President of the Barbados Economic Society (BES) Shane Lowe says he is not surprised by the recent upgrade of Barbados’ regional scale local currency rating by ratings agency Caribbean Information and Credit Rating Services Limited (CariCRIS).
At the same time, the economist is warning that for the Barbados economy to enjoy continued improvement and for a boost in confidence, Government must stick to its targets under the International Monetary Fund (IMF) programme.
This afternoon the Trinidad & Tobago-based agency said it assigned a rating of “CariBB” with a stable outlook, up from “CariD” on its regional scale local currency rating of the Government of Barbados.
CariCRIS has also maintained its Regional Scale Foreign Currency rating of CariD (Default) on the country’s foreign currency denominated debt.
It cited Government’s completion of its Barbados dollar debt restructuring last year as a major driver of its decision, while indicating that improvements in the level of public debt, foreign exchange reserves and fiscal situation would lead to an improved rating over time.
“CariCRIS’ announcement comes as little surprise and is consistent with Standard and Poor’s decision to upgrade Barbados’ local currency debt rating and maintain its default rating on foreign currency debt back in November 2018. The new rating reflects CariCRIS’ belief that the reduction in interest rates, extension of maturities and haircuts to principal (the latter in the cases of some domestic creditors) have improved the government’s capacity to service its debt, but curiously, unlike Standard and Poor’s, CariCRIS appears to suggest that the government’s capacity to repay is still weaker than 12 months earlier when they previously assigned a rating of CariBBB,” explained Lowe.
“Nonetheless, both rating agencies still categorize the government’s domestic debt as ‘speculative’ in the case of Standard and Poor’s and “below average” relative to regional peers in the case of CariCRIS. Ultimately however, this rating change will likely not have a material impact on the government’s ability or appetite to borrow in the medium-term as the targets under the IMF-financed BERT programme do not permit or envisage additional accumulation of debt from the private sector over the coming four years,” he said.
In November last year international ratings agency Standard & Poor’s (S&P) 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 on its debt exchange and affirmed its ‘SD/SD’ long- and short-term foreign currency credit ratings on the island, and its ‘D’ rating on Barbados’ foreign-currency issues.
Lowe told Barbados TODAY what continued to be most important was the resolution of the external debt restructuring, pointing out that this would determine the speed at which the country returns to investment grade and regains access to international capital markets should the need to borrow in foreign currency from domestic or international private sector sources ever arise again.
As for his outlook on the Barbados economy for this year, Lowe said he did not see 2019 bringing substantial tax relief for Barbadians, adding that the current baseline projections suggested that the ongoing fiscal consolidation would likely keep economic growth subdued over the coming 12 months.
“Reforms of the state-owned enterprises and our tax framework should also continue and will likely change the way we live and do business going forward,” he said.
“However, if the many cited capital projects get off the ground and support the expected uplift in economic activity from the recent arrival of Ross University, 2019 should bring better prospects for the country than those experienced in the last two years,” he said, adding that this should be supported by the current winter tourist season, which would play a critical role in helping to build the reserves during the first quarter of this year.
Like CariCRIS, Lowe believes there was some uncertainty surrounding the UK’s exit from the European Union (EU), which could impact on the spending power of visitors from that market.
“Ultimately, creating opportunities for growth and employment will aid in keeping both citizens and the business community on board with the agreed and necessary fiscal adjustment in 2019 and beyond. Business confidence should improve if quarterly targets under the BERT programme are met and semi-annual disbursements from the IMF boost the island’s foreign reserves position, while growth in employment within the private sector is necessary to ease the burden from retrenchment in the public sector.
“Similarly, failure to remain on track with the agreed BERT programme may create policy uncertainty and worsen both domestic and foreign investor confidence. Ensuring that these targets are met without destroying the social fabric in Barbados is key to successfully navigating our economic challenges in the coming year,” Lowe cautioned.