BRIDGETOWN, Barbados, June 7, 2018 (CMC) – International credit rating agency, Standard and Poor’s (S&P), has lowered the island’s long term, foreign currency rating to “selective default”.
The credit downgrade follows a recent announcement by Prime Minister, Mia Mottley, that her administration was suspending foreign debt service payments and seeking to make interest payments on its domestic debt, while negotiating a restructuring agreement with domestic creditors.
As a result, Barbados failed to make an interest payment that was due on June 5, on its 6.625 percent notes due by 2035, and “we do not expect such a payment to be made”, S&P said.
“We also believe that Barbados will fail to pay its other outstanding external debt obligations, as they come due, while it negotiates a restructuring agreement with external creditors,” S&P said in announcing its decision to reduce the island’s long-term foreign currency sovereign credit rating to selective default, down from ‘CCC+’ and its long-term local currency rating to ‘CC’ from ‘CCC’.
“We are also lowering our long-term foreign currency issue rating on Barbados’ 2035 notes to ‘D’ from ‘CCC+’,” the US based agency said.
S&P also announced that “another four long-term foreign currency issue ratings and the local currency sovereign issuer credit and issue ratings are on CreditWatch negative, reflecting our view that the sovereign could miss payments on its foreign and local currency debt, within the next three months”.
The agency also warned that it could lower the local currency sovereign issuer credit rating to selective default, if Barbados fails to make debt service payments on its local currency debt or executes an exchange with bondholders.
S&P noted that the government has been forced to turn to the International Monetary Fund (IMF) for balance of payments support, with a team from the Washington-based financial institution currently on the island for talks with key stakeholders.
The agency said although IMF financial support should strengthen the country’s external position, it is concerned that Barbados’ usable reserves have been negative since 2013, and the position continues to deteriorate, in part because of the Central Bank’s historical deficit financing, which has expanded the monetary base in the past.