Turbulent times

Two days after Government closed a debt swap deal to help fund marine conservation efforts, international ratings agency Standard and Poor’s (S&P) has kept Barbados’ long- and short-term sovereign credit ratings at a highly speculative grade.

In its latest ratings, issued last Friday, the credit rating agency said it reaffirmed its ‘B-/B’ long- and short-term sovereign credit ratings on Barbados, and its ‘B-’ issue-level rating on Barbados’ debt. In addition, S&P reaffirmed its ‘B-’ transfer and convertibility assessment, and issued a stable outlook.

And, Prime Minister Mia Mottley has welcomed the news, saying it is an indication that Barbados had done reasonably well in the present turbulent circumstances.

However, she warned that Barbadians still had a “very tight rope” to walk as her administration continued to do what was necessary to dig the economy from its state of sluggishness and make it “world-class by 2030”.

Mottley’s reaction came on Tuesday during a short groundbreaking ceremony for Hotel Indigo, a US$50 million project on the site of the old Caribbee Hotel on Hastings Main Road, Christ Church.

“It is ironic that as we meet today we meet with the shadow of Standard and Poor’s agreeing to uphold our rating and to have a stable outlook on Barbados. This comes at the very time when there are about 46 countries globally that are on the precipice of a debt crisis. The world is in serious difficulty,” she said.

(From left) Director of Crews Inn Group Barry Elias, Prime Minister Mia Mottley and General Worker Anthony Weekes during the sod turning ceremony for Hotel Indigo.

“I would like Barbadians to appreciate that we can make it but we are going to walk a very tight, tightrope, and that means everyone is engaged and understanding that this is not business as usual, nor is the world the same as we came to know it,” said Mottley, who indicated that she was concerned about the falling value of the British Pound against the US dollar.

Pointing to Barbados’ endurance through the COVID-19 pandemic, a freak storm, volcanic ashfall, a hurricane and the impacts from the ongoing war in Ukraine, Mottley said while it has been a rough few years, she was “confident” the country has done “reasonably well” and that those who are watching, have made a judgement, like the hotel project’s investors and investors in the blue bonds that Barbados has done a “credible enough job”.

“Does it mean we rest on laurels? Absolutely not. We have now the journey to build such that Barbados can become world-class by 2030. I am going to remain steadfast with that goal.

“We had hoped it would have been 2027 when we set it in January 2020, but you have plans and other plans are made for you. It is not those plans that throw us down that matter, it is how we get up and face the future, having been thrown down by those plans,” explained Mottley.

In outlining its rationale for keeping the island’s “B-/B” long-and short-term ratings with a stable outlook, S&P said it considered Barbados’ debt repurchase and prepayment “opportunistic and akin to a liability management operation, given that we believe the government could have fulfilled its financial commitments absent this transaction, and that it was conducted with the purpose of directing funds to conservation efforts for Barbados’ marine environment and to promote a sustainable blue economy.”

Last Wednesday, Government announced that it had finalised a first-of-its-kind debt conversion deal, which is expected to free up some US$50 million over the next 15 years to help fund marine conservation efforts.

As part of that deal, Government repurchased US$77.6 million of its 6.5 per cent Notes due 2029 and prepaid the equivalent of US$72.9 million of its Series E 8 per cent bonds due 2043.

This was done from a US$146.5 million equivalent loan from Credit Suisse (US$146.5 million equivalent), and guaranteed by the Inter-American Development Bank (IDB) at US$100 million and The Nature Conservancy (TNC) at US$50 million.

S&P said its stable outlook reflected the view that the island continued to make progress under the Barbados Economic Recovery Transformation (BERT) programme, having met benchmarks under the International Monetary Fund’s (IMFs) Extended Fund Facility (EFF) arrangement.

“The ‘B-’ ratings reflect our view that despite external challenges, including the pandemic, a hurricane, volcanic ashfall, and global geopolitical tension, Barbados’ progress under the domestic BERT programme, and its achievement of IMF EFF targets, will continue to facilitate access to financing from multilateral institutions. At the same time, we believe that high reserve levels will continue to provide external liquidity to support the country’s balance of payment position,” it explained.

“The ratings also incorporate our view of Barbados’ stable and mature political system, despite past issues with sustainable public finances, as well as an economy that has struggled with low growth and is vulnerable to external shocks, given its high concentration in tourism. At the same time, Barbados has limited fiscal and monetary policy flexibility, in our view, given a high debt burden, fixed exchange rate, and weak monetary policy transmission mechanisms following the completion of its debt restructuring in 2018 and 2019,” it added.

The ratings agency said it could lower the country’s ratings in the next year “should the impact of external conditions lead to larger fiscal deficits than we currently expect, and we believe that the government would not have sufficient funding to meet its fiscal or external financing needs”.

At the same time, S&P said it could raise the ratings in the next 12 months if the risks of global external conditions to the economy and government finances were to “diminish sooner than expected, and if incomes and fiscal balances were to return to their pre-COVID-19 pandemic levels on a sustained basis, strengthening confidence in government policymaking and contributing to improved GDP growth prospects and improved monetary policy transmission mechanisms”.

“Higher economic growth would facilitate a reduced debt burden, which, together with an expectation of continued access to official funding, could lead to higher ratings,” added S&P.

marlonmadden@barbadostoday.bb