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S&P downgrades Barbados again

Barbados has suffered another economic downgrade at the hands of the international ratings agency Standard & Poor’s (S&P).

In a release issued yesterday,  S&P lowered its long-term foreign and local currency sovereign ratings on Barbados to ‘B-‘ from ‘B’, saying it was concerned that the island’s fiscal adjustment programme again fell short of stemming another increase in debt to GDP, which is already very high.

The ratings agency also issued a “negative” outlook for the island, while expressing worry that Central Bank financing of the Government’s deficit continues, exacerbating Barbados’ financial and external weaknesses.

“As a result, we are lowering our long-term foreign and local currency sovereign credit ratings on Barbados to ‘B-‘ from ‘B’,” S&P said.

It also said there was  “a greater than one-in-three chance” of a further downgrade should the Freundel Stuart administration be unable to lower its fiscal deficits, or if growth fails to strengthen, putting additional pressure on the country’s weakening external position.

Minister of Finance Chris Sinckler

Minister of Finance Chris Sinckler

The development comes on the heels of the August 16 Budget presentation by Minister of Finance Chris Sinckler in which several tax measures were announced.

However, S&P said despite those measures, Barbados’ net general government debt is expected to continue to rise toward just below 100 per cent of GDP over the next three years up from 93 per cent in 2015.

Following is the full text of the S&P statement:

"OVERVIEW
  • Barbados’ fiscal adjustment again fell short of stemming another increase in debt to GDP, which is already very high and a key credit constraint.
  • Central bank financing of the government’s deficit continues, exacerbating Barbados’ financial and external weaknesses.
  • As a result, we are lowering our long-term foreign and local currency sovereign credit ratings on Barbados to ‘B-‘ from ‘B’.
  • The outlook on the long-term rating is negative, reflecting a greater than one-in-three chance of a downgrade, should the government be unable to lower its fiscal deficits, or if growth fails to strengthen, putting additional pressure on the country’s weakening external position.
RATING ACTION
On Sept. 23, 2016, S&P Global Ratings lowered its long-term foreign and local 
currency sovereign ratings on Barbados to 'B-' from 'B'. The outlook is 
negative. 

The short-term ratings were affirmed at 'B.' We also downgraded our transfer 
and convertibility assessment for Barbados to 'B-' from 'B'.


RATIONALE
The government's financial profile has eroded over the last several years 
because of persistently high fiscal deficits, reflecting both budget slippage 
and unbudgeted spending. The central bank continues to directly finance the 
government, which we consider at odds with its goal to defend Barbados' 
long-standing currency peg with the U.S. dollar. The government deficits, 
coupled with current account deficits (CADs) not fully financed by foreign 
direct investment (FDI), have increased the country's external 
vulnerabilities. We do expect economic growth to pick up during the next two 
to three years, but lackluster private-sector confidence, continued delays in 
several tourism projects, and potential spillover from Brexit should keep 
growth moderate. We expect per capita GDP growth to be around 1% in the next 
two years, comparatively low for a country at its level of income. The 
country's per capita income, projected to be almost US$16,000 in 2016, is 
higher than that of most of its rating peers. That said, Barbados' economy and 
the sovereign credit rating benefit from a low level of perceived corruption 
and a generally stronger political system and institutions than most of the 
sovereign's peers in the 'B' rating category. 

The government did not lower its fiscal deficit as much as we had expected 
last year, and we expect slow progress in lowering the deficit over the next 
several years. The fiscal slippage reflects poor implementation of various 
adjustment measures, which only became effective during the second half of the 
last fiscal year, as well as failure to meet targets for state-owned 
enterprises (SOEs). The general government deficit was 6.1% of GDP in 
fiscal-year 2015 (from April 2015 to March 2016), slightly above the 5.8% of 
the prior year; the general government deficit includes the National Insurance 
Scheme (NIS) surplus of 1.2% of GDP. Stricter control over expenditure at 
SOEs, some one-off revenues from the sale of the Barbados National Terminal 
Company, and the full impact of the fiscal measures announced in 2015 and 
2016, should reduce the fiscal deficit (and change in government debt) toward 
5% of GDP during 2016-2018. The management of SOE finances poses a risk to the 
success of the fiscal consolidation of the government, in our view. 

