HOUSTON, TEXAS (Dec. 19, 2013) – “The lowering of Standard & Poor’s (S&P) long-term rating for Barbados is of interest to us because of the possibility of wider consequences on the country’s economy,” asserted Melissa Marchand, publisher of Global News Matters, which produces the biweekly Market Dynamics Caribbean.
“This is the second time in four months S&P has lowered Barbados’ rating, this time from BB-plus to BB-minus, which is not a horrendous reduction, but we want to keep watching to see how the government’s moves might affect business and individuals in the country and beyond,” added Marchand.
She also noted the ratings organization, while lowering the ratings for Barbados, was quick to add “but stable” to its assessment of the country’s investment environment.
“The move reflects concern about the island’s ongoing current account deficit issues and high fiscal deficit due to a drop in revenues in the midst of a weak global economy,” Marchand noted.
“S&P projects that the government’s debt burden will increase to more than 70 percent of GDP [gross domestic product] during the current fiscal year, from 67 percent in 2012 and 60 percent in 2011, which does pose challenges for the government, which has to anticipate reduced national savings and perhaps interest rate rises.”
The financial crisis of 2008, she recalled, “caused an eruption in the debt levels of nonindustrialized nations like Barbados, which, when added to the S&P ratings reduction, can erode its credit worthiness, its image and the amount of money it will have to spend to get money.”
Marchand noted, “The downgrade comes at a time when the country is looking forward to huge investment inflows in projects like the cruise pier, Pierhead Marina, Four Seasons and the Cane Industry Restructuring Project.”
But she remains bullish about Barbados because of the measures it has taken to attract and maintain international investment. “For a start, the maximum tax on such investments is capped at 2.5 percent, and there are other exemptions for international business companies. Savvy investors, undeterred by the ratings downgrade, will find lots of sound opportunities in the services sector, which I believe will drive growth in Barbados,” Marchand said.
An encouraging development occurred in Barbados last month, reported Marchand, “when it took a long, hard and deep look at the value offered by public-private partnerships, which could help sustain an economic recovery in Barbados.”
The Caribbean Public/Private Partnerships (PPP) for Sustainable Growth Forum, which was hosted by Barbados in November, was significant, according to Marchand, because “it was the first of its kind in the Caribbean and because PPPs are seen by some as a key to Barbados’ return to financial growth, including Parliamentary Secretary in the Ministry of Finance Jepter Ince, who noted that the objective of reaching 4.5 percent growth by 2020 will have to be achieved in part through PPPs.”