Standard & Poor’s Ratings Services lowered its rating on Barbados to the brink of junk territory, saying the island nation’s debt burden will increase at least in the next two years.
The ratings agency said the higher debt will occur because of delays in the government’s fiscal-consolidation efforts and a slower-than-expected economic recovery. Tourism is critical to the Caribbean nation, but the U.S. recession reduced business and leisure travel. That has led to an increasingly pessimistic view from ratings agencies.
Despite the Barbadian government’s commitment to reduce fiscal deficits to reach a balanced budget by fiscal 2014, as stated earlier this year, the fiscal consolidation has proven to be more difficult and protracted, S&P said.
And while some factors leading to the poor fiscal outcome this year are cyclical and should improve with the economic rebound expected next year, other weaknesses – such as large and difficult-to-contain transfers and subsidies and a growing interest burden – are more difficult to address. Those factors will likely keep the debt at high levels longer than the government expects, S&P said.
S&P, which first moved toward a possible downgrade in November when it lowered its outlook on Barbados to negative, trimmed the rating by one notch to BBB-, the lowest investment-grade level. The outlook is stable, which hinges on S&P’s expectation that the authorities will, in the next six months, put in place fiscal measures to reverse the rising debt trajectory going forward. (Dow Jones Newswires)
