Barbados facing economic downgrade

BRIDGETOWN, Barbados: International credit ratings agency Standard & Poor’s has lowered the nation’s outlook from stable to negative and warned of a further downgrade if government doesn’t take steps to reverse the current economic situation.

“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,” said Standard & Poor’s credit analyst, Olga Kalinina.

A statement issued by the company pointed out that the negative outlook reflects the possibility of a downgrade if authorities fail to contain fiscal deficit widening this year and reduce fiscal deficits starting in 2010.

“Conversely, rapid consolidation of public finances, most probably accompanied by a return of foreign investment, would restore strength to Barbados’ balance sheet and support the stable outlook. We will closely watch the trends in Barbados’ international reserve levels in order to identify any potential stress on its external liquidity position and currency peg,” the statement added.

Results for the first three quarters of 2009 underscore a rapid deterioration in the nation’s public finances and a sharper economic contraction.

Standard & Poor’s revised Barbados’ real GDP estimate to negative 4.8 per cent in 2009 — from its previous estimate of negative 2.5 per cent — with a further decline of one per cent expected in 2010, before a return to growth in 2011.

It also made a significant revision to its expectations for the government’s fiscal deficits, based on three quarters of 2009 data and new information on the off-budget activities.

“Our projections incorporate an assumption of a gradual reduction in the fiscal deficits starting in 2010, although the debt is likely to peak in 2010 at 55 per cent of GDP (on a net basis), before starting to decline in 2011. We note that there is support across the political spectrum, private sector and unions for fiscal tightening and that the government is preparing a medium-term framework to address the situation. The risk to our projections, however, is the timeliness and efficiency of the anticipated measures amid a slowing economy and rising unemployment,” concluded the statement.

Opposition leader Mia Mottley has warned citizens to brace for further hardships as a result of belt tightening measures to improve the state’s finances.

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