Barbados’ Outlook to Negative From Stable by S&P

Special thanks to Barbados First for the assist
Minister of Finance Chris Sinckler refuted the rumour that VAT will be hiked to 20%

Minister of Finance Chris Sinckler refuted the rumour that VAT will be hiked to 20%

While Ministers Sealy and Sinckler were delivering a press conference at government headquarters which lacked the content to give hope to Barbadians, Standard & Poor’s posted that it had revised Barbados’ outlook to Negative from Stable. Bottomline, all economic KPIs continue to trend south under the management of Minister Chris Sinckler.

Barbados’ net general government debt burden is expected to rise to above 70% of GDP in fiscal 2013 from 67% in fiscal 2012 and 60% in fiscal 2011. Barbados has fallen back into recession after a very weak recovery in 2010-2012, with average annual real GDP growth of just 0.4% in those years. We are revising the outlook on our long-term rating on Barbados to negative from stable. We are affirming our ‘BB+/B’ sovereign credit ratings on Barbados. We could downgrade Barbados if the wider fiscal deficit is not reversed or if external pressures, associated with persistent current account deficits, mount. NEW YORK (Standard&Poor’s) July 18, 2013–Standard&Poor’s Ratings Services revised its outlook on its long-term rating.

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A Very Sad Time In Barbados' Financial History

Submitted by People’s Democratic Congress (PDC)

Former Prime Minister Sir Lloyd Sandiford led restructuring in the early 90s

For, on Tuesday, 17 July, 2012, Standard and Poor’s – one of the three major international credit rating agencies – downgraded the Barbados Government’s financial credit rating. The Government’s foreign currency bonds status has reached junk status – from BBB-/A-3, to BB+/B, in the S&P’S rankings.

But, the PDC is not surprised that this has come about. As that, ever since the Barbados government’s last effective downgrade by Moody’s (another of the three major international credit rating agencies) in 2011, we would have been forewarning many people many times on here – on BU – and in other fora – that the Government of Barbados international creditworthiness would have been deteriorating at such a fast rate, that it was only a matter of time before it was going to be downgraded again by anyone of these credit rating agencies.

Well, that is what just happened on Tuesday – a day when, too, the Nation Newspaper was reporting big and bold on its front page, how the main public sector union – the NUPW – was bombastically ungraciously pressing for a 10% wages hike for public workers.

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Local Media Lacks Financial Intelligence

Annie Lowrey,A Harvard grad who is an economic policy reporter for the New York Times’ Economix blog – Credit:: Policymic

…what percentage of investors who invest in Bim are driven by ratings? what rates can we raise money at if we need to? The fact is that Jamaica with a much lower rating has been raising money globally at comparable rates to Barbados, actually lower in some cases.

My general point is that all the people who have been opining have not bothered to check or try to get info on the trading in currently outstanding Barbados government bonds graded internationally. has there been any selling off, have the yields gone up. How can we claim to be serious about these issues?…

Ellis Chase

Of concern to BU and others we know is the lack of financial Reporters employed by traditional media. One only had to observe the Central Bank of Barbados press conference yesterday. The traditional media whether it wants to accept the responsibility is an opinion shaper for many Barbadians.

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Barbados Economic Misfortune Was Guaranteed

Today’s announcement that Barbados sovereign credit rating has been downgraded to BB+/B from BBB-/A-3 is unfortunate. There is no consolation that we have been bundled with several European countries who have earned junk bond rating.

Dr. Frank Alleyne made a statement which resonated with the BU household on the weekend. He opined that a major problem driving our public debt is structural. He suggested successive governments have not addressed the problem. They preferred instead to be politically expedient. BU prefers to focus on a reality that in the boom years we did not solidify our economic fundamentals. One clear example was building out an economy with no concern to diversify our energy base. Another, we encouraged rampant consumption expenditure fed in the 1995-2007 period especially.

What is unfortunate is that with a general election on the horizon, the opportunity for serious public discussion and earth moving decisions will not be top of mind for government. What we have though is partisan political chatter now that Barbados has attained junk bond rating.  The opportunity for government to distil the arguments has now gotten even more difficult. BU must harp on the point that the government has to be coherent and cohesive in the way it articulates its strategy i.e. what it has achieved to date, in the near term and what it hopes to achieve.

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The Great US Debt Downgrade

Dr. Justin Robinson, Head of Department & Lecturer in Management Studies,UWI,Cave Hill

On Friday August 5 2011, while most of Barbados was partying with Rihanna, there was a loud bang, and the financial world was shaken to the core with the news that major Credit Rating Agency, Standard & Poors (S&P) had downgraded the long term credit rating of the United States of America from AAA to AA+, and with a negative outlook. This momentous decision to downgrade the USA, justified or not, may well in my opinion, hasten a dramatic reduction in the role and influence of the CRAs in global financial markets, and the financial world will be much better for it.

CRAs are private profit oriented entities that issue an opinion on the likelihood a borrower will default on its debt. The opinion is issued in the form of a letter grade, with AAA being the highest rating. The industry is dominated by Moodys Investors Services and Standard & Poors, with Fitch running a distant third. Financial economists have long questioned the value added by the CRAs. To put it simply, many argue that in good times, rating agencies upgrade borrowers, and in bad times they downgrade them. Do you really need them to state the obvious? The CRAs were much maligned for assigning AAA ratings to now worthless subprime mortgage loans, and infamously rating Enron as “Investment Grade” in the same week the company filed for bankruptcy.

Much of the power of the CRAs seems to come from the fact that the credit opinions (ratings) they issue have been written into the law and contracts in many countries. For example, by law or contractual agreement many institutions are only allowed to invest in financial instruments carrying a certain credit rating by one of the major agencies. Also, in many instances, contracts require that financial instruments posted as collateral have a AAA rating. Financial Economists refer to this as the regulatory license granted to the CRAs. In essence to be a player in many financial markets you need the blessing of the CRAs. Due to this fact, attaining or losing a certain credit rating by one of the major agencies is a major issue for many investors and financial institutions. If these laws and contracts are enforced, then come Monday, a number of contracts would have been violated and investors may be forced to sell assets, find new collateral and so on. My guess is rather than face this massive inconvenience, or rather chaos, a number of clauses will either not be enforced or simply changed to allow institutions to continue to hold US government securities and use them as collateral for all kinds of financial contracts despite the downgrade. If this happens, the regulatory license, which has the source of the power of the CRAs would have been undermined and with it some of their influence.

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Dr.Robinson’s Presentation Concerning Credit Rating Agencies

Submitted by Dr.Justin Robinson

creditratingjustinrobinson

Click on the image to view the well received presentation delivered by Dr. Justin Robinson at the 5th anniversary of Caribbean Money Market operating in Barbados – Power Point application required.

Dr. Justin Robinson is Head of the Department of Management Studies at the UWI-Cave Hill campus. His research interests include corporate financial management, derivatives, investments, risk management and financial market efficiency, and he has published on these subjects in a number of international journals.

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