at risk,” she said.
At the same time, Husbands reiterated some of her Government’s major campaign promises, including a promised removal of the National Social Responsibility Levy, reinstatement of free tertiary education for Barbadians attending the University of the West Indies, a reduction of the Value Added Tax and a replacement of road tax by a levy at the pumps.
These, she said, would help to “bring the necessary changes to what is happening in Barbados”.
However, in its statement yesterday, S&P noted that Government has been forced to turn to the International Monetary Fund for balance of payments support with a team from the Washington-based financial institution on island this week for talks with key stakeholders.
But though IMF financial support should strengthen the country’s external position, S&P said it was concerned that Barbados’ usable reserves have been negative since 2013, and the position continues to deteriorate, in part because of the Central Bank’s historical deficit financing, which has expanded the monetary base in the past.
It also pointed out that even in the face of these challenges, the Mottley Government has said that it intends to present a balanced budget by next year and is also sticking to election promises even though a comprehensive restructuring plan was yet to be formulated.