Stephen: Sol deal critical
The Barbados economy could be thrown into a tailspin and be hit with two more downgrades by June, if the court case between Rubis West Indies Limited and Sol energy group is not settled urgently.
That is the warning from President of the Barbados Economic Society (BES) Jeremy Stephen as he reacted to a decision by the High Court today to extend an injunction granted last Friday against the sale of the state-owned Barbados National Terminal Company Limited (BNTCL) to the Sir Kyffin Simpson-led Sol Group.
Stephen said he was worried that any further delay in concluding the deal could create panic in the economy.
The Freundel Stuart administration had been depending of the sale to boost its foreign currency reserves by US$100 million.
“What I would choose to discuss right now is the effect of the delays in foreign exchange coming into the country urgently
. . . and that being one of the considerations that have to be put on the table. We know that the Government of Barbados has been banking a lot on meaningful foreign exchange coming into the country as soon as possible,” Stephen said.
“In my estimation, we needed a fair set of that US$100 million in the clutches of Government by . . . the end of this month . . . . I would even go as far as to say by the end of April. You need it to avoid any panic surrounding the foreign reserves,” he added.
The senior economist told Barbados TODAY the legal challenge by Rubis could make the ratings agencies Standard & Poor’s and Moody’s nervous, therefore pushing them to further downgrade the economy at the end of the next quarter.
A hearing is set for May 26 to determine whether or not the injunction should be extended.
Stephen said by this time the ratings agencies would likely have come to a decision on the Barbados economy.
“By the time these guys meet up in May, I could tell you straight up, by the following month Moody’s and Standard & Poor’s will have another statement to make about our ratings [and] you could see another downgrade on the horizon.”
Stephen said the state of the economy could deteriorate even further with a number of other issues threatening the reserves, which stood at a 14-year low of 10.3 weeks of import cover as at the end of last year.
“The tourism season is coming to an end and there are a number of factors that have created this urgency. The fact that the Federal Reserves have already raised interest rates twice in the last four months globally, which means that the cost of our foreign debt will go up; the Credit Suisse loan is due in June, as well as the Government has to have money to pay that out; you have the likelihood of oil prices rising again shortly . . . . So you can have a case very soon . . . the concern that was displayed by the Government over the last couple of months, would obviously be heightened,” the top economist said.
Stephen argued that the uncertainty surrounding the BNTCL sale, the stalled US$100 million Hyatt Centric Resort project, along with the length of time it would take for the Wyndham Grand Resort at Sam Lord’s Castle to earn revenue, did not augur well for the country.
“The model of Barbados has always been that the foreign reserves are built up between November and April and then they are used to balance the affairs of the country for the remainder of the year. So, for me, it is about looking forward to . . . having enough reserves to last out until November, considering the external factors I told you before. This matter with Sol and Rubis, it has to be brought to closure sooner rather than later, and one that is fair to all parties,” he concluded.