BRIDGETOWN, Barbados, Thursday March 9, 2017 – Just shy of a week after a credit ratings downgrade by Standard & Poor’s (S&P), Barbados has been downgraded by another international ratings agency.
In a press release issued today, the New York-based Moody’s dropped government’s bond and issuer ratings to Caa3, highlighting rising debt and very limited prospects of fiscal reform.
“Despite the government’s efforts to contain the fiscal deficit and alleviate pressures on foreign exchange reserves, the fiscal deficit remains large and credit risks have increased in Barbados. The debt burden has risen in recent years and will continue to do so for the next few. Domestic and external liquidity pressures on the sovereign have increased. We assess the likelihood of a credit event in the near-term as very high, given lack of fiscal adjustment and increasingly limited financing options,” it said.
Last Friday, S&P lowered the long-term foreign and local currency sovereign credit ratings on Barbados to CCC+ from B; and the short-term foreign and local currency sovereign credit ratings to C from B.
Like S&P, Moody’s was concerned about government’s fiscal deficit. Government debt burden reached 111 percent of GDP at the end of last year, with arrears to the private sector and the National Insurance Scheme, estimated at a further 11 percent of GDP at the end of the last fiscal year.
“Large refinancing requirements and the high interest burden, which consumes around 27 percent of government revenues, pose increasingly severe credit risks,” Moody’s said.
And like S&P, Moody’s frowned on the Central Bank’s financing of government operation, and falling foreign reserves that threaten the sustainability of the Barbados dollar.
“A number of factors, in particular maintaining the peg to the US dollar, caused the stock of international reserves to drop significantly last year coming to US$340.5 million in December from US$463.5 million 12 months earlier. This is the lowest level of reserves recorded since 2009, and only half the average level observed between 2009 and 2012, equivalent to under 11 weeks of imports at end-2016, compared to 13.6 weeks and 14.7 weeks in 2014 and 2015, respectively. The persistent decline in reserves continues to pressure the exchange rate peg.”
However, Moody’s maintained a stable outlook for the island and said the rating could improve if the Government introduces a credible fiscal adjust programme and drive down its debt.