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Standard & Poor’s Downgrades Barbados

BRIDGETOWN, Barbados, CMC – The United States-based Standard & Poor’s has revised its outlook on its long-term rating on Barbados to negative from stable and at the same time affirmed its ‘BB+’ long-term and ‘B’ short-term sovereign credit ratings for the island that has “fallen back into recession”.

It said the outlook revision reflects the potential for a downgrade if the wider fiscal deficit is not reversed or if external pressures associated with persistent current account deficits mount.

The net general government debt burden is expected to rise to above 70 percent of gross domestic Product (GDP) this fiscal year from 67 percent last year and 60 percent in fiscal 2011.

The international rating agency said Barbados uses more than 13 percent of general government revenues to pay interest on its debt and that the “economic fundamentals continue to weaken, reflecting not only the tough global economy, but also competitiveness and other structural shortcomings. “Barbados’ narrow and open economy continues to suffer from the 2008 global financial crisis. Results for the first half of 2013 show that Barbados has fallen back into recession after a very weak recovery in 2010-2012, with average annual real GDP growth of just 0.4 percent in those years.”

Standard & Poor’s said it expects a real GDP decline of about 0.5 percent this year and a slow recovery in 2014-2015 thanks to tourism and construction in both the private and public sectors.

“With a slow recovery, unemployment will likely remain high, after reaching 11.8 percent in 2012. The government’s large fiscal deficits and high debt burden, as well as its limited fiscal flexibility and reliance on external financing, constrain the ratings.

“However, the country has a stable, predictable, and mature political system, which benefits from consensus on major economic and social issues, including support from the private sector and trade unions for the government’s ongoing fiscal and structural adjustment program”.

Meanwhile, Finance and Economic Affairs Minister Chris Sinckler says the Freundel Stuart administration has no plans to increase Vale Added Tax (VAT) as a means of increasing revenue.

There has been speculation that the government would hike the VAT from 17.5 to 21 percent, but Sinckler, flanked by Tourism and International Transport Richard Sealy, told reporters that the rumour is not true.

“Now I know it is popular…for a lot of what I call ‘old talk’ and ‘common talk’ to be going around. The latest is that VAT is going to be increased to 21 percent and all of these things other people like to fascinate themselves on.”

Sinckler said that most of the rumour is being driven by the opposition insisting “I can tell you no such thing is the case.

“(I want) Barbadians to just settle themselves. We are hard at work…we are not just lying down and playing dead. We are working very hard to put together a comprehensive program.”

He said the government has just put out the Draft Medium Term Growth and Development Strategy for public discourse.

“The economists are having their fun time speaking about all that is happening in the economy and that plan and that is what we wanted to have happen. That is what I said in the Estimates has to happen before we come to the country with a full package – there must be a discourse.

“The discourse is taking place. I am listening to it very patiently and quietly and I will intervene at the appropriate time to outline the Government’s full and overall strategy going forward – both for our fiscal program and equally as well for the growth part of the program, which is for me the most important element of our strategy,” Sinckler said.

Sealy has outlined a 10-point tourism and hospitality plan he said would turn around the sector. It will be implemented over the next several weeks.

“It is no secret that the Caribbean region continues to face declines with respect to arrivals and, for that matter, spend. Conditions in our source markets are not as optimistic as we would like. The reality is that the euro-zone remains in a mess, the UK economy is still sluggish and the USA is making access very slow progress.

“Canada, that has been so well for us over a number of years, has plateaued for all intents and purposes and Brazil, where we have been focusing recently, is also dealing with economic stagnation as well. So the reality is that we are indeed in some challenging times,” Sealy said.

He told reporters that the government has come up with a number of initiatives that he thinks “can certainly help to rescue the situation somewhat, and in my view, also will put us on course for improvement as we come out of this period”.

The 10 point plan includes the provision of a BDS$10 million (One Barbados dollar=US$0.50 cents) window for the retrofitting of air conditioning and lighting systems in the tourism and hospitality sector as part of a BDS$150 million Energy Efficiency and Hotel Refurbishment Fund.

The government also intends extending the existing 50 percent Land Tax Rebate for investment in Renewable Energy to Tourism and Hospitality entities that implement credible energy efficiency programs, which will be assessed by the Energy Division.

Sealy said this rebate will be provided under the Renewable Energy Bill to be laid in the House of Assembly before the end of this month.

In addition, for the next 12 months, tourism and hospitality related entities will be entitled to an electricity rebate of five percent of their electricity costs.

The government said entities that implement a credible energy efficiency plan and/or invest in energy from renewable sources will enjoy the rebate on an on-going basis; while the rebate will end after twelve months for entities that do not make such investments.

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