Ratings agency, Moody’s has downgraded Barbados’ government bond and issuer ratings to Caa3 and maintained a stable outlook.
In a statement, Moody said its decision was based on the continued increase in government debt and limited prospects of fiscal reform and the rising domestic and external financing pressures that are likely to impair government’s ability to service its debt.
It adds that despite the government’s efforts to contain the fiscal deficit and alleviate pressures on foreign exchange reserves, the deficit remains large and credit risks have increased in Barbados. It also adds that the debt burden has risen in recent years and will continue to rise over the next few years.
It notes that the outlook has been listed as stable as a result of the high probability of a credit event in the next 2 to 3 years, and reflects a balance of risks between lower and higher levels of loss given default. It also said that the rating could be moved up if the government initiates a credible fiscal consolidation program to arrest the rise in debt-to-GDP ratio and put debt on a sustainable downward trajectory.
These developments would likely be accompanied by reduced reliance on short-term debt and financing from the central bank, and a rebound in international reserves.