Way off course

Moody’s rejects Govt’s fiscal strategy

In a clear rejection of Government’s fiscal medicine, the international ratings agency Moody’s today not only joined with its New York-based counterpart Standard & Poor’s (S&P) in delivering another economic black-eye to Barbados, but it also signalled loudly to international creditors the strong likelihood of the island defaulting on its debts over the next two to three years.

The Moody’s downgrade — the 19th suffered since the ruling Democratic Labour Party administration took office nine years ago — reduces Government’s bond and issuer ratings to Caa3, after S&P last Friday downgraded Barbados to ‘CCC+/C’ on account of its limited financing alternatives and low international reserves.

The staggering news also comes on the heels of a commitment by Minister of Finance Chris Sinckler — by way of the Estimates of Expenditure and Revenue for fiscal year 2017/2018, which begins on April 1 — to repay $1.8 billion in outstanding loans this coming year.

Chris Sinckler

However, Moody’s today called into serious question Government’s ability to meet its loan obligations, while highlighting its ballooning debt, which stood at 111 per cent of its gross domestic product (GDP) at the end of last year.

The Freundel Stuart administration also has on the books, accumulated arrears to the private sector and the National Insurance Scheme to the tune of 11 per cent of GDP. And given its large refinancing requirements and the high interest burden, which consume about 27 per cent of its total revenues, Moody’s said it could only spell severe credit risks.

In fact, it went as far as to warn international creditors that even though it was currently maintaining a stable outlook on its Caa3 rating, there was “a high probability” of a credit default by the island within the next two to three years.

“With commercial banks having reduced their exposure to the sovereign, the Government has become increasingly reliant on short-term debt issuance, financed by the Central Bank of Barbados, to meet the rising refinancing and interest costs.

“The rapid increase in short-term debt since 2013, allied with the large financing gap, imply mounting concerns about rollover risk,” Moody’s said.

To make matters worse, the ratings agency pointed out that the Central Bank, which up until the end of last year was the only source of new financing for Government, with holdings in the amount of 13.2 per cent of GDP, now appeared unwilling to increase its exposure, triggering even more worry as far as a credit default was concerned.

However, Moody’s sought to assure international investors that even with pressure building on the Barbados dollar, there was limited exposure for them in term of exchange rate risk since less than 30 per cent of Government debt was denominated in foreign currency.

But the worrying news for Barbados residents who thought they had seen the worse form of austerity, having suffered through Government’s home-grown Fiscal Consolidation and Growth Strategy over the last three to four years, is that Moody’s is less than impressed that it has amounted to anything.

In fact, as if to suggest that the programme, which included a public sector wage freeze, heightened taxation and over 3,000 public sector retrenchments, was a complete failure, Moody’s today called on Government to initiate “a credible fiscal consolidation programme to arrest the rise in debt-to-GDP ratio and put debt on a sustainable downward trajectory.

“These developments would likely be accompanied by reduced reliance on short-term debt and financing from the Central Bank, and a rebound in international reserves,” the ratings agency said.

Moody’s also warned of the likelihood of a further downgrade if losses to creditors exceeded 35 per cent in NPV terms, the highest level consistent with the Caa3 rating.

No word has been forthcoming from Sinckler since the Moody’s news broke this morning.

However, based on the Estimates he presented this week, Government has every intention of proceeding on its current economic course in the hope of getting the deficit down to 4.4 per cent of GDP from the current eight per cent.

In fact, Stuart suggested as much yesterday, when, without making mention of any ratings agency, he sternly warned that Barbados had long passed the days when it needed external validation from “metropolitan capitals”.

And while likening the grading of an economy to the marking of an examination, the Prime Minister also made it clear that he was not about to let anyone from outside — let alone any external marker — “shame” Barbados into thinking it had failed.

To do that, he said, would belie the country’s proud boast of 50 years of Independence and take it back to a day when approval was needed from outside.

“We seem now to be working ourselves back into a frame of mind where once again we want to sit exams for people outside of Barbados and wait on them to grade us and if they tell us we have passed we are supposed to feel good that we have passed, and when they tell us we have failed we are supposed to hold our heads in shame and think that we are failures,” Stuart told the gathering for a presentation of $10 million in equipment by the Chinese Government at the Ministry of Education yesterday morning.

