Cyclical upturn not enough to lift credit ratings in Caribbean countries

Saturday, March 27, 2004

NEW YORK, USA: While the improved global economy will continue to give a boost to the economies of the Caribbean, the cyclical upturn will likely have only a limited impact on the region's overall creditworthiness, says Moody's Investors Service in a special report. 

Moody's current sovereign ratings reflect the debt burdens of the various countries and their corresponding willingness to pay, says the rating agency report. 

In most cases, though certainly not all, the ratings reflect underlying medium-term credit challenges, including high debt ratios, vulnerability to external shocks, and the need for greater fiscal consolidation. 

Most countries in the region appear to have reached a cyclical trough during 2003 following a long period of deceleration of growth or outright recession. 

Moody's sees the economic recovery as driven by a change in the external environment and a continued search for yield in the context of relatively high international liquidity and low interest rates in advanced industrial economies. 

Expected higher growth over the next several quarters does not imply an improvement in overall credit quality, says Moody's. 

Most of the countries in the region are challenged by the need to develop the capacity to sustain growth for longer periods and to grow through the various economic cycles. 

Higher economic growth is not likely to lead to a substantial improvement in the fiscal accounts or public debt ratios, two important quantitative determinants of government bond ratings.

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