S&P warns there’s been no significant change in Barbados’ economic fortunes
Barbados could be slapped with a second downgrade this year.
On the heels of Moody’s triple notch downgrade of Government’s bond rating from Ba3 to B3 last week, Standard & Poor’s ratings agency has now put the Freundel Stuart administration on notice that there’s a one-in-three chance it will also slash the country’s rating, following its three-tier cut last November.
It has also warned that efforts to cut the massive fiscal deficit, through such measures as sending home thousands of public sector workers, may not be enough.
S&P’s lead analyst for Barbados Richard Francis told Barbados TODAY this afternoon that there had been no significant change in this country’s economic fortunes since its November downgrade, when the negative outlook was imposed.
Asked if another downgrade was in the cards, Francis replied: “Yes, that is a fair assessment. Like I said, we are monitoring more quarter by quarter to see where the growth outlook is, where the fiscal deficit is coming at and I think, one of the most important variables that we are looking at is the level of foreign reserves. If there is a fall in reserves, that becomes a worrisome element.”
“[Government is] implementing spending cuts, which is a step in the right direction. Whether that is enough or not . . . is the question. But certainly, the Government is making efforts. I don’t think anybody can deny that fact.
“The deficit last year was extremely large and I think there is a rationale that [Government] may have to make an even more quick adjustment than even they have planned,” he added.
Francis acknowledged that, even though it was costly, Government had successfully received a number of foreign loans in December and February, which he believed should help the island’s external position.
“We are watching what’s happening on the economic front, what’s happening on the Government’s fiscal deficit programme and what’s happening on the level of international reserves,” the S&P official said.
“I think that most of the things that we have seen we kind of expected and we downgraded Barbados in November. I don’t think there has been any surprise from our end.”
Francis outlined a number of goals the Government would have to achieve if it wanted to avoid another downgrade.
“We maintain a negative outlook and I think the most important thing for us is that the Government, number one, is able to make the fiscal adjustment up to now; number two, that we start to see some sort of economic growth,” he said.
“I think that’s the key weakness so far. The type of growth we would have wanted to see would be more . . . coming from the external side . . . a boost in tourism and also foreign direct investment, because that’s what’s going to allow the economy to grow at a more healthy pace,” insisted Francis.
The global rating agency’s executive said S&P would continue to monitor Government’s implementation of its programmes and determine whether it was achieving its own targets.
“We will be monitoring . . . to see where they stand in terms of fiscal adjustment and where the country stands basically on attracting foreign direct investment and how the outlook is for the tourism sector,” Francis added.