The Liming House

Good to see you again. Glad you enjoy the Limes.

Rating agency Standard & Poor’s continued its focus on the Caribbean with a note on Barbados’ public finances. Below in full, highlighting mine:

Barbados Outlook Revised To Negative On Deteriorating Public Finances; ‘BBB’ And ‘A-3′ Foreign Currency Ratings Affirmed

– We believe the timeliness and magnitude of Barbados’ fiscal consolidation is uncertain because of a worse-than-anticipated economic recession.

– We’re revising the outlook on Barbados to negative from stable.

– We’re affirming the ‘BBB’ long-term and ‘A-3′ short-term foreign currency sovereign credit ratings.

– The negative outlook reflects the possibility of a downgrade if the authorities fail to consolidate the general government deficit (estimated at 7.1% of GDP in 2009) and to curb the rising debt. We forecast net government debt at 52% of GDP this year, up from 42% just three years ago.

NEW YORK, Nov. 13, 2009–Standard & Poor’s Ratings Services said today that it revised its outlook on Barbados to negative from stable. At the same time, we affirmed the ‘BBB’ long-term foreign and ‘BBB+’ long-term local sovereign credit ratings. The short-term ratings remain at ‘A-3′ for foreign currency and ‘A-2′ for local currency. The transfer and convertibility assessment for Barbados is ‘BBB+’.

“The outlook revision on Barbados to negative is due to our view that the timeliness and magnitude of the government’s fiscal consolidation, necessary to preserve Barbados’ credit fundamentals at the current ‘BBB’ level, is uncertain because of a worse-than-anticipated economic recession in the country,” said Standard & Poor’s credit analyst Olga Kalinina. Results for the first three quarters of 2009 underscore a rapid deterioration in Barbados’ public finances, at a faster rate than we had previously assumed, and a sharper economic contraction. We have revised Barbados’ real GDP estimate to negative 4.8% in 2009 (from our previous estimate of negative 2.5%), with a further decline of 1% expected in 2010, before a return to growth in 2011.

Also, we have made a significant revision to our expectations for the government’s fiscal deficits, both for 2009 (based on three quarters of 2009 data) and for the last three years (based on new information on the off-budget activities). We now expect the general government deficit at 7.1% of GDP in fiscal 2009 (ending March 31, 2010), up from 5.6% last year, 6% in 2007, and 3.8% in 2006. This encompasses the central government deficit of 9.1% of GDP (including 0.5% of off-budget deficit) and the National Insurance Scheme (NIS) surplus of 2%.

Our projections incorporate an assumption of a gradual reduction in the fiscal deficits starting in 2010, although the debt is likely to peak in 2010 at 55% of GDP (on a net basis), before starting to decline in 2011. We note that there is support across the political spectrum, private sector, and unions for fiscal tightening and that the government is preparing a medium-term framework to address the situation. The risk to our projections, however, is the timeliness and efficiency of the anticipated measures amid a slowing economy and rising unemployment.

The negative outlook reflects the possibility of a downgrade if the authorities fail to contain fiscal deficit widening this year and reduce fiscal deficits starting in 2010. Conversely, rapid consolidation of public finances, most probably accompanied by a return of foreign investment, would restore strength to Barbados’ balance sheet and support the stable outlook. We will closely watch the trends in Barbados’ international reserve levels in order to identify any potential stress on its external liquidity position and currency peg.

Usain Bolt, by Richard Giles, via flickr/tagaroo

Just one month after rating agency Standard & Poor’s released a downbeat assessment of the outlook for Jamaica comes an equally – if not more – negative take from Barclays Capital Research.

The research note issued today by a New York-based BarCap analyst is unequivocal:

we believe that Jamaica is approaching the point of no return and that it will take more than fiscal adjustments to regain sustainability for the long term. For 2009, we expect interest payments to be 16.0pts of GDP, or more than 60% of revenues. Fiscal sustainability in Jamaica has been under pressure for the past ten years, but we believe that at this time, the IMF is more willing to help Jamaica restructure its debt than to prolong its agony.

Elsewhere in the note, which also examined El Salvador, Panama, Costa Rica, the Dominican Republic and Guatemala, the analyst is even less sanguine about Jamaica’s financial prospects:

Of particular concern, Jamaica’s fiscal deficit could reach around 20% of GDP (with more than 15% of GDP in interest payments). We think it is extremely unlikely that any reform program will be able to put the country on a sustainable medium- to longer-term fiscal path and believe that the IMF is weighing whether it would be costlier to allow (and maybe help) the country to restructure its debt or to give the Jamaican government the USD1.2bn that is soliciting in order to postpone its agony.

