No government response as Barbados falls three notches
Government remained mum today as the private sector called on the Freundel Stuart administration to tell the country how it plans to address Barbados’ “dire situation”, after the country suffered a second downgrade by an international credit ratings agency in six months.
Moody’s Investors Service announced late yesterday that it had knocked Barbados’ bond rating down three notches – from Ba3 to B3 – and said the outlook for Barbados not only remained negative, but the local dollar could be under threat as well. The ratings agency said it has retained its negative outlook because of concern about the increasing fiscal deficit, which exceeded 11 per cent of the GDP in fiscal year 2013/2014, and its expectation of continued challenges to fiscal consolidation.
“High levels of domestic short-term borrowing will continue to undermine the Government’s debt profile and lead to increased refinancing risks, and continued Central Bank financing of the fiscal deficit will compromise authorities’ ability to preserve the currency peg,” said Moody’s, which downgraded Government’s bond rating to Ba3 from Ba1
Minister of Finance Chris Sinckler has so far kept silent on the matter, not responding to requests for a statement on the downgrade. Even on the floor of Parliament today, neither he nor the Prime Minister addressed the subject. Only a passing reference was made by Minister of Housing and Lands Denis Kellman.
While neither the Barbados Private Sector Association (BPSA) nor the Barbados Chamber of Commerce and Industry (BCCI) was surprised by the development, the latter body called on Government to speak up and be more open on its management of the economy.
BCCI President Tracey Shuffler said while she did not expect every detail to be brought into the public domain, “frequent and open communication remains a fundamental part of managing through an economic morass”.
Responding to the news from Moody’s, the new BCCI head told Barbados TODAY: “It certainly gives cause for even greater concern since the Barbados Chamber of Commerce and Industry has noted that there has been no improvement in the economic fundamentals of the country in the last six months.”
The business community’s spokesperson warned that even in view of the recent increases in the debt ceiling, future borrowings – should they be available to the island – would become more difficult to secure and more costly, with this further ratings slide.
“The BCCI is concerned that as the Government has more difficult access to external debt, internal borrowings through both NIS and direct Government financing by the Central Bank have the potential to completely undermine other efforts like the recent retrenchment exercise to improve public financing,” reasoned Shuffler.
She drew attention to the last IMF report on Barbados and now Moody’s which have noted the impact that direct financing potentially has on the currency peg, which the country cannot afford.
“Given Barbados’ position that for every dollar we earn as a country, we are spending $1.60, every citizen understands what that means in the long term for economic and social development in this country. While the BCCI acknowledges that this imbalance in revenues and expenditure cannot be fixed in a six-month period, it posits that the success of a 19-month adjustment programme seems very doubtful at this point,” Shuffler asserted.
BPSA head Alex McDonald told Barbados TODAY this afternoon the association was worried about the sharp slide and the impact it would have.
“[It’s] not hugely surprising because we’ve seen what the economy is doing and what the shape of the trajectory is . . . . We are disappointed by the level and the depth of the downgrade; three notches down is a meaningful cut and we stand just above critical for assessments by Moody’s,” declared McDonald.
The criteria used by the global rating agency to assess Barbados’ economic standing also caught the attention of the private sector head, for all the wrong reasons.
“Those areas that we have been raising flags for sometime about, Moody’s obviously sees them as being as important as we have done . . . . What have we done in our short-term to persuade them that we are moving in a positive way and therefore their concomittant assessment of where we will be in the long-term?” the business leader noted.
McDonald said he was anxiously waiting on the reaction of Minister of Finance Chris Sinckler.
“Because we would want to know . . . if we will have to make any further fiscal adjustments in the medium term fiscal plan that he sees. What we can say without his comments though, is that Moody’s assessment of us cannot be ignored, but it must be looked at seriously, as we hope that coming out of this will be a deep and meaningful interaction with the Social Partnership that allows for deep dialogue, even if it has to be on a daily or weekly basis, that helps us to collaboratively brainstorm and problem-solve our way out of this, without there being devastating effects on our society, or on our economy,” he said.
Meantime, the BCCI president has suggested that growth through foreign and local investment can only pick up to the level required, when impediments to investments have been removed and all incentives offered are fully accessible through supportive regulations and business facilitation.
Shuffler acknowledged that, in the past, the functioning of the Social Partnership has been cited by ratings agencies as vital to the country’s economic framework.
Therefore, she said, “we need to ensure its continued relevance and effectiveness as we face these economic times”.
“National goal setting, timely implementation and collective monitoring of our progress, must underpin our Social Partnership functioning. It is essential for our survival,” insisted Shuffler.