PM explains recent Moody’s downgrade

The recent downgrade of St Vincent and the Grenadines’ government bond ratings will not adversely affect any of the transactions that the Government has engaged in.

So said Prime Minister Dr Ralph Gonsalves, as he addressed a press conference at the Cabinet Room on Tuesday.{{more}}

His comment came a few days after Moody’s published a report that St Vincent and the Grenadines had been downgraded from a B2 rating to a B3, therefore changing the outlook from stable to negative. Furthermore, the country’s short-term foreign currency and local currency ratings are affirmed at Not Prime (NP).

Gonsalves, who is this country’s Minister of Finance, dissected the report from Moody’s, saying that the key points that they made were also included in his 2014 budget speech.

According Moody’s report, one key driver of the downgrade is that “external vulnerabilities have increased markedly, following a strong weather-related shock in December 2013.”

“How in heaven’s name, how am I responsible for that? I am responsible for correcting it. I’m not responsible for the weather and my speech was telling you how I was going to do it and the IMF letter tells you that what I said I’m doing to correct it, I am making progress,” Gonsalves said, making reference to the recent conclusion of the IMF’s Article IV consultation in St Vincent and the Grenadines.

Moody’s second key driver is 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.”

“I said in this (budget speech), that the debt this year is going to increase before it begins to fall,” Gonsalves declared.

“But I also said that despite the fact that we have had five weather systems, one hurricane, two storms and two droughts, amounting in the aggregate to one third of GDP (Gross Domestic Product) – 33 per cent, St Vincent and the Grenadines still has the lowest debt to GDP in the currency union, save and except Montserrat, which is a special case; and at a time which I am building the largest capital project in the history of the country.”

Furthermore, the Minister of Finance pointed out the paragraph of Moody’s report, which states that “St Vincent and the Grenadines’ long-term local currency country risk ceilings, foreign currency bond ceiling, and foreign currency bank deposit ceiling remain unchanged at Ba3. The short-term foreign currency bond and deposit ceilings remain at NP.”

“How does this affect us? I want to translate that now. St Vincent and the Grenadines, under this Government, we are not borrowing on the international market, doing 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 in that the margin, if a local bank reads the headline and don’t read the fine print,” Gonsalves said.

Furthermore, the Prime Minister explained that the country gets money through grants from a number of entities and countries, including the European Union, Venezuela and Taiwan, Also, money is obtained by the Government through concessionary loans from the World Bank, Caribbean Development Bank, ALBA bank, PetroCaribe or the International Monetary Fund, via the rapid credit facility; all of which give monies between .5 and 2 per cent.

“I am not going on the foreign currency market to borrow any monies commercially. I’ve not done that. The monies which we will borrow for the short-term treasury bills, we do that on the regional government securities market.

“Then you may say well, Prime Minister, surely you have borrowed foreign money commercially and I tell you yes, but like the US$10 million that I borrow from the Bank of Nova Scotia, I have it underwritten by the Export Development Corporation of Canada, buying Canadian goods and services, so I get an interest rate under 4 percent,” he said. (BK)