The Barbados Economic Society (BES) is warning Government and private sector firms that they could face difficulties in accessing foreign commercial financing at reasonable interest rates, in light of Barbados’ latest downgrade by Standard and Poor’s (S&P).
S&P has lowered the island’s long-term foreign currency rating to selective default, following the June 1 announcement by Prime Minister Mia Mottley that her administration was suspending foreign debt service payments and seeking to make interest payments on its domestic debt while negotiating a restructuring agreement with domestic creditors.
Government’s move, which comes amid talks with the International Monetary Fund (IMF) on a balance of payments support programme, also triggered a downgrade
by the Trinidad and Tobago-based CariCRIS, which dropped Barbados’ rating to ‘CariC’ on both its foreign and local currency ratings.
In a press release issued late yesterday, the BES expressed confidence that once a comprehensive restructuring plan was in place, coupled with a recommencement of scheduled payments, the island’s credit rating should improve.
However, in the interim, it cautioned that “the Government of Barbados, and even some private sector firms, will find it extremely difficult to secure foreign commercial financing at reasonable interest rates until agreed debt restructuring with existing creditors is finalized”.
In an interview with Barbados TODAY yesterday, economist Carlos Forte, who is a former Central Bank of Barbados employee, echoed similar sentiments, saying the country faced the possibility of being shut out of the international capital market due to the debt restructuring decision.
Forte, who now resides in Canada, also said if it were up to him he would not have recommended the suspension of foreign debt service payments.
“We can face the prospect of being shut out of the international capital market for the next ten years but is not automatic . . . a lot of it depends on the negotiation with our creditors,” Forte had warned.
Since the announcement made by the Mottley Government a week ago, local and international investors have been anxious with some international investors, who were due coupon payments on their Barbados US dollar bonds this month, lowering their prices to nearly half their value in an effort to shed them.
In a reaction issued on Thursday, CIBC FirstCaribbean International Bank said it stood to experience some losses on loans to Government.
“The proposals outlined are likely to have an adverse impact on the credit quality of the Bank’s asset exposure to GOB [Government of Barbados] debt on the financial statements,” it said while releasing its second quarter financial statements for the period ending April 30.
The earnings report, which was signed by the bank’s Chief Executive Officer Gary Brown, said that as a a domestic creditor and external commercial creditor FirstCaribbean had just over $500 million in securities and loans to Government as of its first quarter.
“We will continue to closely monitor the situation and work with key stakeholders until the restructuring agreements are concluded,” Brown said.
Without giving a breakdown of its own exposure, RBC Royal Bank of Canada said in a brief statement to Barbados TODAY this week that they recognized that the situation was an evolving one and they were following it closely to see how best to “support clients, employees and communities in Barbados”.
“We are proud of our history in Barbados and remain committed to the region and its economic prosperity,” the RBC statement added. (MM)