Monday 26 October, 2020

Barbados credit rating improves

Standard & Poor's (S&P) has announced an improvement in Barbados' credit rating - moving the island's foreign currency ratings up six points. 

On December 11, the international credit rating agency raised Barbados' long- and short-term foreign currency ratings to 'B-/B' from 'SD/SD' and assigned 'B-' foreign currency issue rating to the foreign currency debt delivered in the exchange.

S& P explained the rationale for the rating improvement follows Barbados' foreign currency debt exchange, which has addressed the government's commercial U.S. dollar debt outstanding. 

Earlier this year government reached an agreement on its foreign debt, exchanging  approximately US$531 million in new 2029 bonds and US$32 million in past due interest bonds to holders of its U.S. dollar bonds that have been in default since 2018, of which approximately US$677 million, plus accrued interest, was outstanding. The exchange will apply to holders of Barbados' English law-governed U.S. dollar bonds, certain Barbados law-governed U.S. dollar bonds, and a U.S.-dollar loan agreement.

"Given this outcome, we believe that this exchange will be the final resolution of Barbados' foreign currency default that began in June 2018," S&P noted in a release. 

For the future, S&P said the outlook will remain stable owed to the "administration's strong mandate to implement broad fiscal and macroeconomic reforms". 

"We expect over the next 12-18 months the government will continue to implement policies that achieve fiscal consolidation and instil institutional safeguards, while strengthening macroeconomic stability."

S&P also issued caution to the Mottley-administration, telling them that failure to meet the fiscal and debt targets over the next year could derail investor confidence and if such does happen, the country could suffer a downgrade.  

"This outcome could place renewed pressure on the country's foreign exchange reserves and reduce funding sources. Under this scenario of diminished liquidity, we could lower the ratings. We could raise the ratings over the next year should the government adhere to its ambitious fiscal targets and reform agenda, which could strengthen investor confidence and contribute to improved GDP growth prospects."

Government is currently under an International Monetary Fund (IMF) agreement and earlier this year received a nod of approval for the implementation of its economic reform programme which is known as BERT- the Barbados Economic Recovery and Transformation programme.  

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