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S&P offers dim outlook for region


Tony Best

S&P offers  dim outlook  for region

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“Generally, negative.”
And that included Barbados and The Bahamas as Standard & Poor’s, a major global credit rating firm on Wall Street, summarized the economic picture of the English-, Spanish- and Dutch-speaking nations and territories of the Caribbean.
With Barbados’ economy sliding back into a recession and its international reserves falling, Jamaica in the early stages of a fiscal programme with the International Monetary Fund, Grenada in default on its debt, Trinidad and Tobago’s economy is among the few in the region with a healthy, although not robust economy.
Asked about the general performance of the economies of Barbados and its neighbours, Joydeep Mukherji, a senior S&P economic analyst for the Caribbean and Latin America, told BARBADOS BUSINESS AUTHORITY
“it has been generally negative”.
In a special report on economic growth and creditworthiness in the Western Hemisphere, S&P didn’t sketch a bright outlook for the Caribbean’s economic prospects.
“Credit trends have been negative in the Caribbean region, with several recent downgrades and negative outlooks,” said Mukherji.
“The region has suffered in recent times from a combination of weak tourism earnings, high commodity prices (as most Caribbean countries are net importers of commodities, especially oil), and rising government debt.”
Selective default
S&P pinpointed Jamaica, explaining that it had undertaken a debt exchange in early 2013, “leading us to lower the rating to SD [selective default] before subsequently assigning a new rating on the restructured debt. As for Belize, it also emerged from SD early this year, following its default in August of 2012. We lowered the rate on Grenada to SD in March of 2013”. Trinidad’s sovereign credit rating of A is the highest in the region.
Here then are S&P’s snapshots of the various countries.
Aruba: prosperous economy with a per capita income (gross Domestic Product) of US$23 000, a strong government balance sheet and a high level of social development. However, its economy is being hampered by high fiscal deficits and a larger debt burden. Its economy may grow by two per cent this year, largely because of consumption.”
Bahamas: a track record of macroeconomic and political stability as well as a high per capita income, it has seen a rise in its debt and deficits. “Growth in the Bahamas continues to be lackluster and the government’s fiscal position remains weak.” The economy is expected to grow by about two per cent in 2013 and 2.5 per cent next year.
Barbados: “Strong governance” reflecting “mature political, judicial and economic institutions.” The island-nation is blessed with large surpluses at the National Insurance Scheme that provide “flexibility to fiscal accounts.” But it has “limited fiscal policy options”, vulnerable fiscal revenues, ongoing spending pressures and rising debt. Its economy has slipped into recession and its fiscal position has deteriorated mainly due to a drop in tax revenues. International reserves have declined steadily.
Belize: high external debt and weak external liquidity; suffers from weak political institutions and debt-management history; and has “limited medium term prospects, hindered by a weak educational system”.
Bermuda: benefits from a “strong political and economic profile, although the latter has been weakening”, but it has no monetary flexibility.
Curaçao: a prosperous economy with a per capita income of US$22 000 and a strong government balance sheet despite fiscal slippage. Two major weaknesses are its low per capita growth over the last ten years and “limited monetary and external flexibility”.
Dominican Republic: a strong feature is its high level of economic development and a “more diversified economy than many of its peers’”. It has “solid growth and export prospects, propelled by high” foreign direct investments. However, it suffers from weak institutions and too much politicization of its decision-making which diminishes policy predictability and efficiency.
There are structural weaknesses that hurt fiscal accounts, real economy and monetary policy.
Grenada: major weaknesses run the gamut from “stagnant economic growth, limited forward growth prospects, one of the highest ratios of public debt among emerging market countries and large structural current account deficits to significant natural disaster risks from hurricanes.
Jamaica: benefits from its political stability and stands to reap rewards from a political commitment to run large fiscal primary surpluses. But it is suffering significantly from the weight of “high general government debt burden”, a weak record of economic growth poor growth prospects and “limited external liquidity”.
Jamaica’s ability to service debt remains vulnerable to sharp fluctuations in its exchange rate.
Montserrat: “Strong institutional and budgetary support” from Britain and the European Union are pluses but its institutional capacity and human capital are being constrained. Its infrastructure limits private sector growth. Then there are the risks from volcanic eruptions and hurricanes.
Suriname: blessed with “favourable” medium-term economic growth prospects stemming from strong foreign investor interest and an improving debt profile. But it is being hampered by a structurally inefficient public sector-dominated economy which is narrow and vulnerable to adverse external developments.
Trinidad and Tobago: has a number of things going for it. Low government debt, “limited external vulnerability and a “net external asset position”. A potential problem is its “high dependence on the energy sector” and the slow pace of reform, not to mention implementation of economic policies, which could lead to greater vulnerability to external risks”.

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