Government will not be dictated to by ratings agency
The Freundel Stuart administration has all but rubbished the latest Moody’s report on Barbados, in which the United States-based credit rating agency has further downgraded it’s bond rating and issuer rating to Caa1, while changing its outlook to stable.
Today, a senior spokesman for the administration stopped just short of condemning the international rating agency’s latest report on the island’s economic performance to a garbage heap outside Government Headquarters for collection by the Sanitation Service Authority (SSA), as was done by the Prime Minister himself on the last occasion Moody’s was thought to be attempting to “dictate” to the island.
“What they say is only relevant if we want to embark on an orgy of foreign borrowing in which people should know how much we should have to borrow, how much our money should cost.
“But if we are not intending in the short or medium term to go to the capital markets to borrow money, what they say has as much value as what you would see in any garbage dump collected by the Sanitation Services Authority,” the Prime Minister had said then.
That was two years ago, when the agency had downgraded the island from BA3 to B3.
Back then, Minister of Finance Chris Sinckler was equally dismissive of the US-based ratings agency, saying it was clear that Moody’s had “overreached in its highly negative conclusions, rushed to judgement, failed to adequately take into consideration the nuances of the Barbados economy”, and essentially undervalued Barbados’ commitment to make the necessary adjustments to protect its exchange rate and meet financial commitments.
While no official response has been forthcoming from either Stuart or Sinckler to the most recent Moody’s downgrade, one official, who spoke to Barbados TODAY this afternoon, described the action by the New York-based ratings agency as “illogical” and “contradictory”.
In this regard, the official noted that there was evidence in the Moody’s press release issued at the weekend that not only had the economy stabilized, but that “the deficit has been reduced from 11.2 per cent in 2014 and was projected to reach 5.5 per cent by end 2016 and that economic growth had resumed following a resurgence in tourism, construction and lower oil prices.
“They even have a generous growth prediction of 1.5 per cent for this year, which incidentally is the same as the Government’s prediction and much higher than the Caribbean Development Bank’s forecast of 0.8 per cent for Barbados.
“And to top it off, in spite of expressing concerns about the debt, the deficit and the reserves, the so-called drivers for the downgrade, they put the outlook as stable.
“So that Moody’s’ principal occupation seems to be with Government implementing a massive fiscal adjustment programme in the shortest period of time to achieve a statistical target of a two per cent primary surplus at which point they believe debt growth with cease,” said the official, who did not want to be identified by name.
The official also suggested that Moody’s continued to sing from a similar economic hymn sheet as the International Monetary Fund and Standard and Poor’s, which he said also seemed to be insisting on “purely statistical targets” in the financial balance sheet while “totally ignoring the attendant massive social dislocation and disorder such actions will almost definitely cause” in a small fragile economy and society like Barbados.
However, “there is not only a financial balance sheet Government has to concern itself with, there is a social balance sheet to think of,” he warned.
“And while Government has and continues to move to reduce its deficit and stabilize its debt, it must and will be done at a pace that the society – its households and businesses- can tolerate.”
During last month’s Estimates debate in Parliament, Sinckler had indicated that it was Government’s intention to continue its fiscal consolidation programme with the goal of achieving a 2.5 per cent or lower deficit by 2018 and thereby stabilizing debt growth.
The official also questioned the ratings agency’s conclusion that foreign reserves have reached a level that threatened the fixed exchange rate, arguing that “nothing could be farther from the truth as reserve levels are not only above the accepted internationally accepted minimum levels of 12 weeks of imports, but continued stronger tourism performances, increased public and private capital inflows associated with infrastructure projects, low oil prices and relative low foreign debt service requirements, have and will continue to ensure that the normal daily patterns for foreign exchange transactions continue over the medium to longer term.
“So the basis for any downgrade is clearly undermined not only by Moody’s own conclusions, but by the obvious facts,” he said.
Over the weekend, the Opposition Barbados Labour Party spokesman economist Ryan Straughn said he viewed it as the clearest indication yet that Government’s homegrown Fiscal Stabilization and Economic Revitalization Programme had failed.
“Barbadians should be aware that Moody’s basis for its ratings action was predicated on their estimate of the fiscal deficit of 5.5% of GDP,” said Straughn in response to Moody’s.
“This is quite significant since the Minister of Finance presented a figure of 6.3% of GDP for 2015/2016 during the debate but further rather than fiscal consolidation, the Freundel Stuart administration approved an Appropriations bill for a deficit of 7.8% of GDP for 2016-2017,” the Opposition spokesman argued, while warning that based on Moody’s analysis this will set the country up for a further downgrade “over the next 12 months or so”.
However, in dismissing Straughn’s comments, the official said the “best of all worlds intervention by the junior Opposition spokesman” reflected “the typical, criticize everything disease plaguing the Opposition.
“If the Opposition believes the Government’s programme for fiscal consolidation has failed, then they ought by now to tell the public what their programme for fiscal consolidation will look like.
“It is not enough to say the Government’s programme is failing and that Government needs to cut expenditure.
They should tell the public how and from where this massive cut in expenditure will come,” he added.
He stressed that while the ratings agencies have been seeking to push Government to make a “massive adjustment in the shortest space of time which the society itself would not be able to withstand.
“We have opted for a more gradualist approach,” the official said, stressing that 2018 was the administration’s own target date for stabilization of debt growth.
Asked to respond to concerns issued about Government’s debt, which according to the World Economic Forum’s latest Global Competitiveness Survey is among the top 17, he maintained that debt was only a problem when you can’t service it. The official said Government was not currently under any pressure to service its debt.
He also said Government continued to monitor its foreign reserves position every day and “the money is there to defend our currency, should there be a need to”. (KJ)