Standard & Poor’s Lowers Barbados Outlook, Warns of Rising Downgrade Risk

Above: Parliament in Barbados

By Alexander Britell

Ratings firm Standard & Poor’s affirmed its BBB-/A-3 local and foreign currency sovereign credit ratings on Barbados this week, but lowered its outlook from stable to negative.

“We base our ratings on Barbados on the country’s stable, predictable and mature political system, which benefits from consensus on major economic and social issues, including support from the private sector and trade unions for the government’s ongoing adjustment programme,” said S&P analyst Olga Kalinina. “The government’s large fiscal deficits and a rising debt burden, which are not sustainable in the long-term and present an increasing risk to the government’s credit profile, especially in the context of the small, open and vulnerable economic structure, constrain the ratings.”

S&P said the outlook change reflected the rising risk of a downgrade should a combination of “lackluster growth and insufficient fiscal adjustment” within the next year indicate a higher debt burden or rising debt service burden.

The negative outlook reflected the firm’s “view that downside risks to Barbados’ creditworthiness are increasing as the external financial and economic environment weakens,” she said. “We believe that domestic fiscal measures may not be sufficient to stabilize the growing debt burden.”

Because Barbados has a fixed exchange regime, the onus of macroeconomic adjustment rests on fiscal policies.

According to S&P, the government has introduced a number of revenue measures and focuses on containing spending, which improved Barbados’ fiscal performance in the first six months of 2011.

“Despite some recent improvements, the deficits are projected to continue to be large,” she said.

The firm predicted net general government debt would likely stay at 52 percent of GDP in 2011 to 2013 before subsiding slightly in 2014.

The news follows the firm’s downgrade of the Bahamas at the end of last month.