Standard & Poors Cuts Barbados Foreign Currency Ratings

 

www.caribbean360.com

Standard & Poor’s cut Barbados credit ratings on Wednesday, saying that a combination of economic contraction and government counter-cyclical policies will further pressure the country’s debt ratios.

S&P downgraded Barbados long-term foreign-currency rating to BBB from BBB-plus. The outlook on the new rating is stable, as the agency expects the government to tighten its fiscal accounts as of 2010 when the economy is seen stabilizing.

“We expect Barbados’ economy to contract by 2.5 percent in 2009, followed by a flat performance in 2010 before gradually recovering to a 2.5 percent growth in 2011,” S&P said in a statement.

“In the meantime, the government fiscal policy is counter-cyclical, resulting in the projected increase in debt levels to 86 percent of GDP (on a gross level) and 46 percent (on a net level) in 2009,” the agency said, noting that those levels are more in line with BBB-rated countries.

S&P said it will also closely watch the levels of Barbados’s international reserves “in order to identify any potential stress on its external liquidity position and currency peg.”

“The ratings could come under downward pressure if reserve losses were to come in higher than projected and strain the country’s already weak external liquidity ratios,” S&P said.

Currently S&P expects Barbados’s ratio of monetary base covered by international reserves to fall to 74 percent in 2009 from 83 percent in 2008. That ratio was 102 percent in 2007.

Source: www.reuters.com

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