Stable outlook rating reflective of continued large primary surpluses

Durrant Pate/Contributor

International ratings agency, Fitch has moved up Barbados’ Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘B+’ up from ‘B’.

Fitch gave Barbados a stable outlook rating, which it says reflects the country’s continued large primary surpluses, which are quickly reducing the debt-to-Gross Domestic Product (GDP) ratio, though it remains high. The ratings agency cites Barbados’ successful implementation of structural reforms.

These reforms were executed under the International Monetary Fund’s (IMF’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, which were driving driven that fiscal progress.

Fitch in its assessment highlights the country’s, “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.” 

Some reasons for improved ratings 

While acknowledging that government finances continue to improve, Fitch notes that 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, which has reduced the need for government financial support, and has reformed the pension system,” Fitch said.

However, it emphasizes that, “further reforms will be more challenging due to more complicated issues and potential reduced buy-in from stakeholders as other concerns take priority”. 

Fitch explains 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, Fitch cautioned that with the lack of meaningful fiscal space and limited resources currently available, a severe shock would be difficult to manage, citing 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 multi-laterals—for example, through a reopening of the domestic debt market; and progress on economic reforms that improve the outlook for investment and trend growth.