Barbados’ once-coveted investment grade credit rating can be restored, according to one leading sovereign credit specialist, who says the country is steadily putting in place the reforms and institutional frameworks needed to achieve this goal.

Kelvin Dalrymple, Founder and CEO of The Ratings Advisory Clinic (TRAC), delivered this assessment to nearly 300 delegates at the recently concluded Barbados Risk & Insurance Management (BRIM) Conference. He noted that while the journey will be gradual and demanding following the island’s managed debt default in 2018, Barbados has demonstrated the fiscal discipline and policy commitment necessary to regain an investment grade rating of at least “BBB- or Bbb3”.

Currently, Barbados holds a sovereign credit rating of B+ (stable outlook) from Standard & Poor’s, B2 (stable outlook) from Moody’s, and B+ (positive outlook) from Fitch Ratings.

Speaking at the annual two-day symposium hosted by BIBA, the Association for Global Business, Dalrymple addressed the topic The Role of Sovereign Ratings in Building Investor Confidence and Unlocking Resource Flows. He also warned of the potential implications for both the country and locally domiciled companies when attempting to attract investment in the context of a sub-investment grade rating.

In assessing Barbados’ progress, Dalrymple remarked: “One of the things about credit ratings is that you slide fast but you climb slow. It’s like your reputation. . . . It comes to town on foot and leaves on horseback.”

He further underscored the importance of sovereign ratings as a benchmark for the broader economy, stating: “A sovereign rating is your top rating for the country. And that determines what other asset classes can get,” he noted.

Drawing on his experience as a former Moody’s lead analyst for Sub-Saharan African sovereigns and multilateral development banks, Dalrymple explained that while fiscal strength and macroeconomic indicators are critical, governance plays an equally significant role in credit assessments.

“It is governance at the level of institutions outside the government. You’re looking at institutional quality at the intersection of governance, quality of judicial institutions and quality of regulatory institutions,” he noted.

He also highlighted the challenges faced by countries operating below investment grade with limited access to development financing: “You have to know when to go to the market and even if you have a good rating, you may be in the market at a time of liquidity stress. You might not get a good rate, and it might not be because of your rating.”

Describing Barbados as one of the “fallen angels” in the global ratings landscape, Dalrymple stressed that restoring investment grade status must be carefully planned and sustainably executed. He explained that borrowing costs tend to decline as countries move up the credit rating scale.

Despite occasional criticism of ratings agencies, Dalrymple emphasized their critical role in shaping investor perceptions and unlocking financing opportunities.

“We know that high level credit ratings and investment ratings can unlock competitive interest rates. . . . That’s why the threshold of the investment rate is so critically important. And sovereign credit ratings matter for both the public and the private sectors.

“And that’s not always greeted with salience. People think that the credit rating is for the government.”

He encouraged organisations such as BIBA to maintain active dialogue with policymakers, particularly where policy decisions may have implications for the country’s sovereign rating.

Addressing questions from BRIM attendees on the implications of rising United States debt, Dalrymple explained that the U.S., like other G7 nations, benefits from issuing debt in its own currency.

“Their own currency gives them a little bit of a buffer than countries that don’t have [convertible currencies].”

While acknowledging that the United States has experienced a downgrade, he noted that the impact is not comparable to that faced by developing economies such as Barbados.

On the issue of risk management and macroeconomic resilience, Dalrymple pointed to the importance of building buffers in the aftermath of economic shocks:

“When you go through a pretty tough situation like Barbados went through, and post-default IMF programmes, the whole concept of building buffers is usually the answer to that question. You build fiscal buffers . . . foreign exchange buffers that would help you to overcome the next event . . . so that you’re not operating on the edge. So that the next crisis would not catch you exposed.”

By Geralyn Edward for BIBA, the Association for Global Business