Fitch has changed its outlook for Barbados from stable to positive and affirmed the country’s B+ credit rating on the basis of Government’s improved fiscal performance and successful economic reform.
However, the New Yorkbased credit rating agency says Government will find it challenging to reach future growth targets, the debt-to-GDP (gross domestic product) ratio is falling but “still is very high compared to peers”, and that reforms key to long-term stability of the public finances and debt reduction “must persist beyond the current administration and the International Monetary Fund (IMF) programmes”.
Central Bank Governor Dr Kevin Greenidge welcomed the change to a positive outlook, calling it “an independent signal that policy credibility has strengthened”.
As he anticipated this would be good news for Barbados’ objective to increase investment, economists Jeremy Stephen and Dr Ankie Scott-Joseph both regarded Fitch’s rating announcement as positive, but not the end of the road in terms of potential challenges for the economy.
In its rating action commentary, Fitch stated: “Barbados’ positive outlook reflects the expectation that continued fiscal discipline, including large primary surpluses, will improve fiscal metrics, particularly the still high debt-to-GDP ratio.
“Fitch expects that ongoing new investment projects will provide support to growth and aid in further public debt reduction. High GDP per capita, strong governance scores and strengthening international reserves support the rating.
“However, the economy’s small size and dependence on tourism expose it to shocks. Additionally, Barbados has minimal fiscal resources to respond to shocks and limited, though improving, domestic financing flexibility.”
Responding to the credit rating report, Greenidge said: “Fitch’s shift to a positive outlook at B+ is an independent signal that policy credibility has strengthened. It reflects sustained primary surpluses in excess of four per cent, a clear downward debt path toward 90 per cent of GDP by fiscal year 27/28, and strong reserves.
More depth
“For investors, perceived risk falls, demand for Barbadian bonds should improve and spreads can narrow as market depth builds.” The Governor added: “Of course, the Central Bank continues to play its part, not only in advising Government but in managing liquidity and reserves prudently, and deepening market functioning. Through BimPay we are modernising payments to cut transaction costs and raise settlement speed, which supports confidence and private investment.”
Stephen, a former lecturer in banking and finance at the University of the West Indies (UWI), said the main takeaway from the Fitch announcement was that “they see a return to some form of stability in the country”.
“We’ve had some period of sustained growth, mainly driven by construction. The tourism product seems to be a bit more resilient than we thought it would have been, considering the instabilities in Europe, and ironically, those geopolitically stemming from the United States of America,” he said.
In Scott-Joseph’s view, Barbados “has achieved one of the most remarkable fiscal turnarounds in decades”.
“In just seven years, the country slashed its debt from a crushing 179 per cent of GDP down to 100 per cent by fiscal year 25/26 through strict budget reforms and strong political commitment,” she said.
“Even more impressive, Barbados is on track to record its first budget surplus since 1990 – a goal that seemed impossible just a few years ago.”
However, Scott-Joseph, an economics lecturer at UWI, cautioned that despite this progress, Barbados “still faces severe constraints: its debt remains dangerously high, well above the IMF’s 60 per cent safe threshold, the economy is heavily dependent on tourism revenues that can disappear overnight, and the country has limited financial reserves to absorb crises”.
Fitch expects the economy to grow by 2.7 per cent this year “and taper to two per cent in the medium term, below the Government’s target of three per cent or higher”. (SC)
