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    July 05

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KRYSTLE CLEAR: What do credit ratings mean for you?

KRYSTLE HOWELL,

Added 17 December 2019

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Standard & Poor’s (S&P) recently upgraded Barbados’ foreign currency sovereign credit rating from ‘SD/SD to ‘B-B’. While it is certainly good news that we are no longer trending in the wrong direction, any celebration should come with a measured optimism as this rating represents a movement in the right direction with conditions.

S&P and other rating agencies such as Moody’s and Fitch have several credit rating codes and classes.

credit-ratings

As can be seen from the chart below, although we have moved up several classes from our previous default position, we are still classified as highly speculative, non-investment grade. We would also need to climb another six classes before we can be considered investment grade again.

 

 

 

 

 

 

 

 

 

So, what does this really mean?

A credit rating is an informed opinion about a country’s credit worthiness and signals to investors the likelihood that a country will be able to repay its debts. The lower the rating, the higher the interest rate the country will receive to compensate the investor for taking on this additional risk.

However, that higher interest rate and debt servicing has severe consequences for its citizens. With so much of the income earned going to service debt, it leaves little else for capital investment and growth, or funds to pay expenses and subsidies. The decay in these services has a real effect on its citizens which we have all felt for the last several years.

As daunting as this sounds, I still believe that we have the capacity and capability to achieve an investment grade as we have done before. We have the benefit of building on our past mistakes to forge ahead better and stronger. If we continue to do the right things, invest wisely and listen to the right advisors, we can continue our upward trajectory.

One of the critical components to reaching this goal is to change the mindset that our Members of Parliament alone are responsible for restoring our ratings. Indeed, they do have an extremely critical role that cannot be ignored, and we have experienced the damage that can be caused when a Parliamentarian does not fully engage in their role. A Parliamentarian sets the tone and strategy for their Ministry and has the difficult and unenviable task of motivating and energising.

However, it is those very people that must execute the plan and get the work done. It is the full cooperation of those in the public and private sector that will mobilise this country and help us to stay on course.

I was having a conversation with a friend about a message from the Prime Minister appealing to citizens to play their role. His fear was that this message fell on deaf ears. A story that he had previously shared came to mind where he lamented about animals dragging garbage through the streets and for days, no one tried to clean the mess but spent a great deal of time complaining about the stench.

We both wondered how it would be possible to motivate people to do more for their society when it was already difficult to motivate them to do something that would directly benefit themselves.

How would it be possible to change the cultural mindset of persons waiting for someone else to put in the work so that their only role would be to benefit from someone else’s efforts, often times, with that person receiving little or no recognition for the efforts made?

We have experienced and are still experiencing the reality of life with a default rating. Many of the things that we demand and have come to expect as were denied due to poor controls and wastage, which resulted in unmanageable debt. There was no money for buses, garbage trucks, sports programmes, proper subsidies for our hospital and the list goes on.

The work performed by the various Finance Ministers should not be scoffed at. Indeed, to have made this achievement in such a short space of time is impressive. Unfortunately, the work has only now begun and to ensure that their efforts will not be squandered, every other Minister, business and citizen has to recognise that the idea of waiting for someone else to do the work, for someone else to pull the collective weight, the mindset that your individual contribution has no meaning and therefore no impact on the state of our society, this mindset is one that we all have to work towards changing.

If we take a critical look at ourselves and know that we are not giving of our best, that there is room for improvement. Hopefully, this message will motivate you to realise that your contribution matters.

From the business professional, to the nurses, teachers, lawyers, mason, artist, every profession has a critical role in the success we will realize as a country.

*Krystle Howell, CPA, CIA, COSO, ALMI, ACS, aka Mavis, is an Internal Auditor by profession, avid artist and a lover of dance.

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