BRIDGETOWN, Barbados, Thursday, March 28, 2013 – CariCRIS has lowered by one notch its ratings on the notional debt issue of USD 300 million of the Government of Barbados to CariA+ (Foreign Currency Rating) and CariAA- (Local Currency Rating).
The indigenous Caribbean credit rating agency stated that its downgrade of Barbados’s ratings was driven by the below-expectation-performance of key macroeconomic indicators in 2012, and the non-achievement of targeted improvement in the fiscal performance.
In a recent press release on the decision, CariCRIS noted that not only was there no growth in Barbados’s real gross domestic product (GDP) in 2012, but there was in fact a reversal of the marginal growth recorded in the previous two years.
While acknowledging that a small return to growth of 0.5-1% is expected in 2013, the ratings agency cautioned that this was dependent on the recovery of Barbados’ main tourism markets. Unemployment rose to 11.3% in 2012, the highest it has been in over a decade and CariCRIS said it expected unemployment levels to remain high at around 11-12% in 2013.
The fiscal deficit in FY2012/13 is projected to have remained flat at 6% of GDP, missing the Medium Term Fiscal Strategy (MTFS) target of 4.7%. CariCRIS said it expected a “parsimonious approach” to fiscal management propelled by the expenditure controls, but it also expected revenue generating initiatives to come under pressure given the sluggish domestic and international economic conditions. As such, CariCRIS projects the fiscal deficit would be around 5-7% of GDP for FY2013/14, which marked no substantial change from FY2012/13.
As a result of this “inflexible fiscal position” CariCRIS said general government gross debt was expected to rise to around 115-118% of GDP by the end of 2013. The external current account deficit fell to 5.7% of GDP in 2012 partially reflecting a moderation in international food and commodity prices as well as the fall in imports from subdued domestic demand. CariCRIS’ expectations are that the external current account deficit will expand to around 6-8% of GDP.
In its explanation, CariCRIS stated that its ratings on Barbados reflected the island’s long history of strong governance and political stability manifested in the quality of its underlying institutions: political, legal and economic as well as its monetary and exchange rate stability underpinned by a long-standing, fixed exchange-rate regime.
It noted that Barbados had excellent human development indicators, reflected in high per capita income and high standards of education and health care, which are a key rating strength, along with the diversity of its revenue sources which offers government some amount of financial flexibility.
However, it stated that these strengths were tempered by persistent fiscal deficits, high and rising public sector debt levels and increasing debt-servicing costs. In addition, its weak external sector is characterized by persistent current account deficits and relatively low reserves. Click here to receive free news bulletins via email from Caribbean360. (View sample)