Politics
Mia Mottley says Barbadians must brace for more economic woes following Moody’s downgrade
The main opposition Barbados Labour Party (BLP) Tuesday warned Barbadians to brace themselves for more economic problems after the US-based ratings agency, Moody’s Investors Service, downgraded the Barbados’ government bond rating by three notches to B3 from Ba3, while maintaining its negative outlook on the island. “We cannot expect to continue to do the same things over and over and get different results. Yesterday’s further downgrade by Moody’s by a staggering 3 notches must jolt us into our true reality,” said BLP and opposition leader Mia Mottley.
She then stated, “We were warned that increasing our overall debt, especially our reliance on short-term debt, will lead to a further downgrade. Yet the Government continues recklessly to do so. Two weeks ago we increased the Local Loans Limit to BDS$4 billion (One BDS dollar = US$0.50 cents) and now today we are increasing the limit under the Special Loans Act by BDS$1 billion to BDS$2.5 billion.”
Mottley also cont’d, “We were warned that continued Central Bank financing of our fiscal deficit will put pressure on our exchange rate. Yet the Central Bank continues to do so. We were warned that increasing our fiscal deficit and missing our targets for fiscal consolidation will lead to a further downgrade. Yet the Government continues unashamedly to do so.”
In a statement, Mottley said that the country was warned that declining foreign reserves would lead to a further downgrade. She said despite such a warning “the foreign reserves dangerously continue to decline in spite of the Government’s borrowing to prop them up”.
Moody’s Investors Service said the three-notch downgrade reflects the reinforcement of negative fiscal trends given the increasing size of the country’s fiscal deficit, which exceeded 11 percent of GDP in fiscal year 2013/14, and “our expectation of continued challenges to fiscal consolidation”.
Moody’s, which had previously downgraded the bond rating to Ba3 from Ba1 last December, also highlighted the increasing government debt ratios, projected at above 100 percent of GDP by fiscal year 2014/15, coupled with elevated short-term debt issuance and gross financing needs in excess of 30 percent of GDP in 2014 and 2015.
The agency is further projecting “a decline in international reserves this year, due to large current account deficits and weaker private sector inflows” as well as “Central bank financing of the fiscal deficit that will increase pressure on the country’s currency peg to the US dollar”.
