The People’s Party for Democracy and Development (PPDD) has responded to Standard & Poor’s upgrade to Barbados’ foreign currency sovereign credit rating.
On Thursday New York-based Standard and Poor’s raised its long- and short-term foreign currency ratings to ‘B-/B’ from ‘SD/SD’ and assigned its ‘B-‘ foreign currency issue rating to foreign currency debt delivered in the exchange.
S&P also affirmed its ‘B-/B’ long- and short-term local currency sovereign credit ratings and ‘B-‘ issue-level rating on Barbados’ long-term local currency debt.
The following is the full response from PPDD:
The recent Standard & Poor’s upgrade to Barbados’ foreign currency sovereign credit rating to ‘B-/B’ from ‘SD/SD’, is as a result of Barbados’ recently completed debt exchange with its foreign creditors.
However, the ‘B-‘ long-term rating is indicative of the “country’s still-high debt burden” and represents a Speculative Grade rating, meaning that the country is still considered to be “vulnerable to adverse business, financial and economic conditions” although it still “currently has the capacity to meet financial commitments”.
Placing this upgrade into context, the highest rating that Barbados has achieved in the past, has been an “A-” or Investment Grade rating and that was in 1999, some 20 years ago. In other words, we still have a long way to go. Any further upgrades will be based on government’s ability to maintain its current austerity program and achieving a primary surplus of 6% of GDP which has proving to be burdensome for the Barbadian public. Maintaining a primary surplus of 6% will not be easy when you have a society that is heavily dependent on government expenditure to spur economic activity and provides many social services.
The country is experiencing numerous changes where the average Barbadian is faced with higher taxes and user fees, with many issues still persisting in the provision of services such as transportation, water supply, and garbage collection. The government may have to make greater provisions to have stronger social programs and measures in place to ensure the most vulnerable are taken care of due to the increased hardship some of our fellow Barbadians are dealing with. With limited fiscal space it will be difficult to invest in capital and provide resources to effectively alleviate some of the problems at hand.
Under the IMF Extended Fund Facility government also has to gauge the “austerity fatigue” of the country, our ability to withstand these measures over such a long period of time. In addition, the country has been given some fiscal space and time by restructuring and deferring its debt, but it still needs to be repaid. The issuance of US$580 million for the two new external debt instruments will result in total interest and principal of US$940 million being repaid in the next 10 years. Repayment of our debt starts next year totaling US$67.6 million.
Between 2021 and 2024 the country will have to pay US$35.5 million per year in interest payments and between 2025-2029 principal and interest payments of US$72.5million will have to be paid semi-annually. Hence the emphasis on deferment of payments.
This is very critical, because despite the breathing space, the Barbadian economy has to grow to facilitate our debt obligations in the future. Also, since defaulting in 2018 we have incurred debt of US$545 million from various multilateral agencies. Other issues still remain: the Barbadian economy is in recession and our ability to generate growth continues to be challenging and youth unemployment is around 30%. Therefore, the focus has to be on generating economic growth so that we have new sources of income to “pay our way” and create jobs while maintaining an adequate level of debt to supplement our finances and support some of our domestic needs.