Credit Downgrade Puts Barbados on the Financial Defensive

Barbados is reportedly seeking financial help from International Monitory Fund (IMF) and other foreign funds after Moody’s downgraded its government bond ratings by three notch from Ba3 to B3 earlier this month.

According to Reuters, Geoffrey Bell and Company, a longtime financial advisor to the Caribbean country, has organized a series of meeting for government officials with investors in London and New York.

But analysts say Moody’s action leaves Barbados with little or no option to access international private capital that it is badly in need of to turn the economy around.

The rating agency stated that the Caribbean country’s increasing size of the fiscal deficit, which exceeded 11% of GDP in FY 2013/14, declining dollar reserve and increased short-term borrowing led it downgrade rating.

“The (economic) outlook remains negative,” said Moody’s in a statement.

Moody’s has also said that it expects further decline in the country’s dollar reserves this year, due to the widening current account deficit and weaker private sector inflows.

The island’s deteriorating fiscal health and low growth rate have long been a concern, say analysts, adding that the downgrade was expected.

“With international reserves of US$690m as of the end of March, Barbados can comfortably meet interest and principal payments worth some US$106m this year,” says Reuters report.

At the meeting, due this week, the IMF and other investors are likely to demand that government restructure its debt repayments and cut public spending.

Barbados reported a deficit of over 11% of GDP for fiscal 2013/14, while interest payments now absorb 30% of government revenue, according to Moody’s.

Barbados’ rating would experience further downward pressure if it becomes clear that the government faces a trade-off between debt servicing and maintaining the currency peg, given past evidence of the central bank’s financing of the fiscal deficit, the ratings agency warned.