Unfortunately, we believe that Jamaica may have already passed the point of no return and that for the IMF, as well as for the country in the long term, it would be more convenient to assist in a restructuring of debt.

As the three tables below – also from the note – illustrate, Jamaica is in dire straits both in absolute terms and as compared with other countries in Central America and the Caribbean:

BarCap

My day job has kept me so busy I haven’t yet had time to read beyond the headlines of the latest budget, but it seems that whatever Karen Nunez-Tesheira put together pleased Standard & Poor’s. Although the devil, as ever, is in the details.

The rating agency issued the following statement on Monday (any emphasis mine, as are the bracketed comments):

Republic of Trinidad and Tobago Ratings Taken Off CreditWatch And Affirmed; Outlook Stable

(CreditWatch negative is ratings agency speak for “we’re concerned about this country, and we may lower our rating on it in the not-too-distant future, unless its economics improves)

–Although Trinidad and Tobago’s bailout of the CL Financial Group could cost up to 6% of expected 2009 GDP, its solid fiscal and external position support its policy flexibility.

–In addition, the government’s debt profile and burden limit external vulnerabilities.

–As a result, we have taken the ratings off CreditWatch negative, affirmed them, and assigned a stable outlook.

NEW YORK, Sept. 14, 2009–Standard & Poor’s Ratings Services said today that it affirmed its ‘A/A-1′ foreign-currency and ‘A+/A-1′ local-currency sovereign credit ratings on the Republic of Trinidad and Tobago. Standard & Poor’s also said that it removed these ratings from CreditWatch, where they were placed on Feb. 3, 2009, with negative implications.

The outlook is stable.

In addition, Standard & Poor’s affirmed its ‘AA’ transfer and convertibility risk assessment on the republic.

“We removed these ratings from CreditWatch after evaluating the possible consequences and the cost associated with the government bailout of one of Trinidad’s largest financial conglomerate: the CL Financial Group,” explained Standard & Poor’s credit analyst Roberto Sifon-Arevalo. “Assuming no recovery from any asset sales, we estimate a potential gross loss for the government of about TT$9 billion, which is 6% of expected 2009 GDP.” At the same time, Trinidad and Tobago’s solid fiscal profile, which has resulted from several years of high-energy prices, gives the government the fiscal and external flexibility needed to manage this potential debt burden as well as the current international financial crisis without materially weakening public finances.

The government is responding to these shocks through countercyclical fiscal measures. In this context, Standard & Poor’s expects the general government will have a deficit of 4.5% of GDP in 2009, down from a surplus of 6.3% of GDP in 2008. In 2010, we expect the deficit to be at about 3.5% of GDP as the government continues with its public infrastructure program aimed to mitigate the impact of the world economic crisis in Trinidad.

Standard & Poor’s does not expect the government to contribute nor tap into the Heritage and Stabilization Fund (HSF) to finance the expected deficit in 2009 or in 2010, keeping the fund’s balance at about 11% of 2009 GDP. We believe that the government will finance the deficit with debt, mostly domestic. As a result, we also expect net general government debt to reach 7% of GDP in 2009 and 12% in 2010, which compares favorably with 28% and 31% for the medians of ‘A’ rated peers in the same respective periods.

“Improvements in transparency, governance, and regulation in the financial industry–and among public-sector enterprises, in particular–could further strengthen Trinidad and Tobago’s creditworthiness over the medium term,” Mr. Sifon-Arevalo added. “Conversely, a higher-than-expected fiscal deterioration because of higher-than-forecasted costs associated with the government bailout of CLFG as well as slippages in the pace of restructuring government-owned entities could lead to an unfavorable rating action.”

Are you listening, Mr Manning?

I tend to bang on about these rating agency downgrades, but they are important.

For those of you not familiar with these companies, their essence can be distilled thus:  ratings agencies are arbiters of creditworthiness.

In other words, agencies like Moody’s, Standard & Poor’s and Fitch bestow upon companies and countries  grades that indicate the likelihood that the rated entity will be able to pay its debts.

These ratings range from the gold standard – triple-A – which suggests the likelihood of default is minute, to Cs, which suggest the company or country poses a substantial risk to its creditors. The lowest grade – D – is reserved for those entities that have actually failed to pay their debts.

