Moody’s Downgrades Barbados Rating; Outlook Remains “Negative”

Above: Barbados (CJ Photo)

By the Caribbean Journal staff

Moody’s Investors Service has downgraded the government bond rating of Barbados to Ba3 from Ba1, the New York-based firm announced.

The two-notch downgrade reflected several key drivers, including the country’s “continued anemic economic growth with limited prospects for improvement,” “persistently large fiscal deficits,” “increasing government liquidity risk” and “rising external vulnerability due to a sharp decrease in foreign exchange reserves.”

Since 2007, the firm said, Barbados’ economic growth has averaged -0.3 percent annually, with zero growth in 2012.

“Even in the 10 years prior to the 2009 recession, GDP growth averaged just 2 percent annually, suggesting that the country’s growth potential is modest at best,” the firm said. “Moreover, the government’s new economic stimulus program is unlikely to yield significant improvement in growth prospects given the rising competitive pressures facing the country’s two main industries – tourism and off-shore business and financial services.”
So far this year, the country’s economy has contracted by 0.7 percent, according to Moody’s.

“The continued negative outlook on Barbados’s rating primarily incorporates Moody’s expectation that the government’s debt metrics are likely to continue to deteriorate,” the firm said, also pointing to factors including subdued growth prospects, increasing financing costs and pressures on the exchange rate peg.

Moody’s also said that the country’s well-publicized fiscal consolidation plan, which includes laying off around 3,000 public sector workers was “unlikely to reverse current trends in government debt indicators.”

The downgrade comes after Standard & Poor’s downgraded the country’s credit rating last month.