Moody’s Investors Service has not followed three of its counterparts in upgrading Barbados’ credit rating and it is not saying if such action is likely soon.
However, the agency signalled that improvements or regressions in relation to the country’s debt metrics hold the key to whether or not it will give a credit rating upgrade or downgrade in the future.
Following a January 16 periodic review of Government’s ratings, Moody’s announced on January 24 that “Barbados’ ratings, including its B3 long-term issuer rating, with stable outlook remain unchanged”.
It said the stable outlook “reflects a balance between elevated credit risks related to still-high debt and interest burdens, and exposure to climate shocks, against our expectation of a firm downward trajectory for debt metrics over the two to three years”.
Under Moody’s global long-term rating scale, obligations rated B are considered speculative and subject to high credit risk.
The firm’s announcement on the latest periodic review came ahead of Central Bank Governor Dr Kevin Greenidge saying last week that the recent credit rating upgrades from Standard & Poor’s, Fitch, and Caribbean Information and Credit Rating Services Ltd illustrated that Barbados’ debt was on the right track.
“People can draw on the reports from independent analysis, rating agencies, for example,” he told a press conference which reviewed Barbados’ economic performance in 2024.
“We got a few upgrades . . . and all of them cited the improvements in debt as one of the factors for why we were upgraded. I am confident if we bring [the debt to gross domestic product (GDP) ratio] to 100 [per cent of GDP], you will see even faster upgrades. So all independent analysis suggests that debt is stable, sustainable [and] manageable.”
Credit profile
Moody’s view is that Barbados’ credit profile “reflects relatively high, albeit declining, debt burden and historically subdued growth performance”.
“However, its tourism-dependent economy has recovered
strongly in the past years and showed resiliency to successive shocks. The Government is also implementing a strategy of public investment focused on mitigating the island’s exposure to climate shocks,” it added.
The credit rating agency said Barbados’ rating could be upgraded “if fiscal consolidation efforts lead to rapid drop in Government debt metrics”.
“Higher sustained rates of economic growth supported by successful implementation of structural reforms and coupled with clear evidence of improved competitiveness could also lead to an upward rating change,” it noted.
“The rating could be downgraded if the Government’s fiscal consolidation efforts prove insufficient to prevent persistent debt accumulation reversing the favourable trend reported by various debt metrics.
“Similarly, renewed pressures on foreign exchange reserves would introduce risks to the external accounts that could put downward pressure on the rating,” Moody’s said.
Rationale
Elaborating on its key rating considerations and rationale, Moody’s stated: “The credit profile of Barbados incorporates our assessment of ‘Ba3’ economic strength, reflecting the economy’s limited diversification and historically weak, but improving economic growth.
“We assess the strength of Barbados’ institutions and governance at ‘Ba2’ to reflect Barbados’ relatively strong rankings on Worldwide Governance Indicators, balanced against the recent sovereign default.
“Barbados’ credit profile also reflects ‘B3’ fiscal strength due to the sovereign’s high debt burden balanced against improved fiscal performance since the debt restructuring. Our assessment of Barbados’ susceptibility to event risk is set at ‘B’ driven by moderate Government liquidity risk and external vulnerability risk.” (SC)