On that – last week, S&P lowered its rating Sagicor Life to BBB from BBB+, which is a one-notch downgrade. Here is the statement, highlighting and bracketed commentary is my own:

S&P: Sagicor Life Inc. Rating Downgraded To ‘BBB’ From ‘BBB+’; Outlook Stable

* Sagicor’s financial flexibility and liquidity could be under pressure if Jamaica’s economic environment continues to deteriorate.
* We are lowering our ratings on Sagicor, including lowering the long-term counterparty credit and financial strength ratings on the company to ‘BBB’ from ‘BBB+’.
* The outlook is stable.

MEXICO CITY July 24, 2009–Standard & Poor’s Ratings Services lowered its long-term counterparty credit and financial strength ratings on Sagicor Life Inc. to ‘BBB’ from ‘BBB+’. The outlook is stable.

At the same time, we lowered to ‘BBB-’ from ‘BBB’ our rating on the long-term senior unsecured debt rating on the $150 million senior unsecured obligations with up to 10-year maturities issued by Sagicor Finance Ltd., a Cayman Islands-based subsidiary of Barbados-based Sagicor Financial Corp. Sagicor and Sagicor Financial Corp. irrevocably, unconditionally, and jointly guarantee these notes.

“The rating action reflects our opinion that a continued worsening in Jamaica’s economic conditions compromises Sagicor’s financial flexibility and liquidity,” said Standard & Poor’s credit analyst Alfonso J. Novelo. “Also, profits could be pressured as a result of poor conditions in the financial markets and the likelihood of a prolonged period of weaker-than-expected economic conditions in the main countries where the insurance company operates, in particular in Jamaica, where Sagicor has placed 27% of its financial investments.”

On June 10, 2009, we lowered our long-term foreign currency sovereign credit rating on Barbados to ‘BBB’ from ‘BBB+’; in addition, our rating on the Republic of Trinidad and Tobago, another one of the countries where Sagicor has a leading position, is on CreditWatch with negative implications. The U.S., the U.K., and other countries of operation are also facing economic challenges.

[In S&P speak, any country or company on "CreditWatch with negative implications" is likely to be downgraded in the very near future]

The counterparty credit and financial strength ratings reflect Sagicor’s strong operating performance, conservative underwriting discipline, good profitability, and strong capitalization. The ratings also reflect the company’s dominant market position as the leading life insurer in the Caribbean and its increasing geographic diversification.

These positive factors are partially offset by a relatively high concentration in revenues and investments in Jamaica, and the aggressive inorganic growth strategy the group has implemented in the past three years, somewhat mitigated by Sagicor’s long and successful track record in mergers and acquisitions.

The rating on the senior unsecured obligations reflects the subordination of the notes to obligations owed to policyholders and creditors of Sagicor’s subsidiaries.

The stable outlook incorporates our expectation that Sagicor will maintain extremely strong capitalization and good profits, even under the more challenging economic environment that the different countries where the group carries out business are experiencing.

We could lower the ratings if capitalization decreases dramatically, even if it remains at more than the 175% target, or if profits deteriorate substantially. Furthermore, ratings will be pressured in the case of negative rating actions on Barbados or Jamaica and the degree of a downgrade of Trinidad and Tobago.

In ten days I will be moving back to Trinidad for at least three months, and probably quite a lot longer.

I am totally unprepared.

First, the basics. I won’t have an apartment of my own (and will be living with one parent or another, which is a regression on all sorts of levels). I won’t have have a car (and since I never quite mastered the art of Trinidadian public transportation, this is a scene). I won’t have reliable access to a high-speed internet connection (which I need for work to survive).

If I were moving to London, to New York, even to Hong Kong – I would know what to do. I’d be able to find an apartment with just a bit of legwork, a couple of phone calls and the good old interweb. I wouldn’t need – or want – a car, because I could avail myself of trains, trams, buses, ferries or taxis. Broadband would be a fact of life, not an expensive and hard-to-find luxury.

I would know how things worked – bills, taxes, banking. And if I didn’t know, I could find out – with a bit of legwork, a couple of phone calls and the good old interweb. I wouldn’t need to “know someone on the inside”. I wouldn’t need to slip a crisp bill or two to a surly public servant in order to get my driver’s license renewed without enduring three days of lining up.

Eventually, of course, I will figure all of this out. And learn to live with it. The problem, at this point, is that I wish I didn’t have to.

Yes, I am spoilt. I am one of those people. But there is no economic reason for Trinidad’s infrastructure to be in such total disrepair. For public services to be so inefficient. For the private sector to be so reluctant to embrace the fundamentals of customer service.

For us to be stuck in a third world way of doing things even as we adopt all the first world trappings – flashy cars, expensive restaurants, wine bars, and soaring, soul-less skyscrapers.

We need to forget Vision 2020. We need vision right now.