MONEY MATTERS
Downgrades St. Lucia Expresses Concern Over Debt Ratios
‘Credit Worthiness’ is Upheld St. Lucia says it’s not alone in the world of ‘downgrades’ – and the recent downgrade of its credit ratings by a regional agency “is not unique” to the island. However, the grading agency also indicates that the island’s creditworthiness remains sound; and the Government says it’s not upset by the downgrade, as it’s already started making the necessary fiscal adjustments. In a statement in late June, the Caribbean Information and Credit Rating Services Limited (CariCRIS) announced it had downgraded St. Lucia’s credit ratings on the Government’s debt issues “by one notch” on its regional scale, taking it down “from B+ to B or CariBBB”. The agency pointed to a steady fall in the fiscal current account balance, except for the 2011/12 financial year. It said St. Lucia had moved from a surplus of 4.9% of GDP in 2008/09, to a deficit of 1.2% in 2012/13 – its first year of deficit in the last decade. That shortfall, according to CariCris, was brought on by “a reduction in current revenue, as well as the upsurge in current expenditure to 22.7% of GDP in financial year 2012/13 from 20.3% in financial year 2008/09.” CariCRIS also said that while government had sought to improve the situation by implementing the Value Added Tax (VAT), it did not have “an enhancing impact” on current revenue over the previous year. BusinessFocus July /Aug
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The agency said it therefore expects the country’s fiscal position to remain “tenuous” in the 2013/14 financial year, “particularly in light of the recentlynegotiated wage increase for the Civil Service.” It also projected that “total public debt to GDP ratio will grow rapidly by year-end.” But Prime Minister Dr. Kenny D. Anthony, who is also the island’s Finance Minister, said the downgrade did not upset him. He described it as “not surprising, as the entire Caribbean region is facing similar pressures, evident by the recent downgrades of Barbados, Grenada and Anguilla.” “Furthermore,” he added, “world output, including that of the emerging market and developing economies contracted in 2012, compared to 2011; and the Euro Zone is also under threat with significant fiscal challenges.” Dr. Anthony said the downgrade was the “result of an extended period of minimal economic growth, partly as a consequence of the continued adverse impact of the global crisis, coupled with the fact that very little was done to address the declining fiscal position in the past.” He said he’d signaled in the National Budget of 2012/2013 that tough fiscal times lay ahead; and this year he’d already
outlined a number of specific strategies in the 2013/14 Budget to return the economy to a more sustainable path. According to Dr. Anthony, “Government is pursuing fiscal consolidation with a focus on curtailing the growth in expenditure. He indicated that “In the current (20132014) Budget, “recurrent expenditure was reduced by $15.8 million while capital expenditure was cut by $114.6 million, bringing the reduction in total approved expenditure by $130.4 million.” The Prime Minister said his administration was “committed to implementing bold measures to reduce the fiscal deficit and curtail the rise in public debt, while pursuing polices to boost the economy.” According to the Prime Minister, “St. Lucia’s excellent track record on meeting its debt obligations will continue to remain the number-one priority of the government.” Indeed, CariCRIS, while downgrading St. Lucia, had explained that, “Notwithstanding the deterioration in the fiscal position, the ratings on St. Lucia continue to reflect its monetary and exchange rate stability, underpinned by its membership in a quasi-currency board arrangement and its relatively diversified economic base.” ¤