Barbados From Stable To Negative Outlook – Standard & Poor’s

www.caribbean360.com Standard & Poor’s (S&P) has once again downgraded Barbados’ outlook. However the Central Bank of Barbados is welcoming the rating agency’s affirmation of investment grade of the country’s external debt.

In a statement sent to the media yesterday following the release of S&P latest ratings, the Bank’s officials stated that they are aware that the outlook had worsened.

“We said so in our most recent report on the economy, at the end of last month. Some adjustments in fiscal stance will be required, in order to maintain the stability of the economy. As S&P’s report notes, Barbados boasts strong institutional and social arrangements, political stability and a well-funded NIS, and there is every reason to expect that government will take the necessary measures to protect Barbados’ external credit-worthiness.”

S&P revised its outlook on Barbados for the second time this year, to negative from stable, and at the same time affirmed the ‘BBB’ long-term foreign and ‘BBB+’ long-term local sovereign credit ratings. The short-term ratings remain at ‘A-3’ for foreign currency and ‘A-2’ for local currency, while the transfer and convertibility assessment for Barbados is ‘BBB+’.

According to S&P Credit Analyst, Olga Kalinina, “The outlook revision on Barbados to negative is due to our view that the timeliness and magnitude of the government’s fiscal consolidation necessary to preserve Barbados’ credit fundamentals at the current ‘BBB’ level, is uncertain because of a worse-than-anticipated economic recession in the country.”

The rating agency stated that the results for the first three quarters of 2009 underscore a rapid deterioration in Barbados’ public finances at a faster rate than they had previously assumed, and a sharper economic contraction.
“We have revised Barbados’ real GDP estimate to -4.8 per cent in 2009 (from our previous estimate of -2.5 per cent), with a further decline of 1 per cent expected in 2010, before a return to growth in 2011,” they said.

Also, S&P have made a significant revision to its expectations for the government’s fiscal deficits, both for 2009 (based on three quarters of 2009 data) and for the last three years (based on new information on the off-budget activities).

“We now expect the general government deficit at 7.1 per cent of GDP in fiscal 2009 (ending March 31, 2010), up from 5.6 per cent last year, 6 per cent in 2007 and 3.8 per cent in 2006. This encompasses the central government deficit of 9.1 per cent of GDP (including 0.5 per cent of off-budget deficit) and the National Insurance Scheme (NIS) surplus of 2 per cent.”

The Central Bank noted that other leading economic indicators either have remained strong or have improved.
“Between January and September 2009, the current account deficit has improved to an estimated 4.3 per cent of GDP, compared to 13.3 per cent for the corresponding period the previous year,” they said.

It was also noted that in respect of the Net International Reserves (NIR), it is estimated that by year-end the import reserve cover will be 20.7 weeks of imports of goods and services; 12 weeks of import cover is the accepted international norm.

Moreover, the country’s debt to GDP ratio, which stands at 52 per cent, is said to compare favourably with that of the United States of America, where the debt to GDP ratio is approaching 100 per cent.

www.barbadosadvocate.com

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