Comment by Governor of the Central Bank on the Recent Downgrade of Barbados’ Credit Rating
The recent downgrade of Barbados’ long-term foreign currency sovereign credit rating by Standard and Poors from BBB+ with a negative outlook to BBB with a stable outlook is a development which has affected many countries both developed and developing over the past several months. While it is not a positive development, Barbados is not alone in being downgraded. This has afflicted corporations, institutions, securities and emerging market economies.
It still leaves Barbados squarely in investment grade category, an important factor in the international credit markets. It may add some costs to any future market borrowing which we undertake and could exclude some investors whose investment guidelines prescribe BBB+ or higher, but this should not affect many investors, particularly in this environment.
It is noteworthy that Standard and Poors quotes Barbados’ record of prudent policy making, suggesting that there is optimism about Barbados’ ability to withstand the difficult times. This view is shared by the authorities and by most investors. The challenge is on the fiscal side since our debt ratios have risen. However, much of the country’s debt is owned by the National Insurance Board so that the net exposure is substantially lower than appears.
Barbados is fortunate that it entered this difficult period in a relatively strong position and the downgrade is not expected to undermine confidence in the economy, since it is occurring at a time when many countries around us are experiencing the same difficulties and the global economy is in recession. However, it will be important going forward that we make the right decisions and act prudently, so as to minimize the impact of the recession and to position ourselves to capitalize on the upturn when it occurs. We have seen some positive signs, for example, our revised numbers for the first quarter show a surplus on the current account of the balance of payments and the fiscal deficit in the first quarter was virtually unchanged from the corresponding period a year ago.
The downgrade is not a desirable development, and suggests care going forward, but given the present global environment, it is not worrisome, particularly since Barbados remains an investment grade sovereign.
June 11, 2009