“Countries with low ratings, including Barbados, are shunned and as a result attract high borrowing rates from financial markets. This phenomenon worsens a country’s fiscal position as higher interest rates eat up more of national revenues that would otherwise be available for expenditure on social services, infrastructure, health and education etc.
The important observation by S&P is that Barbados’s problems are not solely related to the very weak global economy.”
… Peter S. Boos talks about how the rest of the world sees Barbados
In BFP’s recent article Debt Tsunami drowning Barbados: Standard and Poor’s downgrades to junk status we zeroed in on the fact that Standard & Poors’ downgrade of Barbados specifically mentioned the government’s ill-advised raiding of the NIS National Insurance Scheme to carry portions of the national debt burden. We also talked about the impact of the CLICO collapse on the national economy and debt. These decisions by the current government of Barbados seem rather unwise to us… but what do we know? We’re only the poor citizens who have to carry the burden created by our leaders.
It seems though that others recognize the folly of the decisions by the DLP government. Listen to what Peter Boos has to say, and what Standard & Poors’ thinks of the decisions of the Barbados government…
In his writings for the last year or thereabouts, Peter Boos is appalled that the Barbados government should use monies from the NIS to prop up a failed Four Seasons project.
Lest we forget, the reason that the Four Seasons project collapsed in mid-building is that private money does not see it as a winner. Private money ran from the Four Seasons – and that is a clue about the project’s viability. Of course, the politicians do not have the same accountability as the private markets: they can always BS their way to re-election while the real world lives or dies on actual performance.
Standard and Poors’ were also appalled by the rape of NIS funds and by the CLICO fiasco that added immeasurably to our national debt. We don’t even know how much the final bill will be! As we’ve said before it’s a good thing for David Thompson’s legacy that he died and therefore can’t be prosecuted for his personal role in the CLICO mess.
Not that Barbados has ever prosecuted any politician for conflicts of interest or profiteering from a government position.
The whole thing stinks, and Peter Boos explains some of the reasons for the smell in his latest at Barbados Today. You should read the article online at Barbados Today, but we have to print the whole thing because of the Bajan news media’s habit of revising history to suit political agendas.
Here we go…
A blow to our reputation
The recent S&P downgrade of Barbados is extremely damaging to Barbados and its hard earned reputation as a well managed economy.
Countries in the top tier of economic management with high investment grade Sovereign Credit Ratings (provided by S&P, Moody’s, Fitch etc) attract the greatest interest from investors, the ultimate source of wealth creation.
Countries with low ratings, including Barbados, are shunned and as a result attract high borrowing rates from financial markets. This phenomenon worsens a country’s fiscal position as higher interest rates eat up more of national revenues that would otherwise be available for expenditure on social services, infrastructure, health and education etc.
The important observation by S&P is that Barbados’s problems are not solely related to the very weak global economy.
To quote S&P: The downgrade reflects our opinion that Barbados’s economic fundamentals continue to weaken. We believe this weakening stems, in part, from rising competitive challenges and other structural factors that the government can address only in the long term. In the short to medium terms, the difficult external environment will hamper the economic and investment outlooks. The resulting lower economic growth will hurt Barbados’s fiscal and external accounts and will likely lead to further debt accumulation. Moreover, in our opinion, despite the government’s focused efforts to bring down fiscal deficits, the fiscal stance remains qualitatively weak, as rising debt, off-budget spending, and contingent liabilities (in particular, CLICO) demonstrate.
As with individuals, reputation (your brand), is everything. Barbados has now been relegated to the third division in football parlance. Fewer will want to extend credit to us and those that do will ask a higher price. We must all keep a close look out now for the sharks that swim in such murky waters with promises of pots of gold. There are some memorable recent examples.
Unless we focus on tackling the long term structural changes we must make to be globally competitive, Barbados will continue to decline, unemployment will rise, investors will look elsewhere (as some are already), we will see a flight of human and financial capital and social instability will ensue.At some point too, this lack of confidence will translate into pressure on our exchange rate.
The role of the Barbados Central Bank in all of this is important. That institution must be credible and seen to be independent of political interference.
For some time now the NIS funds have been used inappropriately by Government to fund recurring expenditures. Both the IMF and S&P have alluded to this in recent reports.
The S&P downgrade will only encourage Government to borrow even more from the NIS to pay its bills at artificial rates unobtainable in the financial markets.
This is bad policy and is unsustainable.
The NIS fund is a fiduciary fund and should be managed independently of politicians by professional investment managers appointed on behalf of the Fund’s beneficiaries i.e. the contributors to the fund and in compliance with appropriate investment guidelines.
The Social Partnership of Barbados and other key stakeholders, NGOs, the Opposition etc. should consider this a priority pillar of future confidence and stability.
– Peter N. Boos FCA