NEW YORK, June 5 (IFR) - Barbados is expected to turn to the
International Monetary Fund (IMF) for help, after a three-notch
credit downgrade from ratings agency Moody's dealt one last blow
to the heavily indebted nation.
Officials from the Caribbean island will engage in fresh
talks with investors beginning on June 23 during meetings
organized in London and New York by Geoffrey Bell and Company, a
longtime financial advisor to the government.
The island's deteriorating fiscal health and sub-par growth
have long been a concern for accounts holding some US$500m plus
in dollar and sterling bonds.
Last year the sovereign was forced to ditch a new bond issue
and liability management operation as it approached investors
for the first time as a junk credit.
Ultimately it resorted to a loan syndicated through Credit
Suisse to cover budgetary needs.
The fund, which has so far engaged with Barbados only on a
consultative basis, is scheduled to conclude a routine visit to
the country this week.
"This is a regular, periodic staff visit planned for some
time to review recent economic developments and discuss the main
policy priorities," said a spokesman for the fund.
CLOSER TO THE IMF
With international reserves of US$690m as of the end of
March, Barbados can comfortably meet interest and principal
payments worth some US$106m this year.
Yet with debt-servicing costs expected to nearly treble to
US$307m in 2015, the island could be forced into accepting a
greater involvement of the IMF in its finances.
"The government will likely formalize the heretofore
consultative role of the IMF into that of a balance of payment
adjustment program," said Michael Roche, emerging-markets
fixed-income strategist at the Seaport Group.
"It would probably entail a balance of payment loan, a
domestic debt restructuring and a flexible currency adjustment,
similarly to what happened in Jamaica in 2010."
While the government has indicated it intends to implement
economic adjustments on its own, many argue that any deal with
the IMF would be the best course of action, in spite of the
stigma often associated with requesting multilateral assistance.
"If you are implementing fiscal austerity anyway, why not
get the IMF on board and receive some funding as well," said
Carl Ross, head sovereign analyst at Boston-based Grantham Mayo
In lowering the sovereign's rating to B3 from Ba3 this week,
Moody's said it expected the island's fiscal position to keep
deteriorating against a backdrop of sluggish economic growth and
a growing debt stockpile.
Barbados reported a deficit of over 11% of GDP for fiscal
2013/14, while interest payments now absorb 30% of government
revenue, said Moody's.
Rival Standard & Poor's rates the country BB-.
A number of market participants shrugged off the Moody's
action as an overdue confirmation of a prolonged deterioration
in the island's credit metrics.
"(This is) not really a surprise, given the negative fiscal
trends and the government reluctance to implement sharper
spending cuts and an IMF program," said one US-based investor.
Others, however, argued the move carries greater
significance for the country, effectively shutting it out of the
international capital markets.
"Moody's rating action has effectively closed the door on
Barbados' access to international private capital," said
(Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Marc