CariCRIS lowers Barbados government credit rating
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| Published on Saturday, November 7, 2009 |
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PORT OF SPAIN, Trinidad -- Caribbean Information and Credit Rating Services Limited (CariCRIS) has lowered its ratings on the notional debt issue of US$300 million of the government of Barbados to CariAA (Foreign Currency Rating) and CariAA+ (Local Currency Rating) on its regional scale from CariAA+ (Foreign Currency Rating) and CariAAA (Local Currency Rating).
The ratings indicate that the level of creditworthiness of this obligation, adjudged in relation to other obligations in the Caribbean is high.
The downgrade reflects the severe impact of the global recession on the macroeconomic performance of Barbados resulting in contracting economic activity, a widening fiscal deficit, increasing public sector debt levels and a deteriorating current account contributing to a balance of payment deficit.
From average real GDP growth of 3.9% in the previous four years growth slowed to 0.7% in 2008 and the economy is expected to contract by 3% in 2009. The key industries driving growth, tourism and financial services, have experienced significant slowdown resulting from the recession in its key source markets, United Kingdom (UK), United States of America (USA) and Canada.
The fiscal deficit has more than doubled since 2004, climbing to 5.9% in 2008, the largest in the last decade. As a result, public sector debt (inclusive of contingent liabilities) has climbed to unprecedented levels, reaching 113.4% of GDP in 2008 from 93.4% in 2004 and is projected to increase further to around 120% by end-2009.
The external position weakened as the current account deficit more than doubled to 10.4% of GDP in 2008 and FDI inflows waned. Consequently external reserves fell by US $101.1 million reducing import cover to a low of 3.3 months.
The ratings on Barbados reflect its long history of strong governance and political stability manifested in the quality of its underlying institutions: political, legal and economic as well as its monetary and exchange rate stability underpinned by a long-standing, fixed exchange-rate regime.
Excellent human development indicators, reflected in high per capita income and high standards of education and health care, are a key rating strength. Also supporting the rating is the diversity of its revenue sources which offers government a fair amount of financial flexibility.
These strengths are tempered by a general easing of the fiscal stance in recent times which has led to growth in the overall fiscal deficit, rising public sector debt levels and increasing debt-servicing costs. In addition, there has been increasing pressure on the external sector leading to persistent deficits, low and declining reserves and deterioration in its external liquidity position.
Not dissimilar to many of its Caribbean neighbours, Barbados has a small open economy with limited resources and few growth prospects outside of tourism and financial services. | | | | Reads : 486 | | | |
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