It was his second such economic rebuff after S&P downgraded Barbados to ‘CCC+/C’ and issued a negative outlook for the island, while warning that the sustainability of the Barbados dollar was now under threat, amid Government’s continued reliance on the Central Bank to finance its deficit.


10 Responses to Way off course

  1. Sean R. Phillips
    Sean R. Phillips March 10, 2017 at 12:44 am

    I really don’t know what more could be said about this situation. These men have essentially ruined Barbados, and there no good way to put it but “severe pain lies a head for folks on the island.”

    No matter how much you dress up a pig, it’s still a pig. So it doesn’t matter how many times these guys say it’s all fine, anyone with their faculty still in tact can see the writing on the wall.

  2. Tony Webster March 10, 2017 at 6:40 am

    @Sean R.R. But Sir, I know a Gorilliphant, who recently has assured publicly Bajans that “The sky has not fallen”…and even…that “The sun will surely come-up today”.

    But you know what? I also know a thing or two: ONE: There IS a God in Heaven. TWO: “The Sun also sets”…and well… his sun….

    Meanwhile, I just praying more frequently- and with greater fervour- as I ent yet been through such strong, shark-filled waters, in all my life…and all I seeing, is more an’ bigger waves…and mo’ sharks. Yes, no joke.

  3. Maureen Fields March 10, 2017 at 7:17 am

    I believe, as long as Dems can’t step up then they have no say in what these agencies decide for Barbados.
    Dems should stop making themselves look like “yard boys”, very embarrassing.

  4. freeagent March 10, 2017 at 7:49 am

    We should have changed our finance minister years ago before our economy reached this stage.

  5. hcalndre March 10, 2017 at 8:40 am

    You know that if you take what the PM is saying that the economy is in good standings and then the MOF said that he expected the downgrade, you would not know which way is down. Why the PM did not take the job as MOF like all the other PMs did before him? As Mia said that this man should keep his mouth shut and don`t let the world know that barbados is being led by a clueless and an inept PM.

    • Leroy March 10, 2017 at 10:45 am

      Fruendel is not an economist and frankly very ignorant on the subject matter from his speeches to our detriment.

      He stodd up and basically said he don’t care what S&P or Moodys says and immediatedly was rebuked by a downgrade, Fruendel should watch his mouth if he doesn’t know what he is talking about, he speaks in analogies and philosophy but economies deserve to be addressed in economic terms.

  6. Randolph March 10, 2017 at 9:22 am

    What have the Barbadian people done Stuart and Sinckler that they hate us so much?

  7. Carrington March 10, 2017 at 9:43 am

    Barbadians have to wake up to the fact that FAKE news is not confined to the Trump presidency – it has been embraced by the PM and is cohorts.
    Barbadians must be vigilant and push back.

  8. Peter March 10, 2017 at 9:54 am

    This is unbelievable. The dignity of this once prosperous island has gone. Albeit, not forever. A good friend of mine and Tony Web, showed ma a formula and method that could turn this island completely around within 5 years with a revenue capacity of US$ 7 billion a year. No more VAT, free education and health care. I believe him because he detailed it to me and believe me I went through it with a fine tooth comb and I asked every possible question I could. I threw every negative response at him and he defended everything with impeccable answers. He shared his developmental ideas with four other persons including three judges, all retired, one a former Chief Justice, and one the late Carlton Brathwaite. They all told him to prepare a document. Which he is working on. He said he is only willing to speak with Ms. Mia Mottley or Dr. Davis Estwick or both. He claims that they are the only two genuine politicians left that can deliver this island.

  9. Ahad March 10, 2017 at 9:33 pm

    As usual Bajans are famous for lot o long talk. Need a serious peaceful action to bring about change of regime. Don’t join Mia’s march for her BLP but join her to let the government know we all are serious on these issues. It’s time for Bajans spring to force the government to call an early election. Sooner rather than later. Come on fellow Bajans lets march together to show our disgust.


Leave a Reply

Your email address will not be published. Required fields are marked *