On [Aug. 16, 2016], the government announced additional fiscal measures and a 
midterm financial and economic review. This process updates the pro forma 
budget proposal laid out in March, with updated economic assumptions, and 
incorporates further planned fiscal tightening. Moreover, the government 
introduced a social responsibility levy (2% on imports except those for 
tourism, construction, and agriculture) to fund health expenditure and 
increased the bank asset tax to 0.35% (from 0.2%). Finally, the government 
plans to reduce transfers to SOEs during the next four years below BB$1 
billion, where they have stood for the last five fiscal years, through 
improving its control on its SOE's expenditures and refinancing arrears. 

In our opinion, these measures will help reduce the annual increase in 
government debt to an average of 5% of GDP during 2016-2018 from the 6.5% 
observed in 2013-2015. However, we expect Barbados' net general government 
debt to continue to rise toward just below 100% of GDP over the next three 
years from 93% in 2015. We consider the level of debt a key credit constraint, 
particularly given Barbados' narrow, open economy (which depends highly on 
tourism) and fixed exchange rate regime. In addition, the general government 
interest to revenue burden is over 15% (this figure excludes interest payments 
to NIS). Moreover, the government continues to run arrears, which the 
International Monetary Fund estimates at 5.9% of GDP last fiscal year, up from 
the 4.3% the year before. We assess Barbados' contingent liabilities as 
limited; this considers our view of the strength of the banking system with 
assets of the deposit-taking financial institutions at 170% of GDP.

Consistently high CADs from 2011 to 2015, which averaged 10% of GDP, the 
absence of significant FDI flows-–coupled with the sovereign's decision not to 
tap global capital markets--underpin a steady downward trend in international 
reserves, which were $544 million at year-end 2015. Our expectation for 
continued low commodity prices over the next two to three years and some 
pickup in tourism arrivals, especially from the U.S., should keep the average 
CAD at a lower 7% of GDP during 2016-2018. Within the last 12 months, three 
major hotels have announced new investments on the island--the Hyatt, the Sam 
Lord's Castle project by Wyndham (which the China Exim Bank will finance as 
well), and the expansion of the all-inclusive Sandals hotel. This should boost 
FDI flows and finance around 80% of the projected CAD. Coupled with 
disbursements from multilateral organizations, this should ease the downward 
trend of the international reserves.

However, usable international reserves, which we consider for assessing 
external liquidity, are even lower; we subtract the monetary base from 
international reserves because reserve coverage of the monetary base is 
critical to maintaining confidence in the exchange-rate regime. Barbados' 
usable reserves have been negative since 2013, and the position continues to 
deteriorate, in part because of the central bank's deficit financing, which 
has expanded the monetary base. We expect Barbados' gross external financing 
needs to be above 200% of current account receipts (CAR) plus usable reserves. 
We expect narrow net external debt to average around 40% of CAR during 
2016-2018. Our external assessment also considers that net external 
liabilities of a projected 170% of CAR during 2016-2018 are substantially 
higher than narrow net external debt. Finally, we note that Barbados' 
International Investment Position has inconsistencies and is not timely.

At almost $16,000 GDP per capita, Barbados is still one of the richest 
countries in the Caribbean. However, growth has been below that of peers with 
a similar level of economic development, and the economy is very dependent on 
tourism. These factors weigh on the strength of the economy. There have been 
anecdotal signs of some pickup in growth--as tourism has improved--and we 
expect real GDP to post small but consistent gains during 2016-2018. Largely 
as a result of a robust tourism sector, the economy posted 0.8% growth in 
2015, above the 0.3% average of the previous five years. Tourism arrivals were 
up by 14% in 2015, led by the U.S. market; higher arrivals, however, have not 
translated to higher tourist per capita spend. This is likely because of low 
commodity prices and increased use of Internet platforms for room 
accommodation. 

Since its independence, Barbados has kept strong ties with the U.K.; it is 
still early to assess the full impact of Brexit on the island. The U.K. 
accounts for 36% of tourist arrivals, and Britons are the main nonresident 
buyers in the local housing market. The impact of the Brexit, if any, could be 
mitigated by reactivation of the construction sector following the 
announcement of major hotel projects and growth in U.S. tourism. We expect GDP 
growth of 1.5% during 2015-2018. 

OUTLOOK
The negative outlook reflects the potential for a downgrade if the government 
fails to make additional progress in lowering its high fiscal deficit, if 
growth resulting from key investment projects fails to materialize, or if 
external pressures worsen because of persistent and large CADs. This scenario 
would likely lead to a further deterioration in the availability of financing 
for large fiscal deficits during the next 12-18 months. 

