Barbados’ credit good despite COVID-19
By George Alleyne
In spite of ravages to business
and commerce caused by the
Novel Coronavirus (COVID-19)
pandemic Barbados has managed
to maintain a stable credit status
of ‘B-/B’ with international rating
agency, Standard and Poor’s.
S&P last week gave Barbados
this positive international credit
outlook because the counrty’s
administrators have been re-paying
the island’s worldwide debt on
time despite the rapid spread of the
virus that saw a total shutdown
of tourism, the island’s bread and
butter industry, along with most
other businesses.
S&P, the New York-based international
financing authority, last
December upgraded Barbados
from Selective Default to its current
rating, marking the first rating
upgrade for the island in some
10-plus years.
On assuming office following
the May 2018 elections the
new Mia Mottely-led government
immediately froze large international
debt payments and commenced
renegotiations with lenders
that ended in an agreement
for different repayment conditions,
which are more favorable to Barbados.
By successfully moving the past
and future repayment deadlines to
dates of 2021 through 2029, and
through introduction of amortization
Caribbean L 16 ife, May 29-June 4, 2020
conditions — spreading
loan reimbursement periods over
a number of set bi-annual dates
instead of lump sum settlements
— the current government gave
itself financial room to manoeuvre
and gained significant savings.
Additional savings were
obtained through agreement with
these international creditors to
shave interest rates, resulting in
what junior Minister of Finance,
Ryan Straughn said will amount
to $2.5 saved over the next four
years.
But attaining a stable rating
amid the coronavirus-spurred economic
turbulence does not mean
that Barbados will not be affected.
“We expect the sharp contraction
in tourism in 2020, together
with the spillover of COVID-19 to
other sectors in the economy, will
lead to a significant fall in Barbados’
GDP,” S& P stated.
“Under our base case, we expect
the economy will shrink by about
17 percent in 2020, leading GDP per
capita to fall to about US$15,000 in
2020 from an estimated US$18,100
in 2019.”
In the eyes of S&P the redeeming
factor or Barbados is the early
debt rescheduling moves government
made that positioned the
island to enter the pandemic outbreak,
“in a stronger fiscal and
external position than it had been
before its debt exchanges in 2018
and 2019, which will facilitate its
ability to weather the economic
impact.”
In spite of inheriting a virtually
broke treasury the new Barbados
government acquired money to
shore-up reserves through very
low interest loans, $290 million,
from the International Monetary
Fund, based on a plan to restructure
and revive the island’s economy,
Barbados Economic Recovery
and Transformation program.
Additionally, Barbados negotiated
and received $300 million
in concessionary loans from the
Inter-American Development
Bank and the Caribbean Development
Bank combined.
S&P noted that these soft
loans and economic restructuring
moved the Central Bank’s reserves
to US$740 million at the end of
2019, “and will likely surpass
US$800 million with the disbursement
of the new US$80 million
IDB loan, which is the highest
level of international reserves in
over a decade.”
In May 2018 the reserves stood
dangerously low at $200 million.
“We believe that this reserve
foundation, which we expect will
be further supported by additional
multilateral lending facilities this
year, will serve as a solid base on
which to draw to fund higher current
account deficits expected in
2020.”
Junior Minister of Finance, Ryan Straughn.
Photo by George Alleyne
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