Moody’s Investors Service on Friday downgraded St. Vincent and the Grenadines’ (SVG) government bond ratings to B3 from B2 and changed the outlook to negative from stable, the second downgrade in two years.
Moody’s Investors Service provides international financial research on bonds issued by commercial and government entities and, with Standard & Poor’s and Fitch Group, is considered one of the Big Three credit rating agencies.
B1, B2, and B3 credit ratings are judged as being “speculative and a high credit risk”.
Moody’s said the government’s short-term foreign-currency and local-currency ratings are affirmed at Not Prime (NP), meaning that they do not fall within any of the prime categories — from “Aaa” to “Baa3”.
Moody’s said the key drivers of they downgrade are: external vulnerabilities have increased markedly following a strong weather-related shock in December 2013.
A trough system on Christmas Eve 2013 left EC$330 million in damage and loss, according to the government assessment, and EC$270 million according to the World Bank.
The credit rating agency also said that the fiscal deterioration from 2013 is set to continue in 2014, leading to weaker public debt ratios and substantial downside risks to debt sustainability.
“St. Vincent and the Grenadines’ long-term local-currency country risk ceilings, foreign currency bond ceiling, and foreign-currency bank deposit ceilings remain unchanged at Ba3. The short-term foreign currency bond and deposit ceilings remain at NP. These ceilings reflect a range of undiversifiable risks to which issuers in any jurisdiction are exposed, including economic, legal and political risks. These ceilings act as a cap on ratings that can be assigned to the foreign and local-currency obligations of entities domiciled in the country.”
In explaining the rationale for the downgrade, Moody’s said SVG’s “sovereign rating are the marked increase in external vulnerability and deterioration in external finances.
“Following the global economic crisis, St. Vincent’s sluggish economic recovery was derailed by a strong weather-related shock in December 2013. The country suffered massive damage to infrastructure, housing, and agriculture as a result of severe floods.
“Tourism activity in 2013 contracted by 3.5 per cent, contributing to a deterioration in already-weak external finances. The current account deficit reached just under 30 per cent of GDP by the end of 2013.
“For 2014, Moody’s forecasts that a further weakening of tourism activity, along with increased imports of construction materials related to the reconstruction effort, are likely to more than offset the respite brought about by lower import prices on fuel and other commodities, pushing the current account deficit to nearly 34 per cent of GDP by the end of the year.
“As a result, external finances had come under severe stress by mid-2014, prompting the authorities to request emergency assistance from the International Monetary Fund (IMF).”
In August, the IMF approved the disbursement of approximately $6.4 million (0.9 per cent of GDP) to St. Vincent through its Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI).
Moody’s said that although the emergency funding alleviates the immediate pressure on St. Vincent’s external accounts, “the country’s vulnerability to exogenous shocks remains elevated, and downside risks to balance of payments sustainability remain, stemming from uncertain tourism prospects.”
The second driver of the rating downgrade is the continued deterioration in government finances and substantial downside risks to debt sustainability, Moody’s said.
“A widening of the fiscal deficit in 2013 to 6.4 per cent of GDP from 2.1 per cent the previous year led to an increase in debt to 63.1 per of GDP from a low of 41.5 per cent in 2007.
“The authorities announced their intention of further boosting capital spending in 2014 in order to repair damaged infrastructure and continue building climate resistance. The budget speech in January envisioned a widening of the fiscal imbalance to around 9.5 per cent of GDP, which Moody’s estimates would push debt ratios slightly above 70 per cent of GDP.
“Stabilizing debt ratios at under 71 per cent of GDP and then reversing negative debt dynamics would require the effective execution of the authorities’ plans.”
Moody’s said it believes there are substantial downside risks to the fiscal outlook and debt sustainability; these doubts underpin the negative outlook on the B3 rating.
“Slow disbursement of grants and financing could prolong reconstruction projects and delay the projected recovery in tourism revenues. Such a recovery depends on critical infrastructure being fully repaired, and importantly, the new airport being completed.
Further downside risks that support the negative outlook on the sovereign’s rating relate to the possibility that the economy may not respond to the planned fiscal stimulus measures, suggesting that debt sustainability may also be jeopardized by the slower recovery,” Moody’s said.
