Fitch Ratings has given Barbados another upgrade.
On Tuesday, it moved up the country’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘B+’ from ‘B’ and gave it a stable outlook rating.
It said the upgrade reflects Barados’ continued large primary surpluses, which are quickly reducing the debt-to-GDP ratio, though it remains high. According to Fitch, the successful implementation of structural reforms under the International Monetary Fund’s Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) programmes, along with the homegrown Barbados Economic Recovery and Transformation (BERT) 2.0 plan were driving driven that fiscal progress.
“High GDP per capita, strong governance scores, and robust reserves also support the rating. However, the economy’s dependence on tourism and small size expose it to shocks,” it noted.
Noting that government finances continue to improve, Fitch said the government has maintained fiscal discipline, achieving high primary surpluses for the second consecutive year after a brief COVID-19 pandemic setback.
“Execution of reforms tied to both the IMF and BERT 2.0 programmes has bolstered Barbados’s turnaround…. The country continues to improve its fiscal framework and has made needed reforms to the public sector, including restructuring of some state-owned enterprises (SOEs), which has reduced the need for government financial support, and has reformed the pension system,” the ratings agency said.
“However,” it added, “further reforms will be more challenging due to more complicated issues and potential reduced buy-in from stakeholders as other concerns take priority.”
Fitch noted that as a small, open tourist economy that is highly exposed to external shocks, including economic and natural disaster-related events, Barbados is working to build resilience by strengthening its fiscal resources, including reserve funds and insurance policies, and by aiming to improve infrastructure and facilitate greater self-reliance in the private sector. However, given the lack of meaningful fiscal space and limited resources currently available, a severe shock would be difficult to manage, it said.
Fitch said the emergence of financing constraints such as fiscal deterioration, or an external shock that leads to a sharp reduction in external liquidity could result in a downgrade. Factors that could lead to an upgrade include the preservation of high primary surpluses that lead to a continued sharp reduction in the government debt-to-GDP ratio; demonstration of improving access to financing sources beyond multilaterals – for example, through a reopening of the domestic debt market; and progress on economic reforms that improve the outlook for investment and trend growth. (BT)
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