The bullet is what’s there to bite

It came upon us like a thief in the dark –– robbing some of us of peace of mind and a good night’s sleep. Standard & Poor’s has once again revised downwards Barbados’ long-term rating. We have been moved from BB+
to BB- because of our “persistent current account deficit and our high
fiscal deficit”.

Well, some experts have said it wasn’t surprising to them, among them former Barbados Economic Society president Ryan Straughn, who said the writing had been on the wall for some time since the Government got cold feet in pursuing the expenditure cuts announced by Minister of Finance Chris Sinckler in his August Budget.

And already Opposition voices are pointing to Government’s prevarication on the “true” state of the economy for our newest assessment by Standard & Poor’s. Barbados was supposed to be “stable”, they say, but the economy is now smaller than in 2008, and that the foreign reserves have nosedived from $3.7 billion plus in 2008 to less than $1 billion by September.

The Democratic Labour Party Government, they say, brought policies in the August Budget to reverse this trend, yet $400 million in foreign reserves has been lost since June. They insist the Government’s policies are flawed because the fiscal deficit is $117 million worse than it was last year.

The Opposition voices insist too that Government is in a state of confusion, having to readjust Budget policies priorly adjusted themselves, some of them yet to be implemented, others simply abandoned. And it does not help the Minister of Finance’s cause that the economy is down by 0.7 per cent and projected to dip by another 1.1 per cent in 2014.

The current Standard & Poor’s news is grist to the Opposition’s mill and that of the other critics of the Government, and surely will be a topic for much discussion among the financial and economic gurus.

In the cut and thrust of debate, however, we must not be diverted from the rooted reason for and purpose of credit ratings by such agencies as Standard & Poor’s.

We are not unaware that lowered credit ratings could result in higher borrowing costs because the borrower is deemed to be carrying a higher risk of default, and that in a continued downgrade, international market bond investors would want to be paid more to compensate for their risk
of holding government debt.

Nor are we oblivious to the fact that in some credit ratings the political, as well as the economic, risk is a consideration.

Simply put, credit rating agencies assess the risk of investing in corporations or governments –– the largest of them being Moody’s, Standard & Poor’s and Fitch Ratings. They will give businesses and countries economic guidance and good reason to do self-examination. They are influential but they are not perfect; they are not gods.

We well remember their role in the sub-prime crisis in the United States, and elsewhere, when they rated highly various mortgage-backed financial instruments that in time came to be branded “toxic”, damaging
their own reputations.

S&P’s new rating of Barbados is an assessment of the potential direction in which the country will move over the next six months to a year or two, based on its current economic conduct –– and, one made add, political will. Credit ratings are simply forward-looking opinions about a country’s
credit risk.

The new Standard & Poor’s downgrade of Barbados to BB- is merely an expression of the agency’s opinion on the ability and willingness of our Government to meet its financial obligations in full and on time. Clearly, S&P sees our Government facing major ongoing uncertainties and adverse business, financial and economic conditions.

But that is an adjunct to what is their primary assessment ––
credit quality.

In Barbados’ case, the downgrade is not necessarily the pathway to doom and disaster; it could be the much needed impetus for Government to eliminate the confusion it is accused of, avert the collapse it is said to be headed for, remedy all the wrongs it may have committed –– bite the bullet, as the economists say it should.

Which brings us to a universal factor. There has been no place on earth where drastic cuts in expenditure have been made by any Government and there was not some pain among its people –– the proverbial sacrifice of a few for the good all. It’s execution is a political nightmare for many a leader.

Only the strong-willed can survive –– with or without Standard & Poor’s guidance or opinion.

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