BRIDGETOWN, Barbados, Thursday December 12, 2019 – Rating agency Standard and Poor’s (S&P) has lifted Barbados’ credit worthiness out of default territory, significantly raising its foreign currency ratings.
S&P has moved up the long- and short-term foreign currency ratings to ‘B-/B’ from ‘SD/SD’ – and upward movement on the ratings scale of six notches – and assigned its ‘B-‘ foreign currency issue rating to foreign currency debt delivered in the exchange.
It also affirmed its ‘B-/B’ long- and short-term local currency sovereign credit ratings and ‘B-‘ issue-level rating on Barbados’ long-term local currency debt.
S&P also issued a stable outlook, saying this “balances the administration’s strong mandate to implement broad fiscal and macroeconomic reforms with the political and economic challenges of doing so”.
The ratings agency said it expected multilateral lending institutions would continue to commit and disburse financial and technical assistance to Barbados, which would also support Government’s mandate.
“We expect over the next 12-18 months the Government will continue to implement policies that achieve fiscal consolidation and instill institutional safeguards, while strengthening macroeconomic stability,” it said.
S&P stressed, however, that failure to meet fiscal and debt targets over the next year could weaken investor confidence and result in a loss of official capital inflows, adding that this outcome could place renewed pressure on the country’s foreign exchange reserves and reduce funding sources.
“Under this scenario of diminished liquidity, we could lower the ratings,” the US-based rating agency warned.
But S&P said it could raise the ratings over the next year should the Government adhere to its ambitious fiscal targets and reform agenda, which could strengthen investor confidence and contribute to improved gross domestic product growth prospects.
“Higher economic growth would facilitate a reduced debt burden, which, together with an expectation of continued access to official funding, could lead us to raise the rating,” it said.
In response to the upgrade, Prime Minister Mia Mottley said it demonstrated that her administration was “certainly moving in the right direction”.
“I want to congratulate the Barbadian people for pulling together and making the necessary adjustments and sacrifice to put us all on the right path to sustainability. We are not yet where we need to be but if we stay the course and if we focus on adding value in all that we do and on growth, I have every confidence we will make it and reverse the impact of the lost decade. We can return the country to investment grade and continue to build people’s confidence in all that we are doing,” she said.
And Government’s IMF senior advisor, Dr Kevin Greenidge said moving up six notches on the ratings scale is “quite an achievement for Barbados”, given that the Barbados Economic Recovery and Transformation (BERT) programme is only a year old.
The news from S&P came on the same day that government announced the conclusion of external debt restructuring, which was finalized with Barbados exchanging just over $1 billion in new bonds (with a 26 per cent haircut).
And Greenidge noted the upgrade was due, in large part, to that.
“The upgrade sends a strong statement that BERT is working and speaks to the strength of the adjustment program and reforms being undertaken. The report from S&P speaks to the outlook being ‘stable’ as opposed to ‘negative’ a year ago, and is indicative of the government’s commitment to continue to implement policies that achieve fiscal sustainability,” he said.