S&P cuts Barbados ratings to ‘BB+/B’ from ‘BBB-/A-3’: CBB Gov. claims Economy is Stable? Like Pisa?

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.

ATTN: CENTRAL BANK HELD EMERGENCY MEDIA BRIEFING –  HERE’s MORE FROM REUTERS; “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.”

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.

Rating Action

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 balance of the Reuters update can be read when clicking HERE – Separate story for Central Bank‘s reaction after Conference at 4:00 pm}

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