NO SURPRISE AND no clear reason for Wall Street to change its mind about Barbados’ credit rating.
That, in essence was the reaction of two top Barbadian economists, who at different times served on the Inter-American Development Bank’s executive board, to Standard & Poor’s decision to stick to its original decision made five months ago to downgrade Barbados’ credit rating.
Both Winston Cox, a former Governor of Barbados’ Central Bank and Charlie Skeete, a retired senior IDB economic adviser and a former Barbados Ambassador to the US said that S&P’s decision last week to stick with its downgrade didn’t surprise him because the firm didn’t see any improvements in the country fiscal situation.
‘No changes’
“There is nothing that has happened since last year’s downgrade to cause S&P to react in a different way. Nothing has changes [economically] in Barbados,” was the way Cox put it to the Sunday Sun from his home in Quebec, Canada. “At the very least, S&P had demonstrated the virtue of consistency when it came to its downgrade. That was why the decision not to change the credit rating wasn’t a surprise.”
Skeete, a former IDB executive director before joining the bank’s top professional ranks, said that S&P didn’t see a “basis” to change its Barbados rating or the negative outlook on it and therefore he wasn’t surprised by the decision.
“What the rating agency is saying that the risks to Barbados’ creditors, the risks of not being repaid are the same today as they were several months ago,” said Skeete.
“It is time that Barbadians understand that the audience for the information on rating is our creditors, the people who have lent us money or who are likely to lend us money.”
“The rating agencies’ actions are for the benefit of people who have lent us money, our creditors and it is about the chance of Barbados repaying money it has borrowed or plans to borrow. If they (S&P) say they reaffirm the old rating it means the chance of repaying has not improved.
“It’s not their (S&P’s) job” to worry about public opinion in Barbados and it certainly isn’t focused on embarrassing the government nor pleasing the public.
Skeete didn’t stop there.
He urged the government to stop the printing of money to finance its deficit, warning that it was putting “stress” on the foreign reserves and ultimately on the exchange rate.
“Mr Owen Arthur, [the former Prime Minister and Minister of Finance] has repeated this over and over and he is absolutely right when he said that the printing of money represents the single biggest threat to the foreign exchange reserves that we currently have,” warned Skeete.
“The Government is trying to hype the fact that there is positive growth, small that it is in the economy and it is trying to hype the fact that tourism is on the uptick. But what a creditor, a person who has lent Barbados money is worried about is ‘am I going to be repaid?’ And if you have lent Barbados money in foreign exchange you are going to look to see what your foreign reserves are. Is the reserve situation under stress. As long as you print money your reserves are going to be under stress. “
Printing money
That explained why he was waiting to hear from the Central Bank if the government had continued to print money.
“My guess is and I would bet dollars to donuts that the Government is still printing money and if that habit continues, it means the foreign reserves situation is under threat,” he went on. “Although I can’t say categorically that they are not printing money but if they are still printing money that is a concern and there is no basis for an upgrade of the last downgrade.”
S&P lowered Barbados’ rating from ‘B’ to B-minus in September and in a statement last Tuesday the agency said that any differences in performance were “determined not to be sufficiently significant to affect the rating and our main conclusion.” It also insisted that the negative outlook reflected the potential for a downgrade if the government didn’t make additional progress to reduce the country’s high fiscal deficit.
Cox said it was clear S&P wanted to see an “improved fiscal situation” because without a change, the Wall Street firm “must maintain its positions.” The evidence in S&P’s hands indicated “there has been no substantial change or significant improvement”.
Clearly, the challenge facing the Government was to achieve a significant improvement that will ease the pressure on the foreign reserves.
“The governor of the Central Bank Dr DeLisle Worrell had a statement put out that Barbados needs to improve the fiscal situation to ease the pressure on the exchange rate and I certainly agree with the governor,” said Cox, who added that a solution would involve a “combination” of raising taxes and cutting government expenditure.”
Turning to the printing of money, the former Central Bank governor warned that “in a small economy the printing of money is not the best way” to finance government operations.
“You don’t print money because you want to,” he went on.
As Skeete saw it, Barbados’ situation “wasn’t getting any better” for a “government that needs to borrow. This is not good news.” (TB)