S&P downgrades Barbados
Thursday, July 19, 2012
Rating agency Standard & Poors (S&P) on Tuesday downgraded its long-term foreign- and local-currency sovereign credit ratings on Barbados to ‘BB+/B’ from ‘BBB-/A-3,’ consigning the Caribbean country to “junk” bond status and pushing up the cost of future borrowings.
At the same time, S&P’s lowered the short-term ratings to ‘B’ from ‘A-3’. The outlook is stable. And the rating agency assigned to Barbados’s foreign-currency debt a recovery rating of ‘3’, and it has revised the transfer and convertibility assessment to ‘BBB-’ from ‘BBB’.
S&P argued that “the economic fundamentals of Barbados continue to weaken, reflecting not only the external environment but also more pronounced competitiveness and other structural shortcomings; we believe that the fiscal stance remains weak, as seen in the rising debt burden, off-budget spending, and outstanding contingent liabilities.”
According to the rating agency: “The downgrade reflects our opinion that Barbados’s economic fundamentals continue to weaken. We believe this weakening stems, in part, from rising competitive challenges and other structural factors that the government can address only in the long term.
“In the short to medium terms, the difficult external environment will hamper the economic and investment outlooks. The resulting lower economic growth will hurt Barbados’s fiscal and external accounts and will likely lead to further debt accumulation.
“Moreover, in our opinion, despite the government’s focused efforts to bring down fiscal deficits, the fiscal stance remains qualitatively weak, as rising debt, off-budget spending, and contingent liabilities (in particular, Clico) demonstrate. “Barbados is slowly recovering from the severe impact that the global downturn had on the country’s narrow and open economy.
Results for the first half of 2012 attest to some mild pick-up in economic activity, and S&P projects real GDP per capita growth of 0.3 per cent for 2012, up marginally from 2011 but substantially below the growth rates before the 2009 downturn.