Barbados at risk of currency devaluation – S&P

limited financing alternatives, low international reserves blamed for downgrade

The Barbados government says it regrets the decision by the international ratings agency, Standard and Poor’s (S&P) to downgrade the island-nation to ‘CCC+/C’, based on the Stuart administration’s limited financing alternatives and low international reserves.

S&P warned that unless the administration does a better job at controlling its debt and restoring foreign reserves, the country’s currency is at risk of being devalued.
In a statement, the Ministry of Finance said that the downgrade lowers the credit rating one notch, which puts their rating in line with that of Moody’s.

Downgrade expected

“The downgrade was expected and largely driven by the decline in our international reserves reported in the recent Bank of Barbados’ Economic Report,” the ministry said, adding that the “decline in the reserves was largely due to legal and administrative delays in public inflows linked to various projects as has been explained before”.
The administration’s expectation is that this situation will begin to ease shortly leading to a restoration of reserves to more comfortable levels. In the coming week, administration will release its fiscal out-turn figures for the financial year ending March 2017 and estimates for the coming financial year 2017-2018.

S&P warned that if the conditions do not improve, there will be a further downgrade within the next year, S&P warned in issuing a negative outlook for the island-nation.

“As a result, we are lowering our long-term foreign and local currency sovereign credit ratings on Barbados to ‘CCC+’ from ‘B-’ “.
“We are also lowering our short-term foreign and local currency sovereign credit ratings to ‘C’ from ‘B’,” the rating agency said.

S&P also explained that its negative outlook reflected its view that Government was either unable or unwilling to take timely steps to redress the situation.
“The negative outlook reflects the potential for a downgrade over the next 12 months should the government fail to make additional progress in lowering its high fiscal deficit or if external pressures worsen with persistent and large current account deficits.”

“This scenario would likely lead to further deterioration in the availability of deficit financing and pose challenges for the fixed exchange rate,” it said in its outlook for the economy. -(CMC)