We could revise the outlook to stable within the next 12-18 months if the 
government succeeds in stemming further slippage in its fiscal accounts--be it 
from implementation of fiscal measures or a stronger-than-expected rebound in 
growth--improves its access to financing, especially from private creditors 
locally and globally, and stabilizes the country's external vulnerabilities. " (ENDS)

53 Responses to S&P downgrades Barbados again

  1. Nikki Bayley
    Nikki Bayley September 24, 2016 at 8:59 pm

    Oh boy…so now it’s going cost the Govt MORE in interest payments to Credit Suisse. With every downgrade the interest on the loan were scheduled to jump

    Reply
  2. Rawle Maycock
    Rawle Maycock September 24, 2016 at 9:01 pm

    The, finance minister with the most downgrades along with the country!

    Reply
    • Joan Wickham
      Joan Wickham September 24, 2016 at 10:09 pm

      he wants to enter the Guinness book of records, hahhahha

      Reply
    • Ras Selwin
      Ras Selwin September 25, 2016 at 4:25 am

      Brilliant ya got dah right

      Reply
    • Sonia Lynch
      Sonia Lynch September 25, 2016 at 7:00 am

      It sure seems so

      Reply
  3. Lilian Lloyd
    Lilian Lloyd September 24, 2016 at 9:01 pm

    BLAME IT ON HOME GROWN

    Reply
  4. Adrian Reid
    Adrian Reid September 24, 2016 at 9:02 pm

    Captain the ship is sinking , captain the seas are rough.

    Reply
  5. Tony Webster September 24, 2016 at 9:02 pm

    Lord, are you hearing our prayers?

    Reply
  6. Wayne T Griffith
    Wayne T Griffith September 24, 2016 at 9:03 pm

    The government with say that this is rubbish

    Reply
  7. Les Carr
    Les Carr September 24, 2016 at 9:11 pm

    The descent of the decent.

    Reply
  8. L.Allan Wilkie
    L.Allan Wilkie September 24, 2016 at 9:13 pm

    DEM going to say that it is an inaccurate statement, and unjustifiable, because all these projects that don’t have planning approval as yet, that been coming on stream since Adam was a lad, and blah blah blah blah. Masters at kicking the ball down the road just a tad further.

    Reply
  9. Shonel Kingston
    Shonel Kingston September 24, 2016 at 9:14 pm

    Who is for DEM’s now and DEM’s again?

    Reply
  10. Lilian Lloyd
    Lilian Lloyd September 24, 2016 at 9:19 pm

    LET ME HEAR YOU CHRIS

    Reply
  11. Lynn Lucas
    Lynn Lucas September 24, 2016 at 9:27 pm

    How will we get back out of this hole ??? The policies, strategies medium or short obviously not working!!!

    Reply
  12. Ryan R A Charles
    Ryan R A Charles September 24, 2016 at 9:31 pm

    Oh wow. My my my. I hope you notice the sarcasm

    Reply
  13. Ryan Bayne
    Ryan Bayne September 24, 2016 at 9:40 pm

    What more do you accept? This arrogant despot government won’t learn to hear or understand that this country is in dire need of a facelift economically

    Reply
  14. Corey Worrell
    Corey Worrell September 24, 2016 at 9:42 pm

    I remember Jeremy Stephen in one of his recent videos saying it was going to happen.

    Reply
  15. Loretta Griffith September 24, 2016 at 9:48 pm

    Can’t believe another downgrade!
    What is the point of these constant imposition of taxes when the taxes are not being collected?
    Far from the taxes having a positive effect we seem to be regressing. It is time to focus on collecting and stop all the draconian measures.
    I am beginning to think there are too many square pegs in round holes. I have always held the view that persons should be appointed on merit and not only certification, although certification is important.
    Nothing is done to stimulate business in my opinion. One would think with all this taxation we would be out of the woods but it seems we are going deeper and deeper.
    It is time for frank dialogue.

    Reply
  16. Eddy Murray
    Eddy Murray September 24, 2016 at 9:49 pm

    The PM done put that in the pile of garbage, that is pile up around the country.

    Reply
    • Ryan Bayne
      Ryan Bayne September 24, 2016 at 9:52 pm

      And he continues to do so until the country smells stink

      Reply
    • Eddy Murray
      Eddy Murray September 24, 2016 at 9:57 pm

      Ryan Bayne this is the death of the $ down grade, can not go down any more on it last leg. The GOCB must stop the printing of money. All of the projects that are to come on stream is way behind right now so money is hard to come by.

