In keeping with what is seemingly par for the course in the last ten years, Barbados’ economy has received yet another downgrade.
This time it comes from regional credit rating agency Caribbean Information and Credit Rating Services Limited (CariCRIS), which has handed the country its 23rd downgrade since the Democratic Labour Party took office in 2008.
In a media release on Tuesday, CariCRIS reported that it had lowered the island’s foreign currency rating by one notch from CariBBB+ to CariBBB- and its local currency rating from CariBBB+ to CariBBB.
While suggesting that the island’s creditworthiness was still adequate, the regional rating agency said the decision to downgrade the island was driven by the sustained reduction in net international reserves which had fallen to the equivalent of 2.2 months of import cover as at September 2017, below the internationally recognized minimum of three months or 12 weeks import cover, with foreign currency commitments, including the Government’s amortized debt commitments, outstripping foreign currency inflows.
The development occurs just three months after New York based Standard & Poor’s lowered the country’s credit rating from CCC- to CCC, warning that there is now a higher risk associated with maintaining the currency peg to the US dollar.
Not surprised by the latest downgrade, economist Jeremy Stephen charged that Government had done very little to correct the recurring problem since the country received its first downgrade.
The University of the West Indies lecturer explained that despite recent upticks in the global economy, Barbados has continued to fail miserably with respect to shoring up its foreign reserves.
“Our reserves continue to fall in light of a very strong global economy. It is strange that in Barbados we believe that the global economy is struggling when in reality that is not the truth. Over the last ten years there hasn’t been a better time in terms of global growth for investors.
“We have also been harming ourselves with very ill-timed fiscal policies and late implementation of fiscal policies,” Stephen said in response to the latest blow to Government’s efforts to revive confidence in the economy and on the heels of last May’s Budget presentation in which $542 million in austerity measures were announced.
Among them the controversial hike in the National Social Responsibility Levy that has been met with outcry from every sector of the economy, but has failed to meet its revenue targets.
The tax was increased from two to ten per cent of the customs value of locally manufactured and imported goods, as Government sought to achieve a balanced budget and to wipe out its overall deficit. However, this remains an elusive dream.
Nonetheless, the latest ratings news was not all bad for Barbados as CariCRIS also revised its negative outlook on the island to stable.
“Our decision to revise the outlook to stable is based on our expectation for a number of tourism related investment projects that are to be completed over the next two years, [which]would likely boost economic activity and foreign exchange earnings. Completion of these projects, together with a number of recently introduced fiscal measures aimed at fiscal consolidation and reduction of foreign exchange consumption, should serve to reverse the decline in reserves and rebuild the country’s external account position,” the release stated.
In response, Stephen said while he was heartened by this vote of confidence, the expected uptick could easily change with a shift in some external factors.
“The problem is that you think that the Government will be able to execute or bring certain projects to fruition, but the argument could be made that they missed the boat with regards to certain projects related to tourism. Case in point would be the Hyatt Hotel [which is embroiled in a legal battle]. It could also be argued that by the time it is completed, the global economy will begin to make a turn for the worse. It is quite a feasible assumption because everyone knows that globally we a due a recession after six of seven years of unabated growth,” he cautioned.