And while the strategy announced by Prime Minister Mia Mottley has received the full backing of the Social Partnership, a regional credit ratings agency is not as impressed by the debt payment move and has given the country its first downgrade under the new Barbados Labour Party (BLP) administration.
Last Friday evening, following a meeting with the Social Partnership, Mottley announced at a press conference a multi-pronged plan to address critically-low levels of international reserves, unsustainably high levels of public indebtedness, poor growth and major failings in public infrastructure and social safety nets.
And part of the plan involves getting balance of payments support from the IMF.
She said she had already given the Washington-based institution notice, having spoken with its managing director Christine Lagarde and “briefed her on the present state of the public finances of Barbados; the current debt and reserve positions, and assured her that we are committed to taking decisive action to rebuild Barbados”.
“In turn, Madame Lagarde assured me that the International Monetary Fund stands ready to lend Barbados the necessary assistance and support to these actions,” she said. “The Government has invited a mission from the IMF to visit Bridgetown shortly. I am advised by the Governor of the Central Bank that that mission shall be here as early as Tuesday given the urgency that we have expressed.”
Largarde later issued a statement confirming that an IMF team led by Bert van Selm will visit Barbados to start discussions on how the Fund can support the authorities’ economic plan.
“Our ultimate goal is to help Barbados achieve higher living standards and more inclusive growth for the years ahead,” the brief statement said.
Prime Minister Mottley also announced that, with the country in debt to the tune of more than BDS$15 billion (US$7.5 billion), with public debt as high as 171 per cent of GDP – the third highest in the world behind Japan and Greece – her administration will be restructuring the debt.
“After extensive consultation in the last week with our Social Partners, with our Government, I announce today that we will seek the cooperation of our domestic and external creditors in the restructuring of our public debt. From today, we are suspending payments due on debts owed to external commercial creditors.
“Similarly, we will endeavor to make scheduled domestic interest payments. However, domestic creditors will be asked to roll over principal maturities until we reach a restructuring agreement. The truth is our debt has been unsustainable territory for some time. The arrears represent an effective default by the previous Government to Barbadians. We have never, and these arrears may I remind you, were at BDS$1.7 billion (US$850 million) at the end of September last year and we are awaiting May 31 figures next week, we have never taken this type of creditor action before and our actions today are designed, my friends, to ensure that we will never ever have to do so again.”
However, that announcement has resulted in regional rating agency CariCRIS dropping Barbados’ rating to ‘CariC’ on the foreign currency rating and ‘CariC’ local currency rating.
It placed Barbados on a “rating watch”, as it listed the island’s level of creditworthiness as “poor”.
In a statement issued over the weekend, CariCRIS said the rating action was “based on the June 1, 2018 Public Debt Restructuring Plan announced by the Government of Barbados, following its in-depth review of the latest fiscal and external liquidity situation in Barbados.”
“These ratings indicate that the level of creditworthiness of this notional debt obligation, adjudged in relation to other obligations in the Caribbean is poor,” said the Trinidad-based agency.
CariCRIS says it will be monitoring the situation in Barbados very closely in the coming days and weeks as it seeks more information on the planned debt restructuring, and will further adjust its ratings if so required.