The ratings agency said it sees limited potential for upward rating changes in the immediate future.
“Faster growth driven by the completion of Argyle airport and the expected associated increase in foreign direct investment in the tourism sector would be credit positive and supportive of the rating. A significant strengthening of the government’s balance sheet through a marked reduction in debt metrics or diversification and increase of funding sources would place upward pressure on the sovereign’s rating. A significant reduction in external vulnerabilities would also create upward pressure.
Conversely, a further deterioration of the public sector balance sheet, the assumption of contingent liabilities, or increased commercial borrowing to finance potential cost-overruns related to the Argyle airport would be credit-negative,” Moody’s said.
The downgrade comes at the end of a week in which the IMF said Preliminary findings suggest that the Vincentian economy registered “modest growth” in 2014, but the government is having difficulties meeting its obligations and keeping the budget together
Related: ‘Modest’ economic growth, but SVG gov’t having ‘more difficulties meeting its obligations’
In October 2012, Moody’s downgraded SVG’s credit rating from B1 to B2.
Moody’s said then that the key rating drivers for that decision were:
- Poor growth prospects following a protracted recession and weak recovery in tourism
- Significant and rapid deterioration of the government’s balance sheet
- Elevated vulnerability to external economic shocks
The leaders in the next economic movement in the Caribbean will be the ones raking in the piles of cash. Jamaica is on it’s way to legalizing marijuana, the largest cash crop in the world, although many refuse to admit it. They are already counting the millions it will generate in tourist revenue and that doesn’t even include the product or its many byproducts. Selling licenses & eco-tours into the farms has already caused talks of $20-$40 million dollars of revenue. Tourism here has a leader in charge of tourism who I quote sat across the table from me and said “I don’t want to advertise St.Vincent because we don’t want it to become like Barbados or Trinidad”. How ridiculous is that? The pirate that sold the cable company now has single-handedly driven the sailing/yachting business out of St.Vincent. Farmers are NOT doing their job by simply relying on government to tell them what to grow. Stop being so lazy. Bananas are a “dead crop”. Try growing something that’s actually worth something on the commodities index, such as olives, figs, nuts, etc. Tourism is and should be the big money-maker in the Caribbean & if St.Vincent doesn’t get on board soon they only stand an even better chance of falling even farther behind than we already are. (Third from last in the Caribbean for tourism). More people know about the Grenadines than St.Vincent & they can be easily confused or mislead because Grenada & Barbados both advertise themselves as “Grenadines”. The economy could be fixed overnight but they have to be willing to take chances and lead rather than follow. Praying for things to happen simply won’t make things happen, you have to actually take some action. Double and triple taxation on products that are imported only hurts the economy even more. Just like the high tax on airfares that in some cases equal or exceed the actual ticket costs. This does NOT encourage tourism growth but rather the other way around. The worst part is that governments and Vincentian’s in general are offended the moment anyone with sensibility or knowledge offers their opinions or help. Time to work together to fix the situation rather than simply cursing the government & throwing stones at each other.
WHAT…….please have the IMF guy call Moody’s and tell them we good to go with Modest economic growth. This is not acceptable.
Lies I say, sounds like the non-patriotic NDP put Moody’s up to this. When we “smoking out” the negative persons in the Diaspora I say include Moody’s on that list Mr PM, you got my vote.
Sarcasm?
I really cant tell.
But if it is; nice one mate!
This is why when people talk nonsense like the country doing the best it ever did I just have to laugh.
Alot am hearing that under NDP there was over 50% poverty in SVG.
When we had over $150M a year in exports, over 5.0% growth per year, and no education revolution, low crime rates, a country full of non-patriotic poor people had a GOOD Credit Rating.
Now we full ah smart patriotic people, struggling to export $40M per year, lucky to get 0.5% growth per year, crime out of control, we have a BAD Credit Rating.
Am supposed to go tell my children this is the best SVG has ever been. Please. There is a big difference between lying and been negative.
The PM’s strongest political advantage is that he recognizes that 95% of the electorate are clueless about the implications of such things as credit rating downgrades on debt interest rates, the high costs of new borrowing, and related issues. Nor do they understand or care about the mounting national debt.
