Despite the devastating impact of the COVID-19 pandemic on Barbados’ main economic earner, tourism, Standard & Poors has decided to maintain the island’s credit rating as B-/Stable/B.
In an assessment of the country’s performance, dated November 4, 2020, the international credit rating agency attributed its decision largely to the success of the Barbados Economic Recovery and Transformation (BERT) Programme, describing it as a key factor in allowing the country to weather the economic impact.
“The stable outlook reflects our view that the COVID-19 pandemic will have a significant impact on Barbados’ economy and that the recovery will be more subdued than anticipated,” S&P said.
“However, the progress and credibility that the Government has built over the past two years under the IMF’s Extended Fund Facility (EFF) program will facilitate access to multilateral financing and support growth in foreign exchange reserves.”
The S&P assessment added: “Debt exchanges completed in 2018 and 2019, and financing from multilateral institutions will help limit Barbados’ near-term payment risk.
• The impact of COVID-19 on the tourism industry will worsen fiscal and external balances.
• However, the completion of local and foreign currency debt exchanges in 2018 and 2019, coupled with financing from multilateral institutions, will keep debt service manageable.
• High reserve levels will sustain external liquidity despite a higher current account deficit expected in 2020.”
In response, Prime Minister Mia Amor Mottley said: “We are buoyed by the confidence that continues to be displayed in the work of the Government and people of Barbados, in spite of us going through the most difficult times since the Great Depression.”
At the same time, Standard & Poors also pointed out that it expects Barbados’ GDP to decline significantly this year due to the impact of the global pandemic, as well as a more prolonged tourism recovery period than anticipated back in April, largely because key source markets continue to face second waves of COVID-19 cases.
“However, we believe that the Barbados Economic Recovery Transformation (BERT) program had supported Barbados’ fiscal and external position entering into the pandemic, which will facilitate its ability to weather the economic impact,” the S&P assessment added.
In giving the rationale for holding Barbados’ rating steady, S&P explained: “As the global spread of COVID-19 continues, we expect continued weakness in Barbados’ economic activity and increased budgetary stresses. Higher case counts in key source markets, coupled with uncertainty surrounding the availability of vaccine treatments have led to a slower-than-expected recovery in tourism, which is a major contributor to GDP. Due to this, we believe an economic recovery will take longer than we expected in April 2020.
“A delayed economic recovery will result in increased fiscal pressures during the outlook horizon. The country will face rising expenditures due to health-related spending in the face of lower revenues from tourism receipts.
“Despite these challenges, we expect Barbados’ adequate foreign exchange reserves, along with policy-based funding provided by several multilateral institutions, will ease external pressures and provide financing needed to service debt payments for the upcoming 12 months.”
And in a clear statement on the way Government has been managing the affairs of the country, S&P said: “Barbados has a stable, predictable, and mature political system, which has traditionally benefited from consensus on major economic and social issues…
“After winning all the seats in Parliament in 2018, the BLP, led by Prime Minister Mottley, has governed with a strong mandate to implement fiscal and macroeconomic reform. The government acted swiftly to restructure its debt, agree with the IMF on an EFF, and present the initial stages of its economic recovery and transformation plan.
“The government responded swiftly to COVID-19 by first implementing social distancing and testing protocols, and then by introducing the Barbados Employment and Sustainable Transformation Plan to address the decline in the tourism sector. Nevertheless, we believe that improving policymaking and political institutions will be gradual.
“Before the last election, policymakers had been slow to respond to fiscal and economic challenges.
Transparency and timeliness of data publication have also weighed on our institutional profile assessment. Although there are indications that the government aims to reverse these trends, developing a strong track record will take time.”