Moody’s Investors Service downgrade, last Friday, of the rating of the government of St. Vincent and the Grenadines to B3 from B2 will not affect the country because Kingstown does not go on the foreign currency market to borrow money commercially, Prime Minister Ralph Gonsalves told reporters on Tuesday.
Moody’s, one of the Big Three credit rating agencies, listed the key drivers of the downgrade as:
- External vulnerabilities have increased markedly following a strong weather-related shock in December 2013.
- The fiscal deterioration from 2013 is set to continue in 2014, leading to weaker public debt ratios and substantial downside risks to debt sustainability.
“Now, in heaven’s name, how am I responsible for that? I am responsible for correcting it. I am not responsible for the weather,” Gonsalves said in relation to extreme weather last Christmas Eve that left damage and loss totalling 17 per cent of GDP.
“And my speech was telling you how I was going to do it and the IMF letter tells you that what I said I am doing to correct it, I am making progress,” Gonsalves further said.
He was referring to his Budget Address in January this year, and a letter he later wrote to the International Monetary Fund to access monies from the Rapid Credit Facility (RCF).
He noted that the IMF has said that progress continues in implementing the government’s policies outlined in the letter submitted in support of an application for funds from the RCF, which were disbursed in August.
Regarding the second key driver for the decision, Gonsalves noted that he had said that the debt this year will increase before it begins to fall.
He, however, pointed out that he had also said that although SVG has had five extreme weather events since 2010 — one hurricane, two storms and two droughts, amounting in the aggregate to a loss of 33 percent of GDP — Kingstown still has the lowest debt to GDP ratio in the Organisation of Eastern Caribbean States.
“So, I don’t only read headlines you know. I read also what gives rise to the headlines,” Gonsalves said.
Gonsalves said that his critics forget that Moody’s also said, “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.”
He said that under his government, SVG does not do commercial borrowing on the international market.
“So that this downgrade in respect of the rating for the short-term foreign currency is not affecting us. The only way it affects us is at the margin if a local bank reads the headline and don’t read the fine print,” he said.
Gonsalves said that SVG raises monies through grants from the European Union, Taiwan, Venezuela, and other sources.
“Moody’s is of no concern to them, because that’s grant,” he said.
SVG also gets concessionary loans, from the World Bank, the Caribbean Development Bank, the ALBA Bank, PetroCaribe, and the International Monetary Fund Rapid Credit Facility, all of which have interest rates between 0.5 and 2 per cent
“I am not going on the foreign currency market to borrow any money commercially. I have not done that,” he said, adding that monies that Kingstown borrows for the short-term treasury bills, is done on the regional securities market.
He, however, said that SVG has borrowed foreign money commercially, such as the US$10 million from Bank of Nova Scotia underwritten by the export Development Corporation of Canada, which results in an interest rate of less than 4 per cent.
“So, let them tell you on which transaction that I have been engaged with that Moody’s has affected me adversely,” he said, noting again the impact of extreme weather events.
“It is amazing that with all these challenges plus the pre-existing one of the removal of the preference in the banana industry and the problem we have with CLICO and BAICO that not only are we standing, we are standing and walking forward firmly, and, as the IMF says, there is an underlying trend of growth and that underlying trend will be added to significantly when the airport is operational,” Gonsalves told reporters, adding that the opposition’s diagnosis “denies all of that”.