Standard & Poor's raises its long- and short-term foreign currency ratings on Barbados.
On Wednesday, Dec. 11, 2019, Barbados exchanged approximately US$531 million in new 2029 bonds and US$32 million in past due interest bonds to holders of its U.S. dollar bonds that have been in default since 2018, of which approximately US$677 million, plus accrued interest, was outstanding.
Moody's credit rating for Barbados was last set at Caa1 with stable outlook.
As a result, Standard & Poor's said, “we are raising our long- and short-term foreign currency ratings on the country to 'B-/B' from 'SD/SD' and are assigning our 'B-' foreign currency issue rating to the foreign currency debt delivered in the exchange.
The rating agency said the ‘stable outlook’ balanced its view of “the government's commitment to a fiscal and institutional adjustment with the economic and political challenges of doing so.”
However, S&P said, “failure to meet fiscal and debt targets over the next year could weaken investor confidence and result in a loss of official capital inflows,” putting renewed pressure on the country's foreign exchange reserves and reducing funding sources. It add, “Under this scenario of diminished liquidity, we could lower the ratings.”
However, on the positive side, S&P said “We could raise the ratings over the next year should the government adhere to its ambitious fiscal targets and reform agenda, which could strengthen investor confidence and contribute to improved GDP growth prospects.”
Here are a few points on how S&P sees the way forward in the short term for Barbados’ economy: It expects net general government debt will fall to 111% of GDP in 2019, and below 100% by 2022, from 137% in 2017.
Government interest payments will cost about 7% of general government revenues over the next three years, down from 16% in 2017.
This debt level is still high, said IMF resources under the extended fund facility (EFF) approved in October 2018 will provide balance of payment support, with about US$97 million already disbursed under the program and an additional US$48 million expected this December.
The Caribbean Development Bank (CDB) and the Inter-American Development Bank (IDB) have also approved policy-based loans for US$75 million and US$100 million, respectively, and the CDB has also approved a US$40 million loan to upgrade infrastructure and services at Barbados' international airport. Also, said S&P, in November 2019 the IDB approved an additional US$40 million loan to support the modernization of the public sector in Barbados.