S&P Downgrades Barbados Currency Ratings

by Amanda Banks, Tax-News.com, London

22 August 2003

A higher fiscal deficit and an increased debt burden has led Standard & Poor's to downgrade Barbados's local currency ratings, though the country retains its A- long term credit rating, the only nation in the Caribbean to attain such a score.

After its latest analysis of the jurisdiction, S&P has lowered its long-term local sovereign currency rating to A+ from AA- and its short term local currency rating to A-1 from A-1+. In addition, the outlook for both local and foreign currency long-term ratings has been revised down to 'negative' from 'stable'.

"Given the fact that Barbados lacks the cushion of a deep domestic capital market and maintains fixed parity with the U.S. dollar, the higher debt burden is no longer consistent with a three-notch distinction between the local and foreign currency ratings," stated S&P analyst Richard Francis.

"Muted growth, coupled with corporate and income tax cuts, could limit general government revenue increases going forward," Mr. Francis continued. "If the government fails to cut fiscal deficits sufficiently to reduce the general government debt burden, Barbados's creditworthiness could suffer."

"Conversely, if growth prospects rise due to improved service export performance or gains in productivity, and the government is more ambitious in cutting back spending, the outlook could revert to stable," observed the S&P analyst.

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