Persistent and severe deterioration in government’s fiscal position and a resultant steady increase in debt stock are among reasons which the Caribbean Information and Credit Rating Services Limited (CariCRIS) has cited for its decision to downgrade St Lucia’s credit ratings.
CariCRIS is a regional credit rating agency, which according to its website, is a market-driven initiative aimed at fostering and supporting the development of regional debt markets.
In a press release issued on June 14, the agency said it had downgraded its ratings on government’s debt issues (EC$140 million, US $50 million, and US $38 million) by one notch on its regional scale; taking it from B+ to B or CariBBB.
While noting that government has an adequate level of creditworthiness, based on current ratings, CariCRIS said there were shortcomings in the country’s financial position.
The agency pointed to a steady fall in the country’s fiscal current account balance, save for the 2011/12 financial year. It said St Lucia had moved from a surplus of 4.9 percent of GDP (gross domestic product) in 2008/09, to a deficit of 1.2 percent 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.
“Also contributing to the deteriorating current account balance was the upsurge in current expenditure to 22.7 percent of GDP in financial year 2012/13 from 20.3 percent in financial year 2008/09. The primary balance was similarly affected and fell from a surplus position of 1.9 percent of GDP in Financial Year 2008/09 to deficits in the following four years which continuously grew to 5.6 percent of GDP in financial year 2012/13,” the release said.
In addition, CariCRIS said that while government had sought to improve the situation by implementing the Value Added Tax (VAT), the regime did not have “an enhancing impact on current revenue over the previous year”.
The agency’s release further delved into other aspects of the country’s financial status, hence providing a rationale for its downgrade.
In conclusion, CariCRIS said it expects the government’s fiscal position to remain “tenuous” in the 2013/14 financial year, particularly in light of the recently negotiated wage increase for the civil service. It projected that total public debt to GDP ratio will grow rapidly by year-end.
But with all this, the agency lauded the government stating that “notwithstanding the deterioration in the fiscal position, the ratings on Saint 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”.
“Also supporting the rating is an external sector characterized by moderate balance of payments (BOP) performances, relatively low external debt and adequate import cover,” CariCRIS added.