Barbados’ most recent upgrade from bond rating agency Moody’s Investor Services should come as little surprise to Barbadians keeping abreast with Government’s progress under the International Monetary Fund-approved Barbados Economic Recovery and Transformation (BERT) programme, says respected economist, Jeremy Stephen.
In a Barbados TODAY interview he said: “Any economy or any Government that was actually looking at debt restructuring very seriously and very resolutely within the last 12 years, were basically being praised by the international debt rating agencies. So, the likes of Moody’s should continue to upgrade Barbados.”
But the former head of the Barbados Economic Society (BES) said that while Government should feel some sense of satisfaction for their accomplishments on the local debt rating, the failure to move the needle on the Moody’s international debt rating, was yet another reminder to the Mia Mottley administration that they need to accelerate reaching a settlement with international creditors.
He said: “I saw that on the local debt side, we were upgraded to Caa1, which means basically we are on the threshold of that side of junk. Notwithstanding, this is good news in terms of a comparison to the last ten years performance [during the Freundel Stuart administration]. However, on the international rating we aren’t being upgraded at all, which actually is a point of consternation.
“This is expected when Government takes too long to come to terms with foreign investors and therefore there is a measure of uncertainty that would be priced into or at least assumed in Moody’s calculation of our sovereign debt worthiness.”
Stephen contended that Government has not passed a point of no return and can quickly rein things in by resolving the external debt issue, which has been in limbo since May 2018, when Government halted payments in an effort to stabilise sharply falling foreign exchange reserves.
The New York-based rating agency delivered a slight boost of confidence in the management of the Barbados economy yesterday, slowly reversing a decade-long trend of rating declines by modestly upping its still poor investment grade.
While also still carrying a very high credit risk, the local and foreign currency issuer ratings – a measure of the ability of the entity to meet its obligations are now at the top tier of Caa1, two notches up from Caa3. Another upgrade would see the country’s creditworthiness move from “poor” to “speculative” and “high credit risk”.
But Barbados’ foreign currency senior unsecured bonds remained at Caa3 – reflecting the ongoing stalemate on debt restructuring talks between Government and the foreign holders of Government paper, eight months after striking a deal with domestic creditors, which saw them take a large haircut on interest dividends and longer repayment terms. The decision to maintain a Caa3 foreign currency senior unsecured rating signals the losses that private-sector holders of outstanding foreign currency bonds can expect. Overall, however, Moody’s maintains a “stable” outlook on the economy.
Stephen contends that Barbados is running out of time to settle the external debt negotiations, as a chunk of its foreign debt payment was due in two years.
The UWI lecturer said: “You cannot expect in the short-term for Moody’s to reward us handsomely for stalling on foreign debt investors.
“We can’t afford to stall on them much longer and it could actually become worse the nearer we get to 2021.
“This is when we are supposed to pay off a massive amount of foreign debt. So I look forward to see how our debt rating stand going into next year.”
He further argued: “My guess is that if the foreign investors just do not have any resolve on these matters, then it could actually become a bad situation.”