Sunday, March 3, 2024

THE HOYOS FILE: ‘Credit event’ looms


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Looking back, Dr DeLisle Worrell may have known what was coming, and wanted to get his views on the record.

The final paragraphs of the bank’s short and brutish review of the Barbados economy’s 2016 performance ended with a few seemingly bland textbook principles being recited for some unknown reason, their being so obvious and all.

I think this may have been the soon-to-be-fired governor’s way of letting us know that he was finally, finally drawing his line in the sand.

People like me have already opined that this was way too late in the day – after all, had the goodly doctor not accommodated the Government for years, racking up a national debt that everybody said was too big?

When the break between the Minister of Finance and the governor of the Central Bank finally came, it sent massive shockwaves throughout the financial community here and abroad.

Ezra Fieser, who is Bloomberg’s reporter for the Caribbean, wrote on March 9 that “The Moody’s downgrade follows a cut by S&P on March 3 and the February 24 firing of Central Bank governor DeLisle Worrell, who had threatened to stop financing Government spending”.

He quoted Royal Bank of Canada economist Marla Dukharan as saying that “The governor being fired would have rattled investors simply because it shows some kind of instability there at a policy-making level. The governor had started to come out about how bad it really is”.

Which reminds me to quote some of Worrell’s last officially-approved words:

“The fact that Government spends more on the current account than it receives in taxes and other current receipts is the reason for the increase in Central Bank lending to Government. There is general agreement that any additional financing by Central Bank should be avoided.

…Government’s dependence on the Central Bank to finance its deficit, limits the bank’s ability to influence interest rates appropriate for Barbados’ circumstances, as is the standard practice used by central banks everywhere.” (Press release Dec. 2016, published in late Jan. 2017)

There may be other reasons why the governor lost his job, but to the extent that he may have stood up and said, “we have to stop this madness”– and that taking that position so late in his tenure may have helped seal his fate – gives it the ironic twist you find in only the best soap operas.

You look around and realise that the ones who really caused the economic disaster we are facing are still in power. And still in denial.

The embarrassing comments on the S&P downgrade attributed to Prime Minister Freundel Stuart do not bear reprinting because they only show a person who is unable to grasp the leadership role history is calling upon him to play. Instead of moving forward with the reforms which his party – and he himself – stoutly defended soon after his second term began, he began to coast.

Stuart took a full year off from showing even his usual minimal interest in the problems facing an economically unhealthy 50-year-old nation to focus almost entirely on the celebratory aspects of that wonderful achievement.

The only thing funny about Stuart’s misplaced nationalistic response to S&P’s latest downgrade, was that as soon as he had finished, along came an even more damning report card from Moody’s. It was a double whammy.

In fact, the Government wanted the whole country to join in the festivities, and forget about our economic problems, hoping that by the time Independence Day had mercifully come and gone, the foreign investment would have been in the kitty and saved all the other days to come.

Don’t believe me? How about this: “We have no doubt that we can and will grow our economy further and faster…once we unleash the over
$1 billion of foreign direct investment we have before us with projects such as the Sandals Casuarina expansion which has started, the Sam Lords Redevelopment Project which has also started, the Hyatt Centric and even the much maligned Four Seasons Project which, God willing, can get started shortly.”

The speaker? Minister of Finance Chris Sinckler in last August’s Budget Speech.

In fact, he said, the money from the sale of the Barbados National Terminal Company, the first payment from the sale of the Four Seasons Project, and also the first transfer from the China Exim Bank for the Sam Lord’s Redevelopment would “all be effected in the next four to six weeks to inject $350 million in the Central Bank’s Reserves.” Meaning by the middle of October.

None of it has happened as yet, as far as I know, except for the Sandals Casuarina refurbishment. And so, after running deficits since fiscal 2012-13 of over eight per cent per year, in that speech the Finance Minister said he expected the measures announced would bring the deficit down from the 7.9 per cent shown in the Estimates for the fiscal year now ending to 5.8 per cent.

Did that actually happen?

Well, the Estimates won’t be out until the day this article is published, so I can’t tell you right now. But on top of that, the Government said it is expecting the deficit for the coming year to be under five per cent.

So I expect all the usual chest-thumping and bravado associated with the present Government’s Estimates and Budget speeches, but it won’t matter.

We have reached the point where, unless a really serious overhaul of the economy is undertaken, Moody’s terrible prediction may unfortunately be the only projection worth reading.

Moody’s said that despite the Government’s efforts, the fiscal deficit remained large and credit risks had increased in Barbados. The debt burden would continue to rise for the next few years, it said, and both domestic and external liquidity pressures had increased. It added, “We assess the likelihood of a credit event in the near-term as very high, given lack of fiscal adjustment and increasingly limited financing options.”

And what is a credit event? Well, according to, a ‘credit event’ is a sudden change in a borrower’s credit standing which “brings into question the borrower’s ability to repay the debt.”

On hindsight, Worrell may have gotten out just in time.


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