Not adding up
Sinckler tears into latest S&P statement on Barbados
If Minister of Finance Chris Sinckler had to rate the latest Standard & Poor’s (S&P) report on Barbados, the international ratings agency would probably end up with an even more negative grade than the one it recently issued for the island.
In an interview with Barbados TODAY, Sinckler broke his silence on the December 19 lowering by S&P of the island’s long-term sovereign rating to “B” from “BB-”.
And while he did not use the word “poor” to describe the S&P report, he did not hide his displeasure, complaining that “every time they do these downgrades they increase the cost of Government to service its debt and so we don’t take very kindly to those things”.
He has therefore given the thumbs down to the latest S&P rating, saying it was not only “unjustified” but also “illogical”.
While not dismissing the report completely out of hand, Sinckler tore into the document, charging that there were “many contradictions” in it and that S&P’s overall conclusion simply did not match the facts presented within the body of the text.
The Minister of Finance also questioned the timing of the December 19 report, in which S&P also warned that the potential for a further downgrade existed “if the Government doesn’t succeed in bringing down its wide fiscal deficit, if growth boosted by key investment projects fails to materialize, or if external pressures of persistent current account deficits mount”.
To this, Sinckler has responded sharply saying, “it is one thing to sit down and write that from sitting down at a desk somewhere” and “to analyze an economy on paper”, but quite another to “actually deal with it on the ground”.
“You have to know how much a society can actually take in terms of the dosage of bad medicine or tough austerity measures, in terms of holding both the social and psychological fabric of the society together, but also the commercial and economic. We have to take all of those things into consideration. It is not just a statistical measure,” said Sinckler in response to concerns raised about the island’s mounting debt.
“If it was just plain statistics, then we could do it and not care who we impact, who we dislodge or dislocate, which businesses close, who gets unemployed and who is suffering,” he added, insisting that “when you are dealing with real people and people’s lives and business and investments and so forth . . . you have to take the tough with the easy, and ameliorate or stimulate the situation in order not to cause widespread dislocation and discontent to the extent that at the end of the day, you do not achieve the things that you say you want to achieve.”
Sinckler also made it clear that while Government was not afraid to take the tough decisions, it was not prepared to devalue the Barbados dollar or to go into a formal International Monetary Fund programme.
However, he warned that “there may be some additional decisions that we have to take depending on how things turn out. And if it comes to that, we will do so again, but what we are saying is that our goal is to stick to this programme, achieve our targets and understand this is not an overnight experience.
“It is not going to happen in six months, and it is not going to happen in a year. It is going to take us a couple of years as we are now almost 18 months into the [Fiscal Consolidation] programme and we are looking down the road to see how best we can move to a more comfortable position with our deficit,” he said.
In its statement, S&P said it remained quite concerned about Government’s net debt burden, which is expected to rise to 89 per cent of GDP in 2014 and 92 per cent in 2015, up from 80 per cent in 2013 and 69 per cent in 2012.
However, Sinckler said the increase in debt was expected based on the country’s fiscal deficit.
He also acknowledged differences in S&P growth projections, when compared to those issued by him in his December 16 ministerial statement, but said both were within the margin of error.
In taking issue with the timing of the report, the Minister of Finance argued that there was no need to put the country on “negative watch” at this time.
“My question is why would you do that in December when there are only three and a half months left in the fiscal year? Why not wait until March and take your action?”
As for the report, Sinckler was particularly peeved that after agreeing with the Government that the country’s foreign reserves had stabilized, the fiscal deficit was on a downward trajectory and that there was recovery in tourism, S&P went on to paint a gloomy picture of things to come.
“The winter season is looking relatively good. We have increased airlift coming out of the major markets . . . . They [S&P] have recited all of that. They also said that there are projects that [are] lined up [and while] they can’t say for certain when they will start, they have agreed and acknowledged that projects have been lined up. And I know some of those investors, both foreign and local, have had teleconferences with S&P.
“Therefore, the statement, in terms of the progress that we are making and the result in terms of the ratings action taken by them, don’t gel, they don’t compute,” argued Sinckler.
He also questioned: “If things that are important to be done are being done and you agree that these things have begun to show results, albeit you maybe think slower than what you might expect, what justifies a two notch downgrade?”
Sinckler also dismissed the suggestion by S&P that “things are fundamentally worse than they were a year ago”, saying, “that cannot be sustained by empirical evidence”.