When big fat chickens come home to roost
Remember the $200 million Barbados borrowed for Cricket World Cup? Remember all those international loans in the last fifteen years? $20 million here for sugar, $30 million there for a housing study, $40 million for alternative energy, $100 million for a sewerage treatment plant that was never built, and on and on and on and on. Remember all that?
Remember the mismanaged big and small projects where the costs ended up in the stratosphere? Remember Dodds Prison, the gazillion dollar washroom built by Liz Thompson’s husband, $100 million for a useless dump at Greenland?
Remember all that and so much much more? What do we have to show for it all now?
We’ve got nothing to show for it, except a huge debt chicken that just came home to roost.
Standard and Poor’s downgrades Barbados to BB+/B
Central Bank Governor Dr Delisle Worrell is all upset in the papers that Standard and Poor’s doesn’t see the economic outlook the way that he does. That’s him above in the “No Hope and No spare change” poster.
Worrell says that S&P has it wrong and that their decision to downgrade our investment rating to junk status is not based upon the facts. Then Worrell makes a statement that is so outrageous that we have to wonder if he wasn’t doing some crack cocaine before the press conference. He said…
Worrell said that Barbados was in control of its own affairs “precisely because we manage and we live within our means.”
He summed up the performance and prospects of the Barbadian society, noting that the economy was stable and that “we are living within our means.”
… from The Nation Governor surprised by downgrade
“Living within our means” ? !!!
When did this “Living within our means” start? Yesterday? Under both the DLP and the BLP it has been a continuous orgy of borrowing and spending for at least 15 years… and for all the money we borrowed our priorities were cricket parties and fancy consulates. We didn’t use the money to build infrastructure or even maintain the old infrastructure to acceptable standards.
Instead, we spent insanely on outrageous social ideas like two million dollars on lawn tools to put ‘the boys on the block’ into business. Yup, that worked out just like everybody knew it would. Just like when Owen Arthur made Barbados ‘partner’ with Nigeria to build solar water heaters. Nigeria? What was the man thinking? What did Arthur the economist think was going to happen when Barbados ‘invested’ a couple of million on a Nigerian business deal? Then nobody changed the oil in the buses – we’d much rather replace entire engines than change oil! That’s the workplace culture fostered under our glorious Owen Arthur leadership.
The man should get down on his hands and knees and beg forgiveness for the debt he left this country in – and how he and his government squandered the good years.
But Goin’ wit Owen did okay. Any politician who can give away US$150,000 to a cricket charity must be doing okay. I couldn’t come up with five thousand dollars cash to save my life, but our dear leader writes a cheque for US$150,000 to a cricket charity and thinks that the public will perceive that as evidence he’s a great guy. That is how out of touch the man was and is.
As for Finance Minister Christopher Sinckler…
Here is what our current finance minister told The Barbados Advocate:
(Sinckler) added that Barbados’ movement from a high grade to junk didn’t occur over night. “Indeed the record will show that as a country we have registered consistent downgrades over the past 15 years or just as many coming when times were good. This suggests to any fairminded observer that more than a decade of deep structural deficits, an unstructured and undiversified economy and overreliance on consumerism rather than productivity and innovation have caught up with us.”
from the Barbados Advocate article Finance Minister calls for focus
That’s all well and good Mr. Sinckler, but you didn’t mention how Standard and Poor’s says that the CLICO mess was a major factor in the downgrade because it sent our liabilities into outer space. And we all know how David Thompson and the DLP Government let that situation happen. CLICO is more future debt that we can’t quantify at the moment.
And that brings us back to this debt chicken that just came home to roost. That chicken has been getting big and fat for a long long time as our leaders made short term decisions for short term political and personal agendas.
Standard and Poor’s just announced they have had enough of that kind of leadership ’bout this place… but for the life of me I don’t see anyone except Dees and Bees lining up for the next election.
S&P cuts Barbados ratings to ‘BB+/B’ from ‘BBB-/A-3’
Tue Jul 17, 2012 12:53pm EDT
— In our view, the economic fundamentals of Barbados continue to weaken, reflecting not only the external environment but also more pronounced competitiveness and other structural shortcomings; we believe that the fiscal stance remains weak, as seen in the rising debt burden, off-budget spending, and outstanding contingent liabilities.
— As a result, we have lowered our sovereign credit ratings on Barbados to ‘BB+/B’ from ‘BBB-/A-3’.
— We have also assigned a recovery rating of ‘3’ to Barbados’s foreign-currency debt, which reflects our assessment of meaningful recovery (50%-70%) in the event of a sovereign default.
— The stable outlook reflects our view that at this lower rating, the sovereign has some room to absorb possible mild fiscal deterioration and weak economic growth in the near term without affecting its creditworthiness.
On July 17, 2012, Standard & Poor’s Ratings Services lowered its long-term foreign- and local-currency sovereign credit ratings on Barbados to ‘BB+’ from ‘BBB-‘. At the same time, Standard & Poor’s lowered the short-term ratings to ‘B’ from ‘A-3’. The outlook is stable.
