JUST SHORT OF a week after Standard & Poor’s lowered its long-term foreign and local currency sovereign credit ratings on Barbados, Moody’s Investors Service, has followed suit.
Today Moody’s revised the island’s government bond and issuer ratings to Caa3 but maintained a stable outlook.
The ratings agency said its decision was based on the continued increase in government debt, very limited prospects of fiscal reform and the resulting “rising domestic and external financing pressures that are very likely to impair the government’s ability to service its debt”.
“Despite the government’s efforts to contain the fiscal deficit and alleviate pressures on foreign exchange reserves, the fiscal deficit remains large and credit risks have increased in Barbados.
The debt burden has risen in recent years and will continue to do so for the next few. Domestic and external liquidity pressures on the sovereign have increased. We assess the likelihood of a credit event in the near-term as very high, given lack of fiscal adjustment and increasingly limited financing options,’ Moody’s said.
The agency said its stable outlook on the rating “reflects the high probability of a credit event in the next two to three years, and reflects a balance of risks between lower and higher levels of loss given default”
Moody’s said upward pressure on the rating could build if the government initiates a credible fiscal consolidation program to arrest the rise in debt-to-GDP ratio and put debt on a sustainable downward trajectory.
It pointed out that these developments would likely be accompanied by reduced reliance on short-term debt and financing from the central bank, and a rebound in international reserves. (NB)
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