Standard & Poor’s has raised its long- and short-term local currency sovereign credit ratings on Barbados to ‘B-/B’ from ‘SD/SD’ (selective default).
At the same time, S&P assigned its ‘B-‘ issue-level rating to Barbados’ long-term debt issued in its debt exchange.
S&P also affirmed its ‘SD/SD’ long- and short-term foreign currency credit ratings on the island, and its ‘D’ (default) ratings on Barbados’ foreign-currency issues.
Finally, S&P raised its transfer and convertibility assessment on Barbados to ‘B-‘ from ‘CC’.
In its latest statement, S & P noted that Barbados’ new administration has completed its local currency debt exchange, initiated an economic recovery plan, and received approval from multilateral lending institutions for new sources of financing.
“As a result, we are raising our long- and short-term local currency ratings on the country to ‘B-/B’ from ‘SD/SD’, and are assigning our ‘B-‘ local currency issue rating on the domestic debt issued in the exchange,” S & P said.
“The stable local currency outlook balances our view of the government’s commitment to a fiscal and structural adjustment with the economic and political challenges of doing so.”
This is Barbados’ first credit rating upgrade in several years.
S & P noted that multilateral lending institutions, which have already committed financial and technical assistance, will also support the government’s mandate.
“We expect the government to implement policies over the next 12-18 months that gradually achieve fiscal consolidation and instil institutional safeguards, while slowly strengthening macroeconomic stability,” the agency said.
“Failure to meet fiscal and debt targets over the next year could weaken investor confidence and result in a loss of official capital inflows. This outcome could place renewed pressure on the country’s foreign exchange reserves and reduce funding sources. Under this scenario of diminished liquidity, we could lower the rating.”
S & P said it could raise the local currency rating over the next year should the government adhere to its ambitious fiscal targets and reform agenda, which could strengthen investor confidence and contribute to improved GDP growth prospects. Higher economic growth would facilitate a reduced debt burden, which could lead us to raise the rating.
Standard & Poor’s said the foreign currency rating will remain at ‘SD’ until Barbados resolves its foreign currency debt exchange.
‘When that happens, and we can conduct a forward-looking review that takes into account the exchange’s economic and financial impact as well as any interim developments, we will revisit the respective issuer credit and issue-level ratings. We will then analyze the sovereign’s foreign currency credit standing, most likely raising the foreign currency issuer credit rating to the ‘CCC’ or low ‘B’ category,” it said.
Giving its rationale, S&P said the higher local currency sovereign credit rating follows the government’s domestic debt exchange, which has addressed all existing local currency treasury bills, treasury notes, debentures, loans, certain government arrears, and debt issued by state-owned enterprises and other entities that receive transfers from the state budget.