Winston Churchill claimed that “democracy was the worst form of government except for all the others that have been tried.” I guess he didn’t have SVG in mind.
Sir James Mitchell said he was only afraid of two things: AIDS and ignorance. He surely had SVG in mind.
NO COMMENTS!! This speaks for itself. It is where the tyre hits the road! So much for those who grabbed at the straw of the IMF’s bland and diplomatic statement, which contained no numbers to indicate what the “modest”growth was, and which in any case was a PRELIMINARY assessment. Anyone who has had the slightest connection with these things will know that when all the numbers are in and the detailed assessment is done, the “modest growth” usually becomes “barely” grew, or none at all!
Moody’s you just said something that any Vincentian with common sense would know. We can lie and jump up and down all we want but the simple truth is SVG is the worst it has ever been, and a credit ratings agency should know because they only go by facts, and not rhetoric.
I wouldn’t even touch SVG bonds even if they were offered to me at 20 percent, that how much little faith I have in the economy.
It’s people oversees that are holding up the country. There is nothing going on in the country, no Tourism, no Agriculture, no Manufacturing, nothing that is going on, on a large scale to matter. independent strong Vincentians have no been reduced to begging for survival.You all need to wake up, and deal with there self hate, we will end up like Guyana very soon. Let’s hear now about Moody’s being doom and gloom and all kinda other nonsene.
Some people are rejoying after the announcement by Moody’s Credit Rating Agency. Each individual is entitled to his/her own opinion. Well this is not the end of SVG economically speaking. The government is trying it’s not an easy task as some may think. Being on the out side looking in, and being in the driver seat are two different pictures. In no society you’ll have 100% percent of support on anything.
Since the ULP assumed office in 2001, the NDP and its supporters never accepted the fact their party had just been defeated at the polls. Well, they’ll have that opportunity in 2015 when the prime minister announced election date.
Mr Blane thrown out a challenge at me. I shall mention some of the ongoing government projects. Ongoing construction of the Georgetown Medical Complex. The Housing Programs. The building of a Polyclinic at Buccament. The ongoing rehabilitation of the South Leeward Highway project. The Argyle International Airport.
“Mr Blane thrown out a challenge at me. I shall mention some of the ongoing government projects. Ongoing construction of the Georgetown Medical Complex. The Housing Programs. The building of a Polyclinic at Buccament. The ongoing rehabilitation of the South Leeward Highway project. The Argyle International Airport.”
Randy you see people like you, you can’t be reached at this point. You know you are being fooled but you just don’t care. Those are social programs that burn up resources, these are the things that you are giving me after 14 years in office? The Georgetown Complex construction has been ongoing for how long? What housing program? you mean the one where people pay for there own homes? Every single thing that you mention are debt incurring Randy when will you get that in your head?
You are praising a government for spending your money? What kind of nonsense is that. That’s like sending your son to buy goods for you with your money. And then you say he’s takes care of you by buying things with your very own money. No one in SVG would thank their child for spending their money, so why are you thanking a government for spending your money? that’s the most backwards set of thinking I ever heard. What about a country that makes and brings in money, what about investing in our industries? what about investing in Agriculture?
Randy that answer was very weak. These guys have been in office for 14 years and you are still telling me about ongoing? and future? Man tell me about things they have done to improve finance of the country so more people can have money to spend. What is wrong with Vincentiand these days? You are still telling me about future STILL?
I read a rather foolish statement by Randy. Again I plead, “take off the political blinkers and think clearly, if this is possible”. No right thinking person can rejoice at the economic woes confronting the country, since all are affected. What is being called for is truth and realism on the part of the Government. As has been said, ” stop p…ing in our eyes and calling it rain!” That is what was attempted in the PM’s response to the IMF. So now Moodys, who do not need the consent of the Government to call things as they are, has called a spade a spade. Will this be treated as a wakeup call to what is really happening? Or is the Government going to continue to bury its head in the proverbial sand and pretend, ” nothing fuh dat”? That really is the issue, Randy, and not your blind acceptance of what is spouted by the Government.