BRIDGETOWN, Barbados, Sunday March 11, 2017 – Barbados’ Prime Minister Freundel Stuart may not think much of the pronouncements of international ratings agencies, but the rest of the world is watching, with respected business publication Bloomberg reporting that the island’s debt is the worst performer in emerging markets this year.
Last week, six days after being hit with a credit ratings downgrade by Standard & Poor’s, Moody’s Investor Services downloaded the Barbados government’s bond and issuer ratings to Caa3, placing it on the same level as the highly-indebted Greece and Ukraine.
A senior analyst at Moody’s, Samar Maziad, wrote: “We assess the likelihood of a credit event in the near-term as very high, given the lack of fiscal adjustment and increasingly limited financing options.”
In its report, Bloomberg said Barbados is now among the beleaguered group of countries whose dollar bonds yield more than 10 percent.
It pointed to the firing of Central Bank Governor Dr Delisle Worrell last month, as among the factors that would have led to some concern among investors. The governor had publicly warned the government that it had to stop the practice of asking the Central Bank to print money to finance its deficit.
Worrell was subsequently asked to hand in his resignation or be fired, and he had turned to the court in attempt to block his dismissal. An injunction he obtained from the court was subsequently discharged and he was given his walking papers on February 24.
“The governor being fired would have rattled investors simply because it shows some kind of instability there at a policy-making level. The governor had started to come out about how bad it really is,” Royal Bank of Canada economist Marla Dukharan told Bloomberg, adding that the 2-to-1 peg with the US dollar is starting to show cracks and an all-out balance of payments crisis is a possibility.
However, Finance Minister Chris Sinckler said he expects the reserves will rebound on inflows from foreign investors. He has also ruled out currency devaluation “next year or at any other time in the foreseeable future”.
“That is simply not going to happen,” he told a press conference late last month.
An investment manager at Aberdeen Asset Management Andrew Stanners told Bloomberg that with only about $56 million in interest payments due, Barbados is unlikely to default on international debt this year. Instead, he said, the government will continue to rely on the Central Bank to print money, adding to levels of domestic debt.
“The risks are mounting,” Stanners said. “They probably can muddle through to 2018.”
Despite the impact of the downgrades, Prime Minister Stuart has suggested that he is not interested in any ratings from external markers.
After the S&P downgrade, but before the Moody’s development – which brought to 19 the number of downgrades recorded since his Democratic Labour Party came to power in 2008 – Stuart said Barbados no longer needed external validation from “metropolitan capitals”.
“We seem now to be working ourselves back into a frame of mind where once again we want to sit exams for people outside of Barbados and wait on them to grade us and if they tell us we have passed we are supposed to feel good that we have passed, and when they tell us we have failed we are supposed to hold our heads in shame and think that we are failures,” he said.