Moody’s downgrade a shock to Barbados government
Wednesday June 15 2011 | 05:18 AM

Government is disappointed and surprised at the news that international rating agency Moody’s has downgraded Barbados.

That was the reaction of Minister of Finance and Economic Affairs Chris Sinckler today, who called the move “clearly a speculative and unnecessary rush to judgement”.

Yesterday, Moody’s said it had reduced the island’s domestic currency rating from Baa2 to Baa3 and that both the domestic and foreign currency bond ratings had been moved down to a negative outlook.

Sinckler said, however, that the decision to adjust Barbados’ domestic credit rating downward had taken officials by surprise, “coming as it is just weeks after Standard and Poors using the same information issued a review holding the country’s rating”.

He deemed it disappointing “from the perspective that while it recognises the country’s efforts at fiscal consolidation as evidence by the initiatives taken as late as the last budget and more recently in the expenditure restraints in the 2011-12 estimates,  it does not sufficiently credit these efforts in the Government’s quest to reduce its fiscal deficit and ease debt burden over the medium to long term”.

“Equally, it is surprising because while correctly holding the foreign debt rating, it curiously ignores the very strong and liquid domestic capital market situation to claim that the system might be unable to support government’s requirements over the short to medium term,” the minister asserted.

“This is clearly a speculative and unnecessary rush to judgement. The evidence is in fact to the contrary. Indeed, not only have Government Instruments been eagerly accessed, but consistently oversubscribed.

“More importantly, the amortisation profile for Government’s domestic debt portfolio is relatively smooth, with maturities mostly at the longer end of the maturity spectrum, which aids in ensuring that the domestic debt-service burden is not too onerous,” he added.

Sinckler said, with this in mind, Government “remains focused and committed to working our way out of this tough recessionary period”.

He noted this would be done “without unravelling the social fabric and economic stability of the country by instituting unnecessary and unreasonable measures that wipe out the social gains of the country, and jeopardise the clear signs of recovering which have begun to emerge in the local economy over the last few quarters and that we expect over the course of the rest of 2011”.

“All Barbados must remain focused,” he said.

Moody’s said its downgrade of Barbados’ local currency ceilings was “linked to the downgrade of the Government’s local currency bond rating”.

“The downgrade of the long-term foreign currency bond ceiling reflects our opinion that the risk of a payment moratorium that would enable the Government to preserve foreign currency resources is now slightly higher due to trends in the country’s balance of payments and government finances,” it stated.

In the case of the negative outlook, the agency said this was due to its view that Government’s debt ratios “are likely to deteriorate further over the next 12 to 18 months to levels that are no longer consistent with an investment grade rating, given the small size and limited diversification of Barbados’ economy”.