CIBC FIRSTCARIBBEAN claims they find Moody’s recent downgrade “unwarranted and confusing”.
After rereading their comment I am of the opinion that the comment only adds to the confusion. The following is a sample of what I found when I compared CIBC’s comments with what Moody’s actually said:
CIBC: “Moody’s is saying that Barbados will almost surely default and is putting the onus on its fixed exchange rate.”
Contrast this statement with Moody’s justification for the downgrade.
Moody’s Rating Rationale: “First driver: Slow progress towards achieving fiscal consolidation consistent with a sustainable debt trajectory. Second driver: Low level of foreign exchange reserves and weak funding conditions.”
CIBC: “Bottom Line: Although we are not comfortable with the Central Bank financing fiscal deficits, we find this action unwarranted and confusing.
“Following Moody’s previous negative outlook and insufficient progress to date in stabilising debt ratios, the rating action does not come as a complete surprise.”
“Barbados’ external debt as a percentage of total outstanding gross government debt is lower (30 per cent for Barbados at December 2015 compared to approximately 83 per cent and 59 per cent for Belize and Jamaica, respectively), but so are its foreign exchange reserves (13.8 weeks of import cover for Barbados compared to approximately 22.5 and 23.5 for Belize and Jamaica, respectively).”
But again, here is what Moody’s said.
Moody’s rating rationale: “Foreign exchange reserves remain under pressure, after dropping by 19 per cent since 2013. The slow pace of fiscal consolidation continues to pressure Barbados’ reserve buffer, putting the exchange rate peg at risk.
“The Government has increased its reliance on financing from the Central Bank of Barbados, while commercial banks reduced their exposure to the sovereign.
“The rapid increase in short-term debt since 2013 raises concerns about rollover risk, while short-term funding pressures remain in the face of the Government’s large financing gap.”
To all those who find vindication in the CIBC comment for our performance to date, I implore them to read the following extract from the CIBC comment carefully:
“The Government has access to other, more favourable policy options. These include access to concessionary multilateral financing (really?), request of funds in the context of an official IMF programme (Government has repeatedly rejected the IMF option), expensive short- to medium-term financing similar to the 2013 Credit Suisse facility (not again), and additional fiscal contraction to curtail domestic demand for imports (failure to do so is Moody’s concern).”
Policy options do not come more attractive than this. Do they?
Charlie Skeete is a former executive director of the Inter-American Development Bank. He also served as Barbados’ Ambassador in Washington, and is a former permanent secretary in the Ministry of Finance.
