Credit upgrade welcomed; financial risks persist – expert

Despite Barbados’ recent credit rating boost from two leading global agencies, a senior investment strategist cautioned Wednesday that the country still has a way to go as there are still risks for investors.

Fitch Ratings recently upgraded Barbados’ Long-Term Foreign Currency Issuer Default Rating (IDR) and its Country Ceiling to ‘B+’ from ‘B’. Additionally, S&P Global Ratings raised its long-term local and foreign currency sovereign credit ratings for Barbados to ‘B’ from ‘B-’, affirming its ‘B’ short-term ratings.

Acknowledging the boost to the country’s credit rating, Chief Investment Officer at Fortress Fund Managers, Peter Arender, stressed that investors should not overlook the risks that remain.

“I think it’s important to put this in the context of what a single B or a single B- or a single B+ rating means. And what it typically means is that you’ve got a well-below-investment-grade credit that still has significant stress and vulnerability attached to it,” he said.

He noted that while the direction of progress is positive, the current rating highlights that “much more improvement is required.”

Arender said Fortress has been selective in its investment in Barbados government bonds, particularly since the debt restructuring in 2018.

He highlighted that given the risks associated with a B+ credit rating, Fortress exercises caution when deciding the extent of its involvement, especially with currency controls that limit domestic investment options.

“A low investment-grade credit rating speaks to high risk, and high-risk securities can have a place in a portfolio, but they can only have a small place in a portfolio,” he said.

Also referencing the recent International Monetary Fund (IMF) report, which praised Barbados for its ongoing economic reforms, Arender noted that the progress aligns with earlier IMF assessments, which, according to him, “shows continued progress in the things that matter.”

He acknowledged the improvements Barbados has made in collaboration with the IMF, while expressing hopes for continued momentum.

“Once Barbados exits the IMF programme, the expectation would be that… there would be continued progress in these ways. And I guess other investors that care about the credit rating would hope the same,” he said.

Pointing to the implications of these upgrades and reports for Fortress and its investors, the investment expert emphasised the importance of a long-term perspective.

“When we invest, we’re looking at the long term,” he said, adding that the government’s commitment to reform and its partnerships with international financial institutions, like the IMF, offer encouraging signals for the future.

“There is something to be said for looking at and being able to get a picture of the future based on what the programmes are and what the expectations of economic growth become as a result, as well as the fiscal performance of the government that comes out of that.”

Justifying Fortress’ cautious approach, Arender said: “Before the defaults in 2018, we didn’t really see that yet. The IMF was not on the scene and the types of programmes that are being pursued now were not… And so the trajectory was as much a concern as the size of the problem.”

He revealed that as prices adjusted following the restructuring, Fortress re-evaluated its stance, noting that “that’s exactly the kind of situation that we, wherever we’re investing, would be interested in”.

He insisted that while Fortress recognises the progress Barbados has been making, there are substantial financial hurdles that still need to be considered.

“Hopefully, there’s more improvement to come,” he said. “We all have a role to play in that, obviously. But you’re still left with our sovereign here in this country being a relatively stressed credit still, and we need to recognise that as investors.”