Another S&P downgrade

The international ratings agency Standard & Poor’s (S&P) today downgraded Barbados to ‘CCC+/C’ based on its limited financing alternatives and low international reserves.

S&P also issued a negative outlook for the island, while warning that the sustainability of the Barbados dollar is now under threat, amid Government’s continued reliance on the Central Bank to finance its deficit.

“As a result, we are lowering our long-term foreign and local currency sovereign credit ratings on Barbados to ‘CCC+’ from ‘B-’.

“We are also lowering our short-term foreign and local currency sovereign credit ratings to ‘C’ from ‘B’,” the ratings agency said.

It also explained that its negative outlook reflects its view that Government was either unable or unwilling to take timely steps to redress  the situation.

Chris Sinckler

The latest downgrade comes against the backdrop of assurances issued by the country’s Minister of Finance Chris Sinckler this week that the country was not facing any “doomsday” scenario and that the Freundel Stuart administration still had the economic situation well in hand.

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

OVERVIEW

• Increased reliance on Central Bank financing of the still-high government

deficit and the fall in international reserves reflect heightened

challenges for policy implementation, the sustainability of the peg to

the U.S. dollar, and underpin expected weaker growth prospects in

Barbados.

• As a result, we are lowering our long-term foreign and local currency

sovereign credit ratings on Barbados to ‘CCC+’ from ‘B-’.

• We are also lowering our short-term foreign and local currency sovereign

credit ratings to ‘C’ from ‘B’.

• The negative outlook reflects our view that the government’s ability or

willingness to take timely steps to redress deficit and financing

pressures and bolster international reserves will likely deteriorate

further.

RATING ACTION

On March 3, 2017, S&P Global Ratings lowered its long-term foreign and local

currency sovereign ratings on Barbados to ‘CCC+’ from ‘B-’. The outlook is

negative. We also lowered the short-term ratings to ‘C’ from ‘B.’ At the same

time, we lowered our transfer and convertibility assessment for Barbados to

‘CCC+’ from ‘B-’.

RATIONALE

The downgrade reflects our view that the government of Barbados’ willingness

to take timely, proactive corrective measures to strengthen its financial

profile continues to erode. In our view, a weaker ability to meet its

debt-servicing requirements stems from still-high fiscal deficits, limited

access to private-sector funding in the local market, as well as a decline in

external funding, and with it foreign exchange reserves. The sovereign’s debt

servicing capacity depends on favorable financial and economic conditions

consistent with our “Criteria For Assigning ‘CCC+’, ‘CCC’, ‘CCC-’, And ‘CC’

Ratings,” in our opinion.

Prime Minister Freundel Stuart

The government has not succeeded in substantially reducing high fiscal

deficits. Furthermore, reliance on the central bank to directly finance these

deficits continued to rise again in 2016. From April to December 2016 (the

first nine months of fiscal 2016-2017) the central bank, and, to a lesser

degree, the National Insurance Scheme (NIS) in effect wholly financed the

government’s borrowing needs. Private domestic financial institutions reduced

their exposure to government securities, and the government paid down external

debt. We consider the policy of ongoing dependence on central bank financing

at odds with the government’s goal of defending Barbados’ long-standing

currency peg with the U.S. dollar. It significantly curtails the central

bank’s ability to act as a lender of last resort in the financial system.

The high level of central bank financing underscores the challenges associated

with timely corrective fiscal policy actions. The government plans to present

the 2017-2018 budget in the coming month. While it seemingly aims to rely on

increased recourse to asset sales to fund the deficit, in our view, the

prospects for deeper expenditure or revenue adjustment are uncertain,

underscored by the poor track record of execution. This comes as the country

moves into an electoral cycle, with parliamentary elections due by February

2018. Furthermore, one-off revenues from the sale of the Barbados National

Terminal Company are still pending after initially expected to materialize a

year ago. This demonstrates policy inaction and prospects for slow progress on

asset sales. The streamlining of state-owned enterprise finances is behind

schedule, and their management continues to weigh on Barbados’ fiscal profile.

