When the ‘facts’ are simply too hard to swallow
If we are to follow the reasoning of Prime Minister Freundel Stuart as presented to supporters of the ruling Democratic Labour Party (DLP) at a special party conference over the weekend, the latest downgrade of the island’s sovereign credit rating by international ratings agency Standard and Poor’s (S&P) is no big deal worth losing any sleep over.
However, in what was the 18th such downgrade by the various ratings agencies under the watch of the incumbent Democratic Labour Party (DLP) since it assumed office nine years ago, New York-based S&P announced last Friday that it was lowering Barbados’ sovereign credit rating from B- to CCC+/C.
To put it more bluntly, Barbados sovereign bonds are now deeper into “junk bond” territory.
Giving Barbados a negative outlook with a warning that a further downgrade was possible in another year if no satisfactory improvement was observed in Government’s fiscal position, especially in relation to the deficit, S&P explained that its decision “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 favourable financial and economic conditions consistent
with our “Criteria For Assigning ‘CCC+’, ‘CCC’, ‘CCC-’….,” S&P added in its
Therefore, while our Prime Minister’s ‘déjà vu’ response at Saturday’s conference was characteristically dismissive, we couldn’t help but notice in this instance that his choice of language was more measured, compared to three years ago when he appeared to be quite taken aback by a Moody’s downgrade.
“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 reacted saying.
Against a backdrop of growing severe criticism of the DLP Government’s stewardship, especially its management of the economy, the conference at Queen’s College was held to provide what the organizers said were the “facts” about the party’s performance over the last nine years.
Mr Stuart told his audience: “The most [the credit rating agencies] can do is that they can say to us, ‘because we have downgraded you, persons who might be inclined to lend you will make the money they want to lend you more expensive’.
But we are not looking to borrow,” he assured.
However, in the face of such assurances, we are left to ask: Is this really all there is, in terms of negative fallout, from the string of downgrades which, without a doubt, will affect investor confidence in Barbados?
Yes, being downgraded can have a big impact on a country’s ability to borrow
money on the international capital markets because, as Mr Stuart said, the risks are perceived as greater and investors will demand higher returns for lending under such uncertain circumstances.
However, isn’t attracting more foreign investment with the associated benefit of hard currency exchange inflows that would have a positive impact on the dwindling foreign reserves, a major objective of this Government?
We say it is!
And in the prevailing circumstances, Government has to acknowledge that the pursuit of this objective is likely to become more challenging. In fact, with each downgrade, the perception of Barbados as a poorly managed country increases and we all know that investors prefer market environments where there is far more certainty than risk.
S&P appeared to attribute the current problems largely to Government’s indecisiveness to proceed with making the necessary adjustments – a major criticism also voiced by others.
It also spoke of “the policy of ongoing dependence on Central Bank financing [being] at odds with the Government’s goal of defending Barbados’ longstanding currency peg with the US dollar”. In other words, S&P sees the likelihood of devaluation which the Government says is not on the cards for “the foreseeable future”.
Against this backdrop, we are forced to ask: Are Barbadians any wiser today about the economy after hearing the DLP’s “facts”, as presented by Mr Stuart and other members of his Cabinet over the weekend?
In the first place, facts can only be effective if they are accepted and believed by the target audience. Seeing that the audience at the special conference comprised mostly party supporters, the facts most likely resonated because of a known tendency by die-hards to see their party as incapable of doing wrong.
However, we are left to wonder what would have been the reaction had the target audience been the wider population of Barbados. Would the facts have been much harder to swallow?
It certainly does appear so, based on the public’s response to our coverage of the DLP’s weekend presentation.
From our vantage point therefore we humbly suggest that instead of reeling off any more “facts” to a very discerning populace, our Government could better utilize its remaining time in office by taking decisive action to address the issues consistently raised not only by S&P, but the International Monetary Fund (IMF) and others.
However, with an approaching general election, which Mr Stuart made clear on Saturday the DLP intends to win, it is left to be seen over the coming months what will be accorded higher priority – country or party.