International agency lowers Barbados’ rating

A major international credit rating agency has lowered Barbados’ credit rating to the brink of junk territory.



The Wall Street-based Standard & Poor's Ratings Services (S&P) lowered the island’s rating one notch to the lowest investment grade of “BBB-minus,” forecasting that its debt burden will increase at least in the next two years.



The ratings agency said the higher debt will occur because of delays in the government's fiscal-consolidation efforts and a slower-than-expected economic recovery.



S&P said fiscal consolidation has proven more difficult and protracted than was originally expected when the government unveiled efforts in March to reduce fiscal deficits and reach a balanced budget by 2014.



“The downgrade reflects the continuing weakening of the government's fiscal profile,” said S&P in a statement, adding that the rating carries a “stable” outlook.



“In addition, there is an increasing risk that delays in the fiscal consolidation might lead to debt surpassing currently projected peak (61 percent of gross domestic product on a net general government level and 102 percent on a gross central government level) in 2012.”



It said that while tourism is critical to Barbados’ economic growth, the US recession has reduced business and leisure travel, leading to an increasingly pessimistic view.



In addition, Standard and Poor’s said while some factors leading to the poor fiscal outcome this year are cyclical and should improve with the economic rebound expected next year, other weaknesses--such as large and difficult-to-contain transfers and subsidies and a growing interest burden--are more difficult to address.



It said those factors will likely keep the debt at high levels longer than the Barbados government anticipates.



S&P said the stable outlook hinges on expectation that the authorities will, in the next six months, put in place fiscal measures to reverse the rising debt trajectory.