Standard & Poor’s has also assigned to Barbados’s foreign-currency debt a recovery rating of ‘3’, and it has revised the transfer and convertibility assessment to ‘BBB-‘ from ‘BBB’.
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.
Barbados is slowly recovering from the severe impact that the global downturn had on the country’s narrow and open economy. Results for the first half of 2012 attest to some mild pick-up in economic activity, and Standard & Poor’s projects real GDP per capita growth of 0.3% for 2012, up marginally from 2011 but substantially below the growth rates before the 2009 downturn.
We expect slightly higher per capita growth of 0.6% in 2013, supported by tourism and construction (driven by the private and public sectors), subsequently moving to about 2%.
With slow recovery, unemployment will likely remain high, peaking at 11.8% in 2012. The main pillars of the Barbadian economy (the tourism and financial sectors) are affected by the persistently difficult external
environment. In tourism, we see continued softness in Barbados’s main markets: the U.S. and the U.K. Nevertheless, some foreign investment in the sector continues, and new sites are being developed. Although the recent approval of IADB financing for the Four Seasons project fulfills one of the conditions for the restart of this important investment, the support of other investors and the timeliness of the project are still uncertain. In international business and financial services, competition is rising, especially from jurisdictions that recently secured tax agreements with Canada. Despite new tax incentives passed in Barbados’s 2012 budget, the recent trend in this sector is of concern, especially given that tax revenues from this sector account for roughly half of corporate tax collection.
In light of a weak economic performance and outlook, the government is focusing on more effective fiscal management. Its efforts are most pronounced on the revenue side. The measures included raising the value-added tax, eliminating tax-free allowances for travel and entertainment, increasing the gasoline excise tax, and hiking other fees. On the spending side, wage growth in nominal terms has been minimal (and negative in real terms), and capital spending has been cut. However, efforts in reducing high transfers and subsidies (especially to statutory bodies) have been less successful, and this financing was shifted (in 2011) to the National Insurance Scheme (NIS).
Including NIS surpluses (estimated at 2.6% of GDP in 2011), the general government deficit narrowed to 4% of GDP last calendar year from 5% in 2010. The change in net general government debt (which includes off-budget spending by NIS) implies a higher deficit of about 7.5% of GDP last year (a deterioration from 5.8% in 2010), and it is forecasted to come down to 4% of GDP this year and 2.9% in 2013.
Barbados’s fiscal deficit was officially reported at 4.6% of GDP as of March 31, 2012, down from 9.1% a year earlier. Although the government’s achieved results are ahead of its 5.6% medium-term fiscal strategy target, we believe the fiscal stance remains weak, with ongoing risks to continued fiscal consolidation. They include a sluggish outlook in the main economic sectors of Barbados, continuously weak private-sector activity, high unemployment, potential spending pressures (stemming from the political cycle, three consecutive years of real decline in wages, and significant cuts in capital spending), and costs related to resolution of CLICO. In addition, transfers to public enterprises began to rise again in the first half of fiscal 2012.
Net general government debt (excluding NIS holding of government paper, NIS liquid assets, and government liquid assets) is forecasted to rise to 62% of GDP in 2012, up from 60% in 2011 and 55% in 2010. Assuming a gradual lowering of fiscal deficits, net general government debt is projected to come down to 58% of GDP by 2015. This trajectory is prone to many downside risks. However, debt management continues to benefit from various factors: 70% of central government outstanding debt is in local currency, and about 30% of external debt is due to multilaterals.
Several factors continue to support the ratings on Barbados. These include the strength of the social contract among the government, trade unions, and the private sector; political stability; strong institutions; and
the government’s ongoing commitment to reduce fiscal deficits and closely monitor the fiscal and external risks.
The recovery rating on Barbados’s foreign-currency debt is ‘3’, indicating our view that post-default recovery would likely be approximately 50%-70%. The recovery analysis assumes a default stemming from rising
difficulties in accessing fiscal and external funding at a reasonable cost, possibly including a sharp adjustment in the country’s exchange rate.
The stable outlook hinges on our expectations that gradual fiscal adjustment will continue, stabilizing the government debt burden, and that foreign direct investment will fund at least 60% of the current account deficit. Erosion of the external or government balance sheet could lead to pressure on the currency peg. If this were to occur, we would consider lowering our ratings on Barbados again. Conversely, we would likely raise the ratings if the country’s economic prospects strengthen in a sustainable manner or if fiscal accounts show structural improvement.
Related Criteria And Research
— Sovereign Government Rating Methodology And Assumptions, June 30, 2011.
Sovereign Credit Rating BB+/Stable/B BBB-/Negative/A-3
Senior Unsecured BB+ BBB-
Recovery Rating 3
Transfer & Convertibility Assessment BBB- BBB
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at http://www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor’s public Web site at http://www.standardandpoors.com. Use the Ratings search box located in the left column.