Finally, delays in complying with terms and requirements for official

borrowing (from multilateral agencies, for example) have contributed to delays

in external disbursements, which are important to bolster international

reserves. In sum, the various failures to respond in a timely fashion to

mitigate fiscal and financial pressures further weigh on our view of Barbados’

institutional and policy effectiveness.

With about US$15,800 per capita GDP projected for 2017, 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 depends

highly on tourism. While three major hotels had announced new investments on

the island–the Hyatt, the Sam Lord’s Castle project by Wyndham, and the

expansion of the all-inclusive Sandals hotel–only Sandals is not suffering

from delays. Given these recurrent delays, and our expectations for ongoing

risks associated with sluggish fiscal correction, we have lowered our growth

forecast and level for per capita GDP, which weakens Barbados’ overall

economic profile.

We expect Barbados’ net general government debt to continue to rise toward

111% of GDP over the next three years from 101% in 2016. We consider this

level of debt a key credit weakness, 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%. We

assess Barbados’ contingent liabilities as limited, considering our view of

the strength of the banking system, with assets of the deposit-taking

financial institutions at 170% of GDP.

The high current account deficit (CAD), which is not fully financed by foreign

direct investment, and slow external disbursements from multilateral and

official creditors contributed to a decline in international reserves to

US$341 million at year-end 2016. This keeps the country’s external

vulnerabilities high and underscores challenges of sustaining the fixed

exchange rate. 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 about 40% of CAR during

2017-2019. Our external assessment also considers that net external

liabilities of a projected 160% of CAR during 2017-2018 are substantially

higher than narrow net external debt. Finally, in our view, data on Barbados’

international investment position has inconsistencies and is not timely.

ow inflation is a reflection of global conditions rather than effective

monetary policy execution given the fixed exchange rate regime. In addition,

the central bank’s ongoing financing of the government’s deficit impairs the

credibility of monetary policy, the peg, and the ability of the central bank

to act as a lender of last resort for the financial system.

OUTLOOK

The negative outlook reflects the potential for a downgrade over the next 12

months should the government fail to make additional progress in lowering its

high fiscal deficit or if external pressures worsen with persistent and large

CADs. This scenario would likely lead to further deterioration in the

availability of deficit financing and pose challenges for the fixed exchange

rate.

We could revise the outlook to stable within the next 12 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

and bolsters international reserves.

56 Responses to Another S&P downgrade

  1. Rae Pro-Lyfe Springer
    Rae Pro-Lyfe Springer March 3, 2017 at 4:56 pm

    Fernando Arf

    Reply
  2. Santini More
    Santini More March 3, 2017 at 5:00 pm

    This Govt must go! An incompetent PM has allowed an innumerate MoF to plunge Barbados into this economic black hole…Call the damn election and put us out of our misery!

    Reply
  3. Dennis Connell
    Dennis Connell March 3, 2017 at 5:05 pm

    How much farther can we go down?

    Reply
  4. Samantha Trotman
    Samantha Trotman March 3, 2017 at 5:14 pm

    please call elections

    Reply
  5. Randolph March 3, 2017 at 5:16 pm

    Why don’t these jokers resign?

    Reply
  6. Jonathan Gonsalves
    Jonathan Gonsalves March 3, 2017 at 5:16 pm

    #march11th

    Reply
  7. John Everatt March 3, 2017 at 5:18 pm

    Well I guess that pretty much says it all!

    Reply
  8. Mariam Makeba
    Mariam Makeba March 3, 2017 at 5:26 pm

    Well my minister got a new name Ministry Of Downgrades.

    Reply
  9. Kamila Burrowes
    Kamila Burrowes March 3, 2017 at 5:30 pm

    Captain this ship is sinking

    Reply
  10. Jack O
    Jack O'Neal March 3, 2017 at 5:37 pm

    This is getting scary now

    Reply
  11. Marcia Joseph
    Marcia Joseph March 3, 2017 at 5:39 pm

    We got to eighteen. Is this the goal.

    Reply
    • Richard Grace
      Richard Grace March 3, 2017 at 5:47 pm

      if they get to the nineteenth that is the party hole. dem may enjoy that as it seems to be their fortae

      Reply
  12. Frank Fowler
    Frank Fowler March 3, 2017 at 5:40 pm

    Junk status

    Reply
  13. Janette Reifer
    Janette Reifer March 3, 2017 at 5:46 pm

    Kamila Burrowes
    No ship is sinking. From whom did you hear that the boat is sinking?
    You all like a lot of fake News. It’s a submarine. It’s under the water already.

    Reply
    • Kamila Burrowes
      Kamila Burrowes March 3, 2017 at 6:27 pm

      Guess Owen is taking the stir on that submarine ☺️☺️☺️☺️

      Reply
  14. Richelle Bourne
    Richelle Bourne March 3, 2017 at 5:47 pm

    Hmmmm. No need to panick there will be no public sector lay offs. As part of our plan to cut government spending we will have to lay off some of the public sector as the public wage bill is too high. Bajan don’t need to worry about that B- downgrade I can assure the economy it coming back up. Barbadians don’t have to worry about any devaluation of the Barbadian dollar because that would never happen, we have more than enough foreign exchange to keep us afloat. Hmmmmm China do you have room for a black family on your boat I’m sorry I can’t swim and I’m not ready to die.

    Reply
  15. Michelle Griffith
    Michelle Griffith March 3, 2017 at 5:47 pm

    I have nothing,I am speechless,I am going to sit on this one a bit.

    Reply
  16. Shamaya March 3, 2017 at 5:49 pm

    These wild boys cant see what is happening

    Reply
  17. Stanton Peace
    Stanton Peace March 3, 2017 at 5:49 pm

    oh dear not again,this would make #21, eighteen by s&p and moodys and 3 the Caribbean institute.

    Reply
  18. Christopher Foster
    Christopher Foster March 3, 2017 at 6:00 pm

    What is going on?!!

    Reply
  19. Sebastian Da Costa
    Sebastian Da Costa March 3, 2017 at 6:04 pm

    Well well well just my thoughts but why not send home 5000 workers from government and not just the small workers because them salary is noting but some big boys to and cabinet to big for a small island some of them ministers too. Maybe some of the not so hard working PPL. Hopefully them can get jobs at the new hotels in management and labour positions and also get some training in some sort of direction. Government cut spending now.

    Reply
    • Igrunt Barbie March 4, 2017 at 7:35 am

      I definitely agree… The cabinet is too large

      Reply
  20. Ziggy Blessed
    Ziggy Blessed March 3, 2017 at 6:09 pm

    i would tek a salary decrease to save jobs

    Reply
  21. Sean R. Phillips
    Sean R. Phillips March 3, 2017 at 6:12 pm

    This is not a surprise at all. This government has failed to “right the ship”, they have failed to make the tough choices and they continued reliance on borrowing money and tourism as a way to finance the economy has proven futile. Barbados has should great potential to be so much more, but in order for that to happen the political landscape must be changed as it all start from the head.

    Reply
  22. CoCo Milan
    CoCo Milan March 3, 2017 at 6:12 pm

    Q-Sound Suffice

    Reply
  23. Arthur Collymore
    Arthur Collymore March 3, 2017 at 6:17 pm

    These buffoons have destroyed our dear beloved country. Amid all the advice that was given to this country by all those knowledgeable Barbadians & foreign technocrats we still ended up in the chaotic mess. Why not do the honorable thing by resigning & call elections?

    Reply
  24. Michael A Clarke
    Michael A Clarke March 3, 2017 at 6:18 pm

    Wonder if Mr Arthur will be able to help ?

    Reply
  25. harry turnover March 3, 2017 at 6:35 pm

    Sinckler says the Country is not facing a ” doomsday scenario ”
    and that the Freundel Stuart administration still had the economic situation well in hand so that downgrade it seems is nothing to worry bout….lord have mercy !!
    Sinckler how you could say that and still warn we that more harsh measures coming ?

    Reply
  26. Cindy Bunting
    Cindy Bunting March 3, 2017 at 6:36 pm

    When the elections are called and Mia is PM would like to know what she and her ministers will do to keep Barbados afloat. They will have to start by reducing the large Government wage bill, amalgamate services and send home people. Hopefully not those that earn a pittance.

    Reply
    • Tristan John
      Tristan John March 3, 2017 at 8:54 pm

      How dare you question people who are not the government!

      Reply
    • Cindy Bunting
      Cindy Bunting March 3, 2017 at 8:56 pm

      I can question whom I wish to. What is your problem.

      Reply
    • Cindy Bunting
      Cindy Bunting March 3, 2017 at 8:56 pm

      Everyone has an opinion.

      Reply
  27. Anderson Steven
    Anderson Steven March 3, 2017 at 7:21 pm

    Wow

    Reply
  28. Joyce McIntosh
    Joyce McIntosh March 3, 2017 at 7:33 pm

    Smh

    Reply
  29. Penny March 3, 2017 at 7:50 pm

    The sleeping giant has fallen asleep too long. Please wake him up Mr Arthur. Let him know he has run out of time and should call elections. He has taken an over dose of sleeping pills

    Reply
    • hcalndre March 3, 2017 at 9:44 pm

      Penny, in the picture above his eyes are red so he must have just awaken or is he crying?

      Reply
  30. Nikki Nikki
    Nikki Nikki March 3, 2017 at 8:13 pm

    The faces yuh mek when de teacher give yuh an “F” grade in economics class

    Reply
  31. John Q March 3, 2017 at 8:21 pm

    Barbados is burning and Stuart is playing the fiddle. I said it before and I’ll say it again; this gov’t is hopelessl; wake up Bajans and vote them out !!!!

    Reply
  32. Tony Webster March 3, 2017 at 8:28 pm

    This latest tectonic event (allegedly) hasn’t taken “some person”, by surprise. What a small world: I experienced the same event when my father left me alone at my first day in school, also by no surprise. Truth be told, I was terrified; couldn’t understand why my parents had ceased to love me; so I accomplished the the only remaining course of action: I soiled myself…right down to my clean, white, turned-over socks!

    Chris…if you does wear socks too…check dem!

    Reply
  33. PRI March 3, 2017 at 8:35 pm

    I am of the opinion that this downgrade is based on data as at December 31, 2016 and the MoF was aware of this thus the statement and press conference on Monday to reassure Barbadians. The reference to the deserve levels appear similar to the all but exact level reported by the former governor in his last report. I wonder if the former PM was also aware before agreeing to be part of the advisory committee.

    Reply
    • Igrunt Barbie March 4, 2017 at 7:39 am

      PRI, you wondering?! Lol, you know!!!

      Reply
  34. hcalndre March 3, 2017 at 9:36 pm

    I think I heard the PM said that he don`t take these institutions seriously and some other diehard Dems said that they don`t like we. You`ll can now see why they were in so much hurry to get that 10% return to their bank accounts. It looks like they are ready to abandon the ship and let it go down, but where is Captain Bligh?

    Reply
    • Igrunt Barbie March 4, 2017 at 7:51 am

      That is partly true… But is profoundly asinine excuse. While these institutions aim is to cripple developing countries, they have failed to reduce the expenditure accounts, implement some agressive growth strategies, and ocme up with crwativr ways to minimize the debt. They want to devalue our dollar is to closely aligned with theirs…. Thos institutions are about helping themselves not about us…. So while taking their recommendations into consideration, one must also decipher what is crippling from what isn’t. The public sector is too large… I know people have to eat, survive etc…. The cabinet is too large, salariea pension… All kind of expensea being incurred to keep slackers in office. They are a few atate owned assets that have been incurring losses sell them but implement policiea of how they should be run etc… The Fin Minister and i am not too bright is an arrogant mf and too textbook… He screwed us right over…. He should have never been there in the first place… Their intent is to bring Barbados to its knees and we have acquiesced gladly

      Reply
  35. Colin March 3, 2017 at 11:29 pm

    The damning comments from this report is that Barbados has failed to act timely on a number of fronts. When will we learn that we can’t take our time on everything.

    Reply
  36. Mr Progressive March 4, 2017 at 1:33 am

    You bunch of clowns on this forum behaving like Mia is our only way out and there is no room for a third party this party have a good few clown doing nothing but damage and l believe Mia will surprise you and be that bitter pill to the workers ask owen to me she is all talk try to grap power l Am VOTING 3 party this time l dont care who it is because l am rejecting both DLP and B LP butl do feel Donville should lead the DLP and George the BLP then l can reconsider but not under our present leaders and chris must go l am self employed dont depend on goverment or waiting on Mia for handouts like some out you all

    Reply
  37. Vadre March 4, 2017 at 7:33 am

    Remember when the people wanted change? We forgot to let them know it was change for the better.

    Its our faults.

    Reply
  38. Helicopter(8P) March 7, 2017 at 12:04 pm

    It’s now easier for foreign countries or national to buy Barbados. Investment and financial foresight needed more so than ever. These two factors need to be put in top priority, by the local investors of Barbados. We need to allow Japan to have industrial relation and satellite manufacturing of electronic equipment on the sovereign soil.

    Reply
  39. Mark Adamson September 27, 2017 at 7:31 pm

    On 10 March 2017, I helped to put the below on Facebook. It is important that those who have posted their views on here really understand that these credit rating agencies – Standard and Poor’s and Moody’s – are in the mode of pulling down this country. This is ABSOLUTELY WRONG and is omething that very ideologically and politically conscious people in Barbados must resist at all costs.

    ———————————————————————————————————-

    Standard and Poor’s and Moody’s GANGING UP AND ATTACKING THE SOVEREIGNTY OF OUR GOVERNMENT and this POLITICAL MISFIT for an OPPOSITION LEADER CHEERING THEM ON.

    It is clear that there must be a strong national patriotic response by thousands upon thousands of Barbadians to the underlying currents of the two recent down grades by Standard and Poor’s and Moody’s, respectively.

    And, if it has NOT previously appeared to many Barbadians, that there are moves by certain forces within and without this country, to destabilize and disintegrate the Barbadian society, then indications of those moves can be found in the news media and other reportage on these moves.

    Whilst it is true that DLP and BLP governments have grossly and recklessly been mismanaging the political material financial and other affairs of this country, and the evidence is there for all who wish to see to see, I and many others must not stand idly by and allow these international credit rating agencies to help tear our country down.

    These two agencies are unnecessarily putting pressure on this government to change the rate at which persons give US dollars and cents to the relevant persons and the rate at which the latter persons give Barbados dollars and cents to the other persons giving those US dollars and cents in the context of the same contractual arrangements.

    This is the central issue!!!

    What Standard and Poor’s and Moody’s are doing amounts to a vicious attack on the sovereign affairs of our country.

    These credit rating agencies have all got it wrong!!! The local holders of Barbados government paper are not the ones making noises about what is owed to them.

    So, Standard and Poor’s and Moody’s have ABSOLUTELY NO business in helping to tear down this country.

    Hordes of Barbadians must successfully resist these extraconstitutional measures by these nonsovereign bodies over our domestic sovereign affairs.

    Reply

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