The international rating agency, S&P, has said that pre-COVID, many Caribbean countries did not have the strength to withstand pressures brought about by the pandemic’s impact and as a consequence were downgraded.
“A disproportionately large number of the recent downgrades and negative outlook revisions have been on sovereigns in Latin America and the Caribbean. This is largely because many of these sovereigns’ economic and fiscal profiles were already quite weak prior to the pandemic,” S&P stated in a recent report.
In the report S&P discussed the actions it has taken on sovereign ratings in Latin America and the Caribbean, noting that it has affirmed its ratings on only 12 of the 29 (just over 40 per cent) sovereigns in the region.
The agency highlighted that it has lowered the ratings of 17 other counties or revised the outlooks downward, mostly to negative from stable but in two cases to stable from positive.
Among the 12 regional sovereigns that have investment-grade ratings (T&T included) the ratings on only four—Peru, Uruguay, Turks and Caicos, and Montserrat—remain unchanged since the start of the pandemic. S&P said that it lowered the other investment-grade ratings or revised the outlooks.
Discussing why the Latin American and Caribbean region had a disproportionately large number of negative rating actions, S&P said that on a global basis, the majority of its recent negative rating actions have been on speculative-grade sovereigns, most of which, have been in emerging markets.
However, it noted that there are distinct differences among emerging market sovereigns, as some are more vulnerable to negative shocks than others.
“Some sovereigns have implemented fiscal and monetary stimulus to support their economies, but the reach and effectiveness of those steps has been more limited than those of developed economies,” it stated.
According to S&P, in some cases, particularly in Latin America, the Caribbean, and Africa, the economic and fiscal outlook prior to the pandemic was already very weak.
Moreover, it said that in many cases the erosion of credit quality stemming from the effects of the pandemic would be structural and long-lasting, which the lower ratings reflect.
In relation to the credit ratings S&P stated: “We downgraded or assigned negative outlooks to some Caribbean sovereigns because of a deterioration or potential deterioration in their economic growth prospects, fiscal flexibility, or external position as a result of the pandemic.”
It continued: “In contrast, we affirmed other ratings when we believed that within our current assumptions, their rating strengths are sufficient to counterbalance the negative impacts of the pandemic, including lower tourism.”
The sovereigns S&P affirmed included Bermuda, Turks and Caicos, Aruba, and Montserrat. It said that these countries typically benefit from strong institutional frameworks, often based on ties with, and support from, higher-rated sovereigns.
It said that in some cases, such as in Aruba and Curacao, this support is materialising. S&P also noted that other regional sovereigns, such as Barbados and Jamaica, have strong ties to or support from multilateral-lending institutions that should sustain their external liquidity and set the stage for economic recovery.