Moody’s may downgrade country, poor economic growth a factor

PHILIPSURG–St. Maarten’s snail’s pace economic growth over the years is one of the factors being attributed to what Finance Minister Richard Gibson said is a potential impending downgrade of the country by international credit rating organisation Moody’s Investor Services.

Gibson told reporters on Wