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Downgrades …16,17,18,19 -Moody’s Credit Rating Condemns Barbados Bonds to the Ultra-High Yield Club

Read full article: Ultra-High Yield Club Gets a New Member as Barbados Bonds Slump

We have had experts and commentators from Barbados and afar opined that the battery of credit rating downgrades levied on Barbados by the international credit agencies will add to our economic woes. Fighting to defend our peg to the US dollar becomes harder because running hard deficits as a net importer translates to pressure on the foreign reserves.

Barbadians everywhere EXCEPT yardfowls and Prime Minister Stuart believe there is no reason to be concerned. If one surveys the graph above  it is obvious Barbados bondholders are very concerned. Surely the conversation will now move to flight of capital.

Will somebody tell the prime minister to shut the hell up?

 

269 responses to “Downgrades …16,17,18,19 -Moody’s Credit Rating Condemns Barbados Bonds to the Ultra-High Yield Club”

  1. David Avatar
    David

    Extracted from the link above.

    “The governor being fired would have rattled investors simply because it shows some kind of instability there at a policy-making level,” Royal Bank of Canada economist Marla Dukharan said in an interview. “The governor had started to come out about how bad it really is.”

    The 2-to-1 peg with the U.S. dollar is starting to show cracks, and an all-out balance of payments crisis is a possibility, Dukharan said. The Finance Ministry didn’t reply to calls and emails seeking comment.

  2. Harpoon Maroon Avatar
    Harpoon Maroon

    Government’s home-grown fiscal strategy today got a vote of confidence from a top economist.

    Contrary to what many observers have said, former Chairman of the advisory council on the economy Sir Frank Alleyne said he was convinced the Medium Term Development Strategy 2010/2014 was working.

    “It is inaccurate to say that the Medium Term Development Strategy failed. Not so. It is because of the Medium Term Development Strategy that this economy is turning around and showing growth. The growth is not as significant as we want it to be . . . but the economy is showing growth and all the estimates suggest that in the next ten-month period growth is going to pick up to a further extent,” Sir Frank today told the Democratic Labour Party (DLP) lunchtime lecture on Fiscal Consolidation in Small Developing Economies at the DLP’s George Street, St Michael headquarters.

    The retired academic pointed to the performance of the tourism sector and the fact that the international business sector had “turn the tide and is tracking again” as proof.

    However, he blamed “persistent downgrades and the cost of going to borrow money” for the failure of the agriculture sector to live up to expectations.

    Sir Frank said the economy had already “hit bottom” and was now beginning to pick up, but it would require fiscal discipline to drive down the debt to gross development product (GDP) ratio to about 70 per cent, insisting the most effective way to reverse the fiscal challenge was to control public spending.

    However, with an election due next year, he was not certain the administration had the “courage” to take the risk.

    “Reduction in the tax ratio as a percentage of gross domestic product as the value of goods and services in Barbados is better said than done, but it takes courage to do it especially with the election 15 months down the road. But failure to do that has enormous negative consequences in our society,” he warned.

    Nevertheless, the respected economist advised against blanket cuts, stressing it would be dangerous to do so.

    He explained that some services such as education up to secondary school level, health services, social services and infrastructure and developmental projects ought to be the last areas Government should seek to cut, and that health care funding should be tailored to help the most vulnerable.

    In seeking to pin point the source of today’s economic woes, Sir Frank revisited the period of the Erskine Sandiford (now Sir Lloyd) administration in the early 1990s.

    He argued that the fiscal measure implemented at the time, including a cut in public servants’ salaries, had worked, and by moving away from it the economy was again placed on a path to trouble.

    “I am convince that the failure to embrace this adjustment strategy set by Sandiford in large measure accounts for our difficulties or our lack of capacity in dealing with the collapse of the financial services sector in the western world in 2008,” Sir Frank said.

    The Sandiford Government collapsed in 1994 and the Barbados Labour Party under the leadership of Owen Arthur – who at one time was tipped to replace Sir Frank as head of the economic advisory group – oversaw a period of sustained growth.

    Sir Frank added that reduced productivity and a lack of reward for productive staff also contributed to the shrinking economy.

    In any event, he said “there are times when budget deficits are unavoidable”, but warned against taking such deficits to the extreme.

    “What we know is that budget deficits carried to extremes are dangerous. They can lead to the collapse of the economy, and when I say budget deficits carried to the extreme I am speaking about situations where from year to year you are generating a budget deficit on current account,” Sir Frank said.

  3. Harpoon Maroon Avatar
    Harpoon Maroon

    Imagine this was an article in Barbados Today on 21st January, 2017, less than 2 months ago. Barbados has gone completely crazy and this shit is about to get vary, very scary.

  4. Tron Avatar
    Tron

    @Harpoon

    What, “Sir” Frank Alleyne??? What has this man ever contributed to the common good? All talk, no action. Many, many commissions, nobody accepting responsibility.

    Whereas in other countries men are used to command, so-called Sirs in Barbados do shy kindergarden-talk. If Bussa and his army had been like this, we would still face slavery in the Caribbean.

  5. Tron Avatar
    Tron

    @Harpoon

    Besides labelling him “Sir”, I agree with your personal analysis!

  6. David Avatar
    David

    What it appears to expose is that our local cadre of elite economists lack the capacity to organize an effective homegrown solution. And here is the reason why.

    Any policy precription must be communicated effectively to the population who will have to exhibit the right behaviours that are aligned with the policy objectives. Do not forget the people PM Stuart!

  7. Harpoon Maroon Avatar
    Harpoon Maroon

    David

    I think you can safely say the beginning of the end for the Stuart administration has begun.

  8. Prodigal Son Avatar
    Prodigal Son

    Agree with you Tron.

    He is one economist that has passed his sell by date. I dissed him years ago……..twice at that.

    He is a member of my church, every year at the AGM, he would go to the microphone and criticise the accounts and the way in which the treasurer presented the accounts. A member went to the microphone and asked him if with his vast experience would he be willing to help the treasurer, the man said no, he is too busy.

    Next was earlier in the DLP first term when there was a budget. there was a call in on VOB and VOB had him either on the line or in the studio (cant remember) VOB called Ryan Straughn who was at the time president of the Economic Society……….he told him I dont take advice from any boy wet behind his ears.

    David Ellis was stunned. That another economist had another view he was dismissive and called a grown man a boy…………..so condescending………….lost all respect for him.

    With him being the Head of the Advisory Council…….no wonder we are in such a mess after the Stinkliar who did not have a clue about what it took to be a MOF and what managing an economy is all about relied on him………………bad advice!

  9. Prodigal Son Avatar
    Prodigal Son

    Bico’s revenues up by 98%. Anyone think that they would lower their prices? As a lover of BICO icecream……..I decided to cut back on that luxury………..only buy it for birthday celebrations at home, Easter and Christmas.

  10. Piece Uh De Rock Yeah RIght - INRI Avatar
    Piece Uh De Rock Yeah RIght – INRI

    I will call your collective attention to this stoopid cartoon below

    I will suggest that those of you who are close to the DLP fellows ask a question of two to see who, like Decimals, are thinking about, AND ARE ACTIVELY PLANNING, to abandon ship and are in the “fly north container shipping mode”.

    http://imgur.com/a/7FeUx

  11. Well Well & Consequences Observing Blogger Avatar
    Well Well & Consequences Observing Blogger

    Maybe if Fruendel and his fools see it in black and white, instead of hiding from Bloomberg callers, they will now believe the negative impact of their actions, they shot themselves in the foot by firing Worrell…lol.

    “Ultra-High Yield Club Gets a New Member as Barbados Bonds Slump

    by Ezra Fieser
    9 March 2017, 13:22 GMT-4

    Island’s debt is worst performer in emerging markets this year
    Downgrade, firing of central bank chief contribute to sell-off
    Barbados joined the beleaguered group of countries whose dollar bonds yield more than 10 percent after Moody’s Investors Service said the island nation was likely to default.

    Yields on the $255 million of notes due in 2035 rose 0.35 percentage point on Thursday to 10.23 percent, joining securities from Venezuela, Mozambique and the Republic of Congo with double-digit yields. Barbados debt is the worst performer this year among more than 60 countries tracked by the Bloomberg USD Emerging Market Sovereign Bond Index, losing 4.7 percent while the gauge rose 2.1 percent.

    The tropical island is grappling with weak growth, one of the world’s highest debt burdens, and unwelcome currency appreciation caused by its four-decade-old peg to the U.S. dollar. These pressures are likely to impair its ability to service its debt, Moody’s said Thursday as it downgraded the credit rating to nine levels below investment grade.

    “We assess the likelihood of a credit event in the near-term as very high, given the lack of fiscal adjustment and increasingly limited financing options,” Samar Maziad, a senior analyst at Moody’s, wrote. The credit rating company cut the grade one step to Caa3, placing it on the same level as Greece and Ukraine.

    The Moody’s downgrade follows a cut by S&P on March 3 and the Feb. 24 firing of central bank Governor DeLisle Worrell, who had threatened to stop financing government spending.

    Fired Chief

    “The governor being fired would have rattled investors simply because it shows some kind of instability there at a policy-making level,” Royal Bank of Canada economist Marla Dukharan said in an interview. “The governor had started to come out about how bad it really is.”

    The 2-to-1 peg with the U.S. dollar is starting to show cracks, and an all-out balance of payments crisis is a possibility, Dukharan said.

    The Finance Ministry didn’t reply to calls and emails seeking comment.”

  12. Violet Beckles CUP Plantation Deeds from 1926-2017 land tax bills and no Deeds,BLPand DLP Massive land Fruad and PONZI Avatar
    Violet Beckles CUP Plantation Deeds from 1926-2017 land tax bills and no Deeds,BLPand DLP Massive land Fruad and PONZI

    We will keep saying and will tell you all this , look out for downgrades going up to as high as 23 down grades,, More Will come its a free fall, More PAIN to come because of Land fraud and PONZI , You all dont get it as yet with all of your ,Sir, Dr, Phd and other paper style of living in full blown stupid, Ministers and crooks lawyers will still have roof and food not matter the cost to the people and the Nation,

    All the DLP and BLP must be removed so the World can see that we are not stupid and blind for party sake,

    Vote CUP and the World Shall Return , The World know Barbados is ran by crooks why cant the people and the media admit and go rogue and tell the People ,

  13. Tron Avatar
    Tron

    @WWC

    “Venezuela, Mozambique and the Republic of Congo” – and Barbados. Call it the axis of doom and gloom.

    Some said, the commentators on BU are conspiracy theorists, pulling down Barbados. Now the rest of the island is just figuring out that they mixed up Alex Jones´ Infowars and Casandra.

  14. Artaxerxes Avatar
    Artaxerxes

    Cheeze on bread…. Duh like duh was nuff action during the time I was away from Barbados.

    Governor of the Central Bank, Dr. Delisle Worrell was asked by Sinckler to resign or be fired.

    The DEMS wooing of Owen Arthur to be Economic Advisor seems not to have gone down well with “a few uh DEM.”

    Two consecutive credit rating downgrades.

    Two more “third parties.”

    The BEES plan to march on Saturday.

    At least these events should take our attention away from Donald Trump for a while.

  15. Well Well & Consequences Observing Blogger Avatar
    Well Well & Consequences Observing Blogger

    Tron….the question is, what will Fruendel do to fight off the pending default.

    Art…..it snuck up on them, they wont hear, ya friends the ACs/As’ s have been like a duck outta water trolling up and down the blogs today, morphed from yardfowl to straight up duck….lol

  16. Harpoon Maroon Avatar
    Harpoon Maroon

    I can’t wait for the explanation from Stuart and Sinckler, it will surely require a little more creativity that those of the past.

    YAH CAN RUN BUT CANT HIDE!

  17. Artaxerxes Avatar
    Artaxerxes

    Well Well & Consequences Observing Blogger March 9, 2017 at 7:39 PM #

    “Art…..it snuck up on them, they wont hear, ya friends the ACs/As’ s have been like a duck outta water trolling up and down the blogs today, morphed from yardfowl to straight up duck….lol…”

    @ WW&C

    I read a few contributions by a “new” contributor going by the name “Angela Skeete.” Judging from her political rhetoric, it seems as though Angela is one of the ACs who, under the prevailing adverse conditions, decided to become an independent contributor.

    However, it is clear for all to see that AS = AC => DLP yard-fowls.

  18. Tron Avatar
    Tron

    @WWC

    Fight off? Solution? Easy, easy 😉

    1) Get 1 billion loan in USD, 2) combine short selling and leverage of Barbadian treasury bonds.

    The government would make a fortune, betting on Barbadosian insolvency 😉

  19. Well Well & Consequences Observing Blogger Avatar
    Well Well & Consequences Observing Blogger

    Fruendel got until June I believe to actually do something positive, he better dont wait until June with his slothful self….consolidation is an open option….. Tron.

    Art…am sure the AS’ s/ACs cant wait to tell you all about it..

  20. Tron Avatar
    Tron

    When the ATM is not working anymore, when our credit cards are rejected, when the supermarket only accepts USD, when the Royal Barbadian Police escorts a chubby financial genius to his private jet towards Canada, we know it for sure: This is D-Day.

    D-Day will come fast, faster than we can even imagine, and catch everybody by surprise. Like a fatal accident, like a fatal heart attack.

    What was achieved in two centuries and many decades, from Saint Bussa to Barrow, will vanish, only a memory in our minds and a feeling in our hearts.

  21. Gabriel Avatar
    Gabriel

    Arta
    Trump tweet about Obama bugging Trump Towers has taken the heat out of the ”fire Jeff Sessions”brigade.A pity.The swine must be got rid of.He’s no effing good the slime bag.

  22. Prodigal Son Avatar
    Prodigal Son

    Artax

    You also missed the Minister responsible for the NIS telling DLP yardfowls last Saturday that the government has nearly repaid the NIS by issuing them with government bonds. LOL LOL.

    I wonder if the NIS went down to the CBB and asked to cash them in if they would be able to get the cash.

  23. David Avatar
    David

    It should be clear why former Governor of the Central Bank Worrell jumped ship. He had a headsup of the downgrades and read the writing on the wall. Isn’t it unusual for the rating agencies to use the hatchet BEFORE the Estimates/Budget?

  24. Harpoon Maroon Avatar
    Harpoon Maroon

    This is what the DLP is guilty of:-

    A death march is a forced march of prisoners of war or other captives or deportees with the intent to kill, brutalize, weaken and/or demoralize as many of the captives as possible along the way.[citation needed] It is distinguished in this way from simple prisoner transport via foot march. Death marches usually feature harsh physical labor and abuse, neglect of prisoner injury and illness, deliberate starvation and dehydration, humiliation and torture, and execution of those unable to keep up the marching pace. The march may end at a prisoner-of-war camp or internment camp, or it may continue until all the prisoners are dead (a form of “execution by labor”, as seen in the Armenian genocide among other examples).

    The signing of the Fourth Geneva Convention[1] declared death marches a form of war crime.

  25. Exclaimer Avatar
    Exclaimer

    Barbados heading for the gutter! Now there’s a surprise. We on BU have been telling you this for years. Here’s my solution: find another country.

  26. Gabriel Avatar
    Gabriel

    The IMF has told the Antiguan Government to recall some of the tax concesssions given to hoteliers as a means of balancing their budgets.The Guyana authorities have a Tax Reform Committee currently reviewing the estimated loss of 200 billion G dollars in tax concessions given away by the PPP administration over a 2 year period.The Sandals concessions in Barbados have been estimated to cost the treasury $500 billion over the life of the agreement.How can a small economy practically totally dependent on tourism give away our money like this.Its lunacy.

  27. A. Dullard Avatar
    A. Dullard

    Barbados is in a grim place. Is there no one in Bim who can pull the PM aside and have a quiet word? His comments about the downgrades clearly indicate that he has absolutely no bloody clue. Moody’s didn’t say anything that right thinking observers have been saying for months, years even but I’d just like to highlight a few points.

    “We assess the likelihood of a credit event in the near-term as very high”

    “Yields on the $255 million of notes due in 2035 rose 0.35 percentage point on Thursday to 10.23 percent, joining securities from Venezuela, Mozambique and the Republic of Congo with double-digit yields.” Translation: Barbados debt is highly speculative. The market does not believe that Bdos can repay its debts and creditors expect to lose at least some of its principal/ interest.

    ” Instead, the government will continue to rely on the central bank to print money, adding to levels of domestic debt, he said” Translation: Status quo will continue right up to the point of disaster.

  28. Tron Avatar
    Tron

    @David
    Daniel 5

    King Frundalezzar gave a great banquet for a thousand of his nobles and drank wine with them in his royal villa. As they drank the wine, they praised Credit Suisse, their X5s and all the kick-backs.

    Suddenly the fingers of a human hand appeared and wrote on the plaster of the wall, near the lampstand in the royal villa. The king watched the hand as it wrote. His face turned pale and he was so frightened that his legs became weak and his knees were knocking.

    The king summoned all Sirs, economists, consultants, judges and QCs. Then all the king’s wise men came in, but they could not read the writing or tell the king what it meant. Then the queen recommended to read BU. And King Frundalezzar read:

    “You, Frundalezzar have not humbled yourself, though you knew all this. Instead, you have set yourself up against the mighty rating agencies. You had the goblets from the DLP brought to you, and you and your nobles accepted their lies. You said that no rating agency can downgrade your country. But you did not honor common sense. Therefore the rating agencies sent the hand that wrote the inscription.

    This is the inscription that was written: “Downgraded to Caa3. Last warning.”

  29. Harpoon Maroon Avatar
    Harpoon Maroon

    Dullard

    If someone was lucky enough to be in close enough vicinity of the PM to pull him one side why would they choose to have a quiet word with him when they ‘snatch’ him and take him directly to the airport or seaport for deportation?

  30. Exclaimer Avatar
    Exclaimer

    Or we could contact Mark Maloney. Does he not specialise in cement and rock hard concrete!

  31. Tell me Why Avatar
    Tell me Why

    Wait a minute. How many letters in the alphabet. We are now at c. No wonder the PM is not flustered. That is the FACT . Ask Pilgrim-age.

  32. Harpoon Maroon Avatar
    Harpoon Maroon

    For the sake of good Barbadians everywhere and to spare them the full brunt of the pain which will be occasioned by further delay I AM FULLY PREPARED TO CALL PRESIDENT GRANGER IN GUYANA AND ASK THAT HE DO THE GOOD PEOPLE OF BARBADOS A FAVOUR AND GRAND FREUNDEL JEROME STUART EXILE STATUS IN THE REPUBLIC OF GUYANA.

  33. Harpoon Maroon Avatar
    Harpoon Maroon

    FACT is their cute way of saying DEM DONT GIVE A FACT.

  34. Tron Avatar
    Tron

    @Exclaimer

    After a close look into the books, no buzzinessman will like to take over Bim. We have to pretty up Bim a bit. What about Big Sink in a ballerina costume and what about a slight haircut for Godess Bim, or more precisely, for treasury bonds in the hands of NIS and many Barbadians?

  35. Tron Avatar
    Tron

    @Harpoon Maroon

    Harpoon, have you forgotten that Guyana has closed the doors for Barbados-Dollars? If they don´t take BBD, they don´t grant Frundel any asylum.

  36. Prodigal Son Avatar
    Prodigal Son

    The dems seem to be turning to the Chinese to pull them through this crisis.

    These morons are heartless. They cannot get the country run, nothing they have done has worked, we seem to be worse off…………yet they would not leave the place………….

    ……..bad bad bus service with few buses to service the country

    …….. still poor garbage collection, I get a collection every 2.5 weeks

    ………QEH in crisis

    ……….potholes all over the road network

    ……….schools in crisis with little or no money to purchase essentials

    ………raw sewage spilling on the South Coast

    And at this late stage and from all reports printing 50 million dollars every month to pay salaries, these dems have began to rehire their supporters again. A friend of mine told me that she went into her office on Monday to find a person claiming to be a typist sitting there. My friend said that the lady sat there for the whole day doing nothing as no one knew who she was or where she was supposed to work.

    Someone posted on the VOB chat that the private sector shed 2500 jobs at the end of the year and the government has employed 3000……………

  37. Harpoon Maroon Avatar
    Harpoon Maroon

    Prodigal Son

    They can’t, some 4 years later, get the might Chinese to save Sam Lords Castle………………….how the FACT they going to get them to save Barbados?

  38. Exclaimer Avatar
    Exclaimer

    If Jonah was expendable then wht not Mr Stuart? Time to throw him under the bus.

  39. Harpoon Maroon Avatar
    Harpoon Maroon

    I don’t think none of DEM know how hostile and inhospitable Barbados is going to become for a lot of them very shortly.

  40. Harpoon Maroon Avatar
    Harpoon Maroon

    This is no longer about Sinckler and Stuart going, whole blasted lot must be removed from office, one way or another PERIOD.

  41. Tron Avatar
    Tron

    Do not worry Harpoon, the ATMs very soon spill out new money:

    1 Frundel = 5 Sinckler = 25 Inniss = 100 Worrell = 0.1 USD.

  42. Colonel Buggy Avatar
    Colonel Buggy

    The PM’s Chinese speech reminds me of the village pimp in the rum shop waiting for some one to buy him a snap. He hardly knows you, but will hug you and sing your praises for all to hear. You are the greatest, until you stop buying.
    Country Code BB………..Blasted Beggers.

  43. Tron Avatar
    Tron

    To the last foreign investor leaving Barbados: Please do not forget to switch off the lights. Thank you.

  44. Pachamama Avatar
    Pachamama

    There is an inverse relationship between bond prices and interest rates.

    So, when interest rates go up bond prices go down, and the opposite.

    And when bond prices are heading downwards there is a flight to safety. Maybe US bonds.

    We are minded that the markets have been preparing for the worst, in the case of Barbados.

    The flight to safety has largely happened years ago. Capital flight!

    Capital flight, for foreigners or Bajans with local foreign exchange accounts, happens electronically and without anybody’s permission.

    Whereas the locals (captives) including companies, are left to form lines outside the CB with hopes of getting Forex to keep their organization afloat.

    We have already seen the majority of the flight of capital.

    Government controls over dwelling reserves are to pay for imports, pay foreign debt, and maintain a semblance of financial order to stave off the ‘d’ word.

    Even if they succeeded, competition from below by citizens willing to pay more for a US dollar or a British pound may in itself deliver the devaluation scenario being fought against from on top.

    It is also possible for locals to have no problems with FOREX, only the government.

    The un-pegging of the Barbados dollar is likely to increase Forex inflows to purchase local assets, priced in local currency, which would then be at a relatively lower price, viz a viz the US dollar, for example. .

    There will be no winner in these circumstances.

    Only fundamental changes in the organization of the economy present as a genuine method of combating the worst case scenarios.

  45. Colonel Buggy Avatar
    Colonel Buggy

    One sure thing, this government has effectively placed a resettlement ban on Bajans in the diaspora contemplating returning home,to enjoy their homeland in their senior years.

  46. Tron Avatar
    Tron

    @Pacha

    The present regime of controlling foreign currency in this country reminds me of the Soviet satellite states in Eastern Europe during the 1980s. Finally, the crashed.

  47. Tron Avatar
    Tron

    So far Big Sinck did not issue any statement. We are so lucky. Maybe comfort eating or something like that instead.

  48. Well Well & Consequences Observing Blogger Avatar
    Well Well & Consequences Observing Blogger

    Not a lot left for Fruendel and his gang to say, their incompetence, neglect of the economy and sloth….have been exposed for the world to see, not by the blogs, but by the same people, the agencies who have been warning both governments for the last 10 years about their lack of sufficient action in effectively managing the economy.

    Fruendel with his foolish, useless excuses aimed at his slow witted yardfowls clearly shows how irresponsible he is, how disrespectful to bajans he is, how insulting to intelligent people he is by not wanting to take any responsibility for his own actions.

  49. David Avatar
    David

    Have read of Moody’s Report. It makes for understanding the rationale for the downgrade. An observation is the commercial banks pulling back from buying sovereign yet raking in tremendous profits.

    Rating Action:

    Moody’s downgraded Barbados’ government bond and issuer ratings to Caa3 and maintained a stable outlook.

    Global Credit Research – 09 Mar 2017

    New York, March 09, 2017 — Moody’s Investors Service, ("Moody’s") has downgraded Barbados’ government bond and issuer ratings to Caa3 and maintained a stable outlook.

    RATINGS RATIONALE

    Moody’s decision to downgrade Barbados’ issuer and bond ratings to Caa3 was driven by the following factors:

    1. The continued increase in government debt and very limited prospects of fiscal reform

    2. In consequence, rising domestic and external financing pressures that are very likely to impair the government’s ability to service its debt

    Despite the government’s efforts to contain the fiscal deficit and alleviate pressures on foreign exchange reserves, the fiscal deficit remains large and credit risks have increased in Barbados. The debt burden has risen in recent years and will continue to do so for the next few. Domestic and external liquidity pressures on the sovereign have increased. We assess the likelihood of a credit event in the near-term as very high, given lack of fiscal adjustment and increasingly limited financing options.

    First Driver: The continued increase in government debt and very limited prospects of fiscal reform

    Although macroeconomic conditions in Barbados have stabilized with a pick-up in growth, driven by rebound in tourism and investment in the sector, the fiscal deficit remains high.

    The economy grew by 1.6% in 2016 after reporting anemic growth of less than 1.0% since 2010. The drop in oil prices and an increase in tourist arrivals temporarily alleviated some of the mounting pressures on foreign exchange reserves. However, reform efforts to address persistently large fiscal deficits since 2014 have not achieved a meaningful turnaround in fiscal performance, leading to what we consider to be an unsustainable increase in the government’s debt burden.

    The government debt burden reached 111% of GDP at end-2016, and the authorities have accumulated a large stock of arrears to the private sector and the National Insurance Scheme, estimated at a further 11% of GDP at end-FY2015/16. Large refinancing requirements and the high interest burden, which consumes around 27% of government revenues, pose increasingly severe credit risks.

    Given the scale of the fiscal and structural reforms needed to correct the rising imbalance, the likelihood of a credit event is now very high.

    Second Driver: In consequence, rising domestic and external financing pressures that are very likely to impair the government’s ability to service short-term debt

    With commercial banks having reduced their exposure to the sovereign, the government has become increasingly reliant on short-term debt issuance, financed by the Central Bank of Barbados, to meet the rising refinancing and interest costs. The rapid increase in short-term debt since 2013, allied with the large financing gap, imply mounting concerns about rollover risk. In 2016, the central bank was the only source of new financing for the government. As of end-2016, the central bank’s holdings amounted to 34% of outstanding short-term T-bills, equivalent to 13.2% of GDP. The central bank’s unwillingness to increase its exposure to the government would trigger a credit event.

    External financing pressures are also high and rising. A number of factors, in particular maintaining the peg to the US Dollar, caused the stock of international reserves to drop significantly last year coming to USD 340.5 million in December from USD 463.5 twelve months earlier. This is the lowest level of reserves recorded since 2009, and only half the average level observed between 2009 and 2012, equivalent to under 11 weeks of imports at end-2016, compared to 13.6 weeks and 14.7 weeks in 2014 and 2015, respectively. The persistent decline in reserves continues to pressure the exchange rate peg.

