October 12, 2012
SVG’s credit rating down to B2

A US credit firm on Tuesday downgraded to B2 from B1, the rating of the Government of St Vincent and the Grenadines.{{more}}

Credit ratings and research help investors analyze the credit risks associated with fixed-income securities.

At B2, the outlook is stable, Moody’s Investors Service said.

With a B1, B2, or B3 rating, an entity is “judged as being speculative and a high credit risk”.

A B2 rating is 15 places from the highest rank — AAA — and six places from the lowest: C.

Moody’s said the key rating drivers for its decision are:

1. Poor growth prospects following a protracted recession and weak recovery in tourism.

2. Significant and rapid deterioration of the government’s balance sheet.

3. Elevated vulnerability to external economic shocks.

It, however, said the completion of the $652 million Argyle airport and the associated increase in foreign direct investment (FDI) in the tourism sector “will be critical to restoring faster growth in advance of any future rating upgrades”.

The airport is expected to be completed next year and to become operational in 2014.

But Moody’s added that a “further deterioration of the public sector balance sheet due to external shocks in the form of weather-driven events like hurricanes, currency depreciation or the assumption of contingent liabilities could put downward pressure on the rating”.

Increased commercial borrowing to finance the Argyle airport in 2013 or 2014 “may be credit-negative, particularly if completion of the project is delayed and cost-overruns raise financing needs.

“Downward pressure on the rating will also result if access to grants and concessional finance deteriorates or FDI experiences a sudden stop, leaving the government with limited options to finance twin budget and current account deficits,” Moody’s further stated.

Moody’s said projections are that the Government’s debt-to-GDP (gross domestic product) ratio has deteriorated to 62 per cent in 2012 from 41.5 per cent in 2007, “while debt metrics compare unfavourably with B-rated peers. (