Central bank defends debt programme after downgraded credit rating - Arthur wants 'amateurs' dismissed

The Central bank of Barbados (CBB) says the domestic market has the capacity to absorb new debt issues in a pushback against a decision by Moody's Investor Services to downgrade the island's rating on its domestic debt.

In the wake of the downgrade, former prime minister Owen Arthur called for the resignation of Finance Minister Chris Sinckler and the central bank governor DeLisle Worrell, labelling their stewardship as "amateur hour".

The rating agency adjusted its rating on Barbados' domestic debt from Baa2 to Baa3 but reaffirmed the Baa3 foreign-currency debt rating, keeping the country in the investment-grade category.

In a statement, the central bank said that the outlook on both ratings has been revised to negative, indicating that these ratings could be lowered in the next 12 to 18 months.

"Moody's cited its increasing concern about the capacity of the domestic market to continue to absorb the elevated issuance of government debt, while at the same time the country's already large current account deficit is expected to increase further due to the recent rise in oil prices.

"In addition, the rating agency's view is based on the likelihood of a further deterioration in the government's debt ratios, over the next year to year and a half," the CBB said.

But it also said that while it agrees that increasing financing pressure has been placed on the local financial market, given the level of liquidity in the market and the continued strong demand of institutional investors for domestic government securities, the bank "remains confident" that the local market can accommodate current and projected debt issues.

"Moreover, the amortisation profile for government's domestic debt portfolio is relatively smooth, with maturities mostly at the longer end of the maturity spectrum, which aids in ensuring that the domestic debt-service burden is not too onerous," said the statement.

"Furthermore, based on government's continued commitment to consolidate its fiscal position, which should be reflected in a lowering of the debt burden in 2012, the volume of net new financing from domestic entities is also expected to decline in the medium term, as reflected in government's medium-term fiscal strategy."

The CBB said that the sustainability of government's efforts at fiscal consolidation will be conditioned by the gradual economic recovery that has already begun to take shape, coupled with gains from the revenue measures cited in the November 2010 Estimates and Budgetary Proposals.

"It is supported by an effective coordinated mechanism for monitoring the fiscal performance, which allows for the application of timely corrective measures. This is consistent with the proactive way in which Barbados has approached the recent economic challenges," the central bank said.

"In spite of rising oil prices, there remains no doubt about Government's ability to repay its foreign debt obligations, given that international reserves are currently in excess of 20 weeks of imports."

Arthur, however, suggests that the economy is being poorly managed and says the current managers should be dismissed.

"I really believe someone has to be held accountable, and it is clear that this catastrophic failure reflects the failed policies of this minister of finance, and that the time has come to put an end to his amateur hour," he told the Nation newspaper.

He said that to restore confidence, "those responsible for the mess, the minister of finance and the central bank governor, have to go".

- CMC