CREDIT RATING AGENCY Moody’s is warning that Barbados remains on the wrong track.
More than six months after its last downgrade of the island’s rating, the New York-based entity has issued a new assessment asserting that Barbados’ credit profile has deteriorated.
Moody’s Investors Service has raised Barbados’ “external vulnerability risk” from “Low (-)” to “High”. It said this was because “given the low level of foreign exchange reserves and weak funding conditions, Barbados is increasingly susceptible to event risks”.
The firm also adjusted upwards Barbados’ “indicative score for government liquidity risk” from “High (-) to “High (+)”, due to “our assessment of significant risk posed by increased reliance on short-term funding through the [Central Bank] as well as the accumulation of payment arrears”.
It said, too, that Barbados has a “Very Low (-)” fiscal strength assessment. This, the rating agency explained, “reflects the country’s very high debt burden and very low debt affordability in the Caa space”.
Moody’s has also now documented its doubts about the Freundel Stuart administration’s ability to solve Barbados’ fiscal problems, based on its track record.
“…We have adjusted Barbados’ institutional strength indicative score of “Very High (-)” to a final score of “Moderate (-)”. The downward adjustment reflects our views about the Government’s limited ability to implement the fiscal adjustment necessary to restore fiscal sustainability,” the organisation announced.
Moody’s stressed that its eight-page “credit opinion” issued on October 3 was not a “credit rating action”.
Hence, Barbados’ credit rating remains at Caa3 with a stable outlook for the time being. Caa3 is Moody’s third worst long-term rating and means that Barbados is still well below investment-grade status.
When contacted, Moody’s spokesman Eduardo Barker told the MIDWEEK NATION that as a policy the firm did not “discuss the timing or the chances of a future rating action”. He added, however, that Barbados’ stable rating outlook “is a medium-term view of the likely direction for a rating”.
In its latest credit opinion, Moody’s was also doubtful that most recent fiscal measures, including the controversial National Social Responsibility Levy, would perform as well as Government expected.
“If only the tax revenue components of the programme come to fruition, the fiscal deficit could approximate 2.2 per cent of GDP, according to Government projections. Given large fiscal deficits of over eight per cent of GDP consistently since 2014, we expect larger fiscal imbalances than the authorities predict,” Moody’s explained.
“In line with this, our estimates contemplate Barbados’ debt and interest burdens will continue to deteriorate over the next two years with the debt-to-GDP ratio increasing to 115 per cent of GDP in 2017 and interest payments exceeding 30 per cent of revenues.”
Barbados’ most recent credit rating downgrade came from Standard & Poor’s two months ago. That downgrade was Barbados’ 20th in the last nine years. (SC)
