The structural deterioration of Barbados’ economy and a weakening of the country’s credit profile, with few prospects for an early turnaround.
They were among the vital factors which drove Standard & Poor’s, the Wall Street credit rating giant, to downgrade Barbados’ credit rating from investment grade to junk bond status for the first time in at least a dozen plus years.
And after waiting on the recent Budget to see how the Freundel Stuart administration in general and Minister of Finance Chris Sinckler, in particular, would tackle the poor economic outlook, S&P decided to act now, instead of delaying any longer its action on the rating.
“We downgraded the rating based on a number of factors which in our view reflected the structural deterioration and the weakening of the credit profile of Barbados,” was the way Olga Kalinina explained both the timing of the firm’s decision and the reasons for its action.
“The factors are the weakening of the economic fundamentals. This is not only a function of the still very weak external environment and its impact on Barbados but also our view of bigger competitiveness challenges and the structural shortcomings Barbados is trying to deal with. It is going to take a very long time for the country to overcome those if it is to be successful.”
In an interview shortly after S&P announced its rating action, Kalinina said that despite government’s plans to address the economic problems, the debt burden was getting worse and there was little likelihood of any short-term change for the better.
“We believe the fiscal stance remains weak. We are aware of various fiscal measures that Barbados is putting in place to reduce the deficit but from the statistics that we have and also based on our projection, the debt burden continues to rise and will be rising; unemployment figures are very high; the economic recovery is very mild; and we see that in 2011 some of the spending became off-budget,” the economist added.
Combining those factors, Kalinina explained, S&P came to the conclusion that the fiscal picture was “very weak” and with declining international reserves and the Four Seasons project remaining stalled, the economic outlook at least in the short term wasn’t bright and therefore couldn’t support a decision to keep the credit rating at BBB-.
In other words, things may get worse before they improve.
