MOODY’S INVESTORS SERVICE has downgraded Barbados’ government bond rating by three notches to B3 from Ba3 and maintained its negative outlook.
The rating agency said the downgrade reflects four main drivers including the increasing fiscal deficit and the expectation of continued challenges to fiscal consolidation.
It also expressed concern over the increasing government debt ratios projected at above 100 per cent of GDP by fiscal year 2014/15, coupled with elevated short-term debt issuance and gross financing needs in excess of 30 per cent of GDP in 2014 and 2015.
Moody’s also pointed to central bank financing of the fiscal deficit “that will increase pressure on the country’s currency peg to the US dollar”.
The agency also expects a decline in international reserves this year, due to large current account deficits and weaker private sector inflows;
“The continued negative outlook on Barbados’ rating incorporates our expectation that (i) the government will continue to find it difficult to meet its fiscal deficit targets owing to both weak revenues and expenditure rigidities, (ii) high levels of domestic short-term borrowing will continue to undermine the government debt profile and lead to increased refinancing risks, and (iii) continued central bank financing of the fiscal deficit will compromise authorities’ ability to preserve the currency peg,” Moody’s said.
The agency said Barbados’ rating would experience further downward pressure if it becomes clear that the government faces a trade-off between debt servicing and maintaining the currency peg, given past evidence of the central bank’s financing of the fiscal deficit.
“While an upgrade is unlikely given the negative outlook, we could stabilize the outlook if the government’s fiscal consolidation plan leads to a stabilization of debt ratios, the economic outlook improves on a sustained basis with GDP reporting positive growth, the government materially decreases its reliance on short-term debt and central bank financing, and international reserves steadily increase,” it said.
Opposition Leader Mia Mottley said the downgrade “must jolt us into our true reality”.
“We were warned that increasing our overall debt, especially our reliance on short-term debt, will lead to a further downgrade. Yet the Government continues recklessly to do so.
“Two weeks ago we increased the Local Loans Limit to $4 billion and now today we are increasing the limit under the Special Loans Act by $1 billion to $2.5 billion.
“We were warned that continued Central Bank financing of our fiscal deficit will put pressure on our exchange rate. Yet the Central Bank continues to do so,” she said.
Mottley said the downgrade comes against increasing difficulties by the Government to raise medium term money.
She suggested that the market is reflecting a lack of confidence in Government’s management of the economy and its fourth attempt at fiscal consolidation.
“Our economy is in crisis and no one has confidence in this Government’s policies nor in its ability to lead us out of the crisis.
“The deafening silence of Barbadians is the greatest ally to this Government’s incompetence. The voices of all Barbadian patriots in the private sector, union movement, academia, church, civil society and among our general population must now be heard for it cannot be business as usual,” Mottley said. (NB)