      Reply
    • Eddy Murray
      Eddy Murray September 25, 2016 at 5:05 pm

      The man blaming the goal post for moving

      Reply
  17. Cassandra Bowen
    Cassandra Bowen September 24, 2016 at 9:55 pm

    Why is America telling us what do do? Does the state friends of all, satellite of none mean anything to us. How many more people need to go home? How much more our belts have to tighten? How much more do we have to endure before we say enough is enough.

    Reply
  18. Winston Crichlow
    Winston Crichlow September 24, 2016 at 10:17 pm

    who else does S&P assess? just asking.

    Reply
  19. Elizabeth Paul
    Elizabeth Paul September 24, 2016 at 11:50 pm

    God have not for get us he did downgrade us he love us god bless

    Reply
  20. Max Carter
    Max Carter September 24, 2016 at 11:54 pm

    Barbados done

    Reply
  21. Max Carter
    Max Carter September 24, 2016 at 11:55 pm

    Save your selves and jump ship like me

    Reply
    • Sherwin Patterson
      Sherwin Patterson September 25, 2016 at 10:05 am

      Max Carter I am sure thinking of moving to the Dominican Republic with my woman.

      Reply
  22. Phil September 25, 2016 at 12:24 am

    I am not your local Nostradamus but as Dennis J lamented on Brass bowl last week, this will lead to social unrest and don’t be surprised if a stray bullet hit a politician or two or three by coincident. Things really really bad here in Barbados and all DEM doing is smiling from ear to ear. and oh, Dennis didn’t say anything about no stray bullet, It was Nostradamus who she dat. I think.

    Reply
  23. Veronica A. Piggott
    Veronica A. Piggott September 25, 2016 at 12:37 am

    That is the norm

    Reply
  24. Arthur Marshall
    Arthur Marshall September 25, 2016 at 2:30 am

    oh crap …tax n spend

    Reply
  25. Arthur Marshall
    Arthur Marshall September 25, 2016 at 2:33 am

    lack of foreign exchamge………bank of last resort ….solution …currency devaluation

    Reply
  26. sensenoy September 25, 2016 at 4:37 am

    who wants to buy savings bonds?

    Reply
  27. Sonia Lynch
    Sonia Lynch September 25, 2016 at 7:07 am

    Well dem carry us bk to pit toilets so what else can u expect from lunatic .I am convinced this government hate Barbados .they take pride in nothing not even it’s beauty.

    Reply
  28. Randy Hartman
    Randy Hartman September 25, 2016 at 8:03 am

    government really need to work on deceiving the rating agencies better..

    Reply
  29. harry turnover September 25, 2016 at 8:58 am

    DEM gine come now and say…don’t mind them.The IMF say we ‘” turning de corner “…the thing is either DEM can’t get the wheels of the economy to STRAIGHTEN and go up or DEM brek down in de corner.

    Reply
  30. Ivan Carter September 25, 2016 at 12:45 pm

    I am a proud Barbadian who lives overseas and visits the island at least once per year. It has been clear to me for a while that Barbados needs new leadership with fresh bold thinking capitalizing on latest technologies, techniques and strategies. There is a vibrancy, dynamism, freshness and energy that is lacking. Start runing the country like a big business. Where is the vision and the execution plan to solve the everlasting malaise?Marginal strategies and programs are insufficient. We need new leadership at the Prime Ministerial and Finance Minister’s level at a minimum. Let us make the changes now to quickly get Barbados back to being the gem of the Caribbean. There are competent resources in Barbados and in the diaspora which can be mobilized to help.

    Reply
  31. Phil September 25, 2016 at 2:38 pm

    I just hear something that BT should investigate. The night auditor in cahoots with front desk personnel at about three big hotels have a foreign exchange racket in place. they come to their shift with five to six thousand BDS dollars in cash. they exchange the cash for the US $ collected at the 1.98 rate, then carry out the US Dollars. and here’s the catch. they are selling the US $ at 3 to 1. to certain business houses. Taxi drivers are doing the same. We dollar got devalued already.

    Reply
  32. Delbert Griffith
    Delbert Griffith September 25, 2016 at 3:59 pm

    nothing to see here….move on

    Reply
  33. Damian Hinkson
    Damian Hinkson September 25, 2016 at 7:11 pm

    At least we ent as bad as……….

    Reply

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