HAS ANYONE ELSE noticed, or was it just me, that there has been so far a very muted, if not subdued, response from both Government and the official Opposition to the latest downgrade for Barbados by a leading international credit ratings agency?
Have we as a country and people become so blasé to depressing news about our economic situation, that one more such report would fail to stir us from our apparently indifferent slumber?
Or could it be that the lack of a substantial reaction so far may be reflective of a people who are resigned to their condition and, having been told they will likely have to wait a while longer before they can take any action on their own in an effort to improve their lot, are biding their time?
Good news, it is said, is often trumpeted from the rooftops, while there is a tendency to bury the bad news.
It may therefore be only coincidental that the latest downgrade of Barbados’ credit rating by Moody’s Investors Service, to Ba1, into junk territory, with a threat of worse to come, would have reached these shores late Thursday night when the printing presses here were already running, obviously precluding any possibility of there being banner headlines on Friday to deliver the bad news.
The real surprise, though, if you follow these things, was that there was an immediate response from Minister of Finance Chris Sinckler through the Barbados Government Information Service that reached newsrooms, I am told, after 11 p.m.
That being the case, the lateness of the hour ruled out the likelihood of Sinckler’s response to the downgrade being the lead story in the Friday newspaper (this piece is being written on Friday) in any report on this latest expression of a lack of confidence in our economy by the international institutions.
A Reuters report late Thursday said Moody’s action was based on Barbados’ lukewarm economy and rising Government debt levels, and the rating came with a negative outlook, with the agency saying that the economic prospects remained “weak”.
“Moody’s believes that the country’s growth prospects remain very limited due to its deteriorating competitiveness and declining productivity coupled with heavy dependence on tourism, particularly from [Britain] and the United States,” Moody’s said in a statement.
“While the worst appears to be behind Barbados both in terms of fiscal deficits and economic deterioration, Moody’s anticipates that the Government’s deficit will remain large for the next few years and its debt levels will continue to rise, albeit at a slowing pace.”
Though Government’s reaction was swift and immediate Thursday night, the Minister of Finance seemed to be taking the development in stride, almost as if it were not a matter of major concern for this country and its people.
“The most recent ratings downgrade by Moody’s Investors Service comes as no surprise to us in the Ministry of Finance or in the Government, as a whole,” Sinckler said.
He went on to explain that it was generally expected that since Standard & Poor’s (S&P), the other major international ratings agency that has evaluated Barbados’ prospects, had made its adjustment – to junk bond status – some months ago (in July), it was altogether likely that Moody’s would align their rating accordingly.
S&P had taken its decision essentially based on the information that suggested the economic fundamentals of the country continued to weaken, reflecting not only the external environment but also more pronounced competitiveness and other structural shortcomings.
“We believe that the fiscal stance remains weak, as seen in the rising debt burden, off-budget spending and outstanding contingent liabilities,” S&P said then.
But the Minister of Finance seemed able to find comfort and succour in Moody’s assertion that “the worst appeared to be behind Barbados”.
“While we reflect on Moody’s overall ratings opinion on Barbados,” Sinckler was reported as saying, “we can generally deduce the following from their advice: 1. the worst of the economic and fiscal deterioration is behind Barbados; 2. Barbados’ prospects for short-term high growth levels will remain challenged because of the weaknesses in our major trading partner economies; 3. these challenges are likely to affect our capacity for faster fiscal consolidation, notwithstanding the fact that efforts to strengthen our fiscal position have been successful thus far; 4. that Government must stay the course on its fiscal consolidation programme, strengthening it wherever possible, rather [than] abandoning it; 5. that to attempt to introduce counter-cyclical fiscal measures (tax eases) to stimulate domestically driven growth will reverse the gains made so far by the country to turn around the situation and make matters much worse fiscally and economically; and 6. that our foreign reserves levels remain adequate to satisfy our current and immediate future needs.”
The Government’s reaction this time appears to be consonant with a previously stated view that such ratings changes were merely expressions of opinion by the agencies and therefore Barbadians had nothing to worry about.
That is certainly not a view shared by leading private sector spokesmen or even the Central Bank of Barbados itself.
In July, when S&P downgraded the credit ratings, Peter Boos, a former head of the Private Sector Agency, expressed the view that it was “extremely damaging to Barbados and its hard-earned reputation as a well managed economy”.
“Countries in the top tier of economic management with high investment grade sovereign credit ratings (provided by S&P, Moody’s, Fitch, and so on) attract the greatest interest from investors, the ultimate source of wealth creation,” Boos wrote.
“Countries with low ratings, including Barbados, are shunned and as a result attract high borrowing rates from financial markets. This phenomenon worsens a country’s fiscal position as higher interest rates eat up more of national revenues than would otherwise be available for expenditure on social services, infrastructure, health and education, etc.
“The important observation by S&P is that Barbados’ problems are not solely related to the very weak global economy.”
In June last year, when the two ratings agencies announced shifts in their assessments of Barbados, the Central Bank published a fact sheet seeking to clarify the meaning of some of the main issues.
An excerpt:
1. Why are the ratings from the international rating agencies important or necessary?
Prospective investors rely on the credit rating agencies to provide guidance on whether they should entrust their money to various governments. The sovereign rating attempts to quantify the creditworthiness of a government’s debt, mostly for international investors who are not familiar with the country and aims to provide a comparison to other sovereigns.
Particularly for the foreign debt rating, given the economic risks identified in the report, should the Barbados Government decide to borrow abroad in the near future, it will probably need to compensate investors for accepting the risks identified in the rating reports, by paying a higher interest rate than would have been the case previously.
2. What does the domestic debt downgrade by Moody’s mean for Barbados?
It signals Moody’s concern that the domestic market does not have the capacity to absorb increasing amounts of Barbados bonds and that issuing more local debt could place pressure on Government’s ability to service this debt.
The Barbados Government is renowned for its stellar debt service reputation, having never defaulted on its debt and is fully able and committed to servicing its obligations. Nevertheless, international investors are sure to be more vigilant in observing Barbados’ economic performance going forward.
It seems clear that despite the almost indifferent posture of the Government to such developments, they must, however, be a source of concern to all Barbadians whose lives and livelihoods remain under threat and the people are not wholly confident that their interests are being secured.
Happy holidays to all!
• Albert Brandford is an independent political correspondent. Email albertbrandford@nationnews.com