One of Barbados’ main financiers is cautioning Government that even as it tries to reduce the fiscal deficit its expenses are likely to rise. The Inter-American Development Bank says credit rating agency Moody’s triple notch downgrade of the island had negative implications for the public purse.”
“Barbados’ costs for obtaining commercial loans and issuing bonds are likely to increase given the triple-notch downgrade of the Government’s bond by Moody’s credit rating agency to B3,” the IDB warned in its latest Caribbean Region Quarterly Bulletin.
The bank’s statement came in the context of what it said was Government’s announced intention to source most of its foreign financing “through bond issuances”.
“Government financing needs for 2014/15 are estimated at US$698 million, with the share of foreign financing expected to increase over the previous year,” it said.
Commenting on the Moody’s downgrade, the IDB said it was the third consecutive one since June 2011 “where [the] credit rating moved from investment grade to junk status.
“Barbados’ outlook can improve if it reverses the widening fiscal gap, stabilizes debt ratios, achieves positive growth rates, reduces short-term debt issuance, and steadily increases international reserves,” the IDB said.
“This downgrade has increased the interest rate on the 2013 loan from Credit Suisse AG Cayman Islands by 1.5 per cent given the terms of the loan agreement. A worsened credit rating not only affects the cost of borrowing but also has implications for investments in Barbados.”
The IDB said it wsa expected to provide eight per cent of Government’s “total financing” and 32 per cent of “total net foreign financing” in the current financial year.
“The Government’s reliance on treasury bills is forecasted to fall from 45 per cent in 2013/14 to 29 per cent in 2014/15. The high issuance of Treasury bills and Treasury notes was highlighted by the International Monetary Fund and Moody’s, with both institutions advising for the limitation of the scale of intervention by the Central Bank in the T-bill market in order to allay the pressure on the pegged exchange rate,” it said.
