THE SUNDAY SUN’s Barry Alleyne writes on September 25: “Chris Sinckler sees the country’s latest downgrade by international ratings agency Standard & Poor’s as another example of moving the goalposts when it comes to Barbados.”
He quotes the Barbados finance minister as saying: “It’s pretty much the same as before. They prefer to see a faster and deeper rate of deficit reduction leading to a stabilisation of the debt variables and now seemingly a faster rate of growth.”
The charge that S&P was moving the goalposts seemed strange to me, so I read through some of S&P’s recent ratings action press releases. The following statement was carried verbatim in the releases dated December 19, 2014 and September 14, 2015.
“The negative outlook reflects the potential for a downgrade if the government doesn’t succeed in bringing down its wide fiscal deficit, if growth boosted by key investment projects fails to materialise, or if external pressures of persistent current account deficits mount.”
And it also appeared, with only one or two words changed, but with the exact same meaning, in the most recent report, dated September 23, 2016.
They all say that it is a combination of high deficit and little or no growth that is causing the negative outlooks, which in turn make the next downgrade more likely. So, who’s moving the goalposts? Not S&P. It has said the same thing consistently over the past three ratings reports.
Now, just for the record, on September 23, 2016 S&P lowered Barbados’ “long-term sovereign credit ratings to ‘B-’ from ‘B’. In S&P’s ratings, B- is at No. 16, AAA being No. 1.
Barbados’ is now on the last of the possible B ratings, the lowest rung of the ratings termed “highly speculative” by Standard & Poor’s. Below that are the C ratings, of which there are five levels. The first three are termed “substantial risks,” the next one is assigned to debt the ratings agency considers “extremely speculative” and the fifth is for debt it considers to be “default imminent.” After that are the three ‘D’ ratings, which are for debt that is actually in default. The negative outlook means we have a one in three chance of being downgraded again in the next 12 to 18 months, said the agency.
Of course, our sovereign debt is already on the “substantial risks” level, as far as Moody’s Ratings Service is concerned. On April 1, 2016, Moody’s downgraded Barbados’ government bond rating and issuer rating, moving the country to Caa1 from B3.
Moody’s noted that Barbados’ debt burden remained very high and additional fiscal consolidation was needed to reverse the rising debt burden. There had only been slow progress to narrow the fiscal deficit to sustainable levels, and this was placing the exchange rate peg at risk.
Similarly, last week, Standard & Poor’s said the Barbados Government’s financial profile had “eroded” over the last several years because of continuing high fiscal deficits. It added that the central bank continued to “directly finance the Government, which we consider at odds with its goal to defend Barbados’ long-standing currency peg with the US dollar.”
Mr Sinckler was quoted in another section of the press as saying, in response to S&P’s latest downgrade, that the country should view the economic situation “not through pessimistic lenses, but a lens that tells us that the glass in Barbados is not half-empty, but in fact is half-full, and we’re working to go to the top”.
Mixed metaphors, to me, are a sign of muddled thinking. The fact is that, despite the minister’s protests, S&P has been consistent in its rationale for downgrading our sovereign debt rating over past three years. The goalposts remain in the same position. Perhaps we need a new striker.
Patrick Hoyos is a journalist and publisher specialising in business. Email: pathoyos@gmail.com.