    Rising refinancing pressures dominate more positive credit features. Those include Barbados’ moderately strong institutions, high governance indicators relative to peers, and stable political system that has historically supported a high degree of policy consensus. The government debt structure has relatively limited exposure to exchange rate risk with less than 30% of government debt denominated in foreign currency. The sovereign rating is also constrained by relatively weak growth compared to peers, and by the significant fiscal challenges.

    STABLE OUTLOOK

    The stable outlook on the Caa3 rating reflects the high probability of a credit event in the next 2-3 years, and reflects a balance of risks between lower and higher levels of loss given default.

    WHAT COULD MOVE THE RATINGS UP

    Upward pressure on the rating could build if the government initiates a credible fiscal consolidation program to arrest the rise in debt-to-GDP ratio and put debt on a sustainable downward trajectory. These developments would likely be accompanied by reduced reliance on short-term debt and financing from the central bank, and a rebound in international reserves.

    WHAT COULD MOVE THE RATINGS DOWN

    The rating would most likely come under additional downward pressure if, following a restructuring, losses imposed on creditors exceeded 35% in NPV terms, the highest level consistent with the Caa3 rating.

    COUNTRY CEILINGS

    The long-term foreign currency bond ceiling is changed to Caa2, while the short-term foreign currency bond ceiling is unchanged at NP. The long-term foreign currency deposit ceiling is changed to Ca, while the short-term foreign currency deposit ceiling remains at NP. The long-term local currency bond and deposit ceilings are changed to B3, while the short-term local currency bond and deposit ceilings remain unchanged at NP.

    GDP per capita (PPP basis, US$): 16,670 (2015 Actual) (also known as Per Capita Income)

    Real GDP growth (% change): 1.6% (2016 Actual) (also known as GDP Growth)

    Inflation Rate (CPI, % change Dec/Dec): 1.7% (2016 Actual)

    Gen. Gov. Financial Balance/GDP: -8.2% (2016 Actual) (also known as Fiscal Balance)

    Current Account Balance/GDP: -4.6% (2016 Actual) (also known as External Balance)

    External debt/GDP: [not available]

    Level of economic development: Low level of economic resilience

    Default history: No default events (on bonds or loans) have been recorded since 1983.

    On 06 March 2017, a rating committee was called to discuss the rating of the Barbados, Government of. The main points raised during the discussion were: The issuer’s institutional strength/framework, have decreased. The issuer’s fiscal or financial strength, including its debt profile, has materially deteriorated. The issuer has become more susceptible to event risks.

    The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on http://www.moodys.com for a copy of this methodology.

    The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

    REGULATORY DISCLOSURES

    For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on http://www.moodys.com.

    For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

    Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

    Please see http://www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

    Please see the ratings tab on the issuer/entity page on http://www.moodys.com for additional regulatory disclosures for each credit rating.

    Samar Maziad

    Vice President – Senior Analyst

    Sovereign Risk Group

    Moody’s Investors Service, Inc.

    250 Greenwich Street

    New York, NY 10007

    U.S.A.

    JOURNALISTS: 212-553-0376

    SUBSCRIBERS: 212-553-1653

    Atsi Sheth

    MD – Sovereign Risk

    Sovereign Risk Group

    JOURNALISTS: 212-553-0376

    SUBSCRIBERS: 212-553-1653

    Releasing Office:

    Moody’s Investors Service, Inc.

    250 Greenwich Street

    New York, NY 10007

    U.S.A.

    JOURNALISTS: 212-553-0376

  50. Well Well & Consequences Observing Blogger Avatar
    Well Well & Consequences Observing Blogger

    They have given a concise, article understanding of how the rating agencies arrive at their prognosis and the solutions/options available to beat back default. …

    Fruendel might want to utilize the limited window and time frame he has very wisely…and stop wasting time with foolish comments and press conferences, the one he held should have been telling the people what he plans to do to roll back the downward spiral of the economy and then maybe the same struggling people whose votes he NEEDS to be reelected would not now feel so insulted….

    …..their yardfowls are now useless to him, they may want to stop wasting time playing to them.

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