S&P lauds Barbados’ post-COVID economic performance

International ratings agency Standard & Poor’s (S&P) has maintained its long and short-term credit ratings of B-/B with a stable outlook for the Barbados economy.

A statement from the Prime Minister’s Office on Thursday, said that in its latest assessment of the country’s performance, S&P attributed the decision largely to the success of the Barbados Economic Recovery and Transformation (BERT) programme which it considered a key factor in allowing the country to weather the economic impact from the devastating COVID-19 pandemic.

“The stable outlook reflects our view that the COVID-19 pandemic will have a significant impact on Barbados’ economy and that the recovery will be more subdued than anticipated,” S&P said.

“However, the progress and credibility that the Government has built over the past two years under the International Monetary Fund’s Extended Fund Facility (EFF) programme will facilitate access to multilateral financing and support growth in foreign exchange reserves,” the statement added.

The New York-based ratings agency pointed out that while the impact of the pandemic would worsen fiscal and external balances, the debt restructuring completed last year and financing from multilateral institutions would help to limit Barbados’ near-term payment risks.

It pointed out that international reserve levels would sustain external liquidity despite a higher current account deficit expected in 2020.

Under the current IMF programme, Barbados was initially aiming for a six per cent primary surplus by the end of the current fiscal year. However, following the pandemic, Government has successfully negotiated a revision of that target and will now aim for a -1 per cent primary balance.

S&P said it also expected significant decline in economic growth for Barbados this year, due to the impact of the global health pandemic, as well as a more prolonged tourism recovery period than was anticipated back in April, largely because key source markets continue to face second waves of COVID-19 cases.

“We believe that the Barbados Economic Recovery Transformation (BERT) programme had supported Barbados’ fiscal and external position entering into the pandemic, which will facilitate its ability to weather the economic impact,” the S&P assessment added.

In its rationale for maintaining a steady rating, S&P explained: “As the global spread of COVID-19 continues, we expect continued weakness in Barbados’ economic activity and increased budgetary stresses. Higher case counts in key source markets, coupled with uncertainty surrounding the availability of vaccine treatments have led to a slower-than-expected recovery in tourism, which is a major contributor to gross domestic product (GDP). Due to this, we believe an economic recovery will take longer than we expected in April 2020.”

The agency said: “A delayed economic recovery will result in increased fiscal pressures during the outlook horizon. The country will face rising expenditures due to health-related spending in the face of lower revenues from tourism receipts.”

Despite the challenges, S&P said it expected the island’s international reserves, coupled with policy-based funding, to ease external pressures and provide financing to service debt payments for the next year.

In a brief response to the news on Thursday, Prime Minister Mia Mottley said she was “buoyed” by the confidence that continues to be displayed in the work of the Government and people of Barbados, in spite of the country going through “the most difficult times since the Great Depression”.

In December last year S&P upgraded Barbados’ foreign currency ratings six notches from SD (Selective Default) to B-/B after Government completed its local and external debt restructuring.

At that time, S&P had also assigned a ‘B-’ foreign currency issue rating to the foreign currency debt delivered in the exchange.