Moody's on April 1 downgraded Barbados' government bondrating and issuer ratings to Caa1 from B3, while changing the outlook to stablefrom negative.
Barbados' long-term foreign currency bond ceiling waslowered to B3 from Ba3, while its long-term foreign currency deposit ceilingwas lowered to Caa2 from Caa1.
Both the country's short-term foreign currency bond ceilingand its short-term foreign currency deposit ceiling were affirmed at NP.
The ratings actions were driven by "slow progresstoward achieving fiscal consolidation consistent with a sustainable debttrajectory," as well as the country's declining foreign exchange reservesand weak funding conditions, the rating agency said.
"Although economic conditions in Barbados appear to bestabilizing with the improved growth outlook and low oil prices, the recent andanticipated fiscal consolidation is unlikely to be sufficient to put the debttrajectory on a downward path," Moody's said, noting that it sees the country'sdebt-to-GDP ratio rising over the coming years to 110% of GDP by 2018.
The rating agency also pointed to Barbados' low level offoreign exchange reserves, which have dropped 19% since 2013, and weak fundingconditions. "The government has increased its reliance on financing fromthe Central Bank ofBarbados, while commercial banks reduced their exposure to thesovereign," Moody's said. "The rapid increase in short-term debt since2013 raises concerns about rollover risk, while short-term funding pressuresremain in the face of the government's large financing gap."
Meanwhile, the stable outlook reflects the risk of furtherdeterioration in debt dynamics, balanced against the prospect that authoritieswill continue reducing the fiscal deficit in the context of an improvedexternal environment and more supportive economic growth.