THE ISSUE: Rating ‘an opinion’
Wed, July 25, 2012 - 12:00 AM
Last Tuesday Standard & Poor's Ratings Services lowered its long-term foreign and local currency sovereign credit ratings on Barbados to BB+ from BBB- and its short-term ratings to B from A-3, with a stable outlook.
In a statement S&P said the downgrade reflected the rating agency’s opinion that Barbados’ economic fundamentals continue to weaken.
“We believe this weakening stems, in part, from rising competitive challenges and other structural factors that the Government can address only in the long term.
“In the short to medium terms, the difficult external environment will hamper the economic and investment outlooks.
S&P said erosion of the external or Government balance sheet could lead to pressure on the currency peg and if this were to occur, it would consider lowering its ratings on Barbados again.
Conversely, they would likely raise the ratings if the country’s economic prospects strengthen in a sustainable manner or if fiscal accounts show structural improvement.
Central Bank of Barbados Governor Dr DeLisle Worrell hit back, slamming the New York-based international rating agency’s downgrade as “unjustified” and lacking in “logic”.
“You downgrade people for things they do or have not done, not for things that happened to them,” he contended.
Saying the reasoning behind the downgrade was not logical, the island’s chief economic advisor was “surprised that there has been a downgrade at all because our strategy is an appropriate strategy to our circumstances”.
And while there was general apprehension across the island about what impact the downgrade would have on Barbados’ reputation in the investment world, Worrell was steadfast.
“We have got to have confidence in ourselves. How this economy does and how it goes depends on Barbadians.
“The strength of our policy is that so long as you protect your exchange rate, you have control of your policies and you decide what is appropriate for you,” he said.
The economy was stable, he said, the country was living within its means, inflows were sufficient to fund outflows, foreign exchange reserves were adequate, and the exchange rate anchor was secure.
Government has taken the rating from Standard & Poor’s in stride with most Government ministers who have spoken on the issue urging Barbadians to neither panic nor become uneasy about the announcement.
Indeed, prime Minister Freundel Stuart said last Friday he was not bothered by Standard & Poor’s (S&P) downgrade of Barbados’ credit rating to junk status, and he did not fee believe Barbadians should be either.
Reacting to the S&P announcement, Prime Minister Stuart said while he respected the international ratings agency’s opinion he did not agree with it, and it would change nothing.
“I am not perturbed by the expression of the opinion of the ratings agency,” he said.
“I just want to say to the people of Barbados that there is no cause for alarm. Understand that the rating agency expressed an opinion in the same way the Opposition party is expressing an opinion . . . . But Government has matters under control in the context of our plan to restructure the economy and to ensure that the quality of life of Barbadians is not impaired.”
Stuart pointed out that it was not the first time Barbados’ credit rating had been downgraded – in fact, occurring in better economic times – yet, according to him, “there was no hysteria then and there was no excitement such as we are seeing now”.
Parliamentary Representative for the City and Minister of State in the Ministry of Housing and lands, Patrick Todd said the Government was not fazed by the recent downgrade.
“When we had the issue of the international business sector and the threats to Barbados when we were in Opposition, we gave the Government of the time support in the interests of the country and we expect the Opposition now to be responsible and not drive fear into the hearts of Barbadians.
“We must be resilient and put Barbados first. Whether a general election is called this year or next year, we expect the Opposition to be mature and not try to gain points on the eve of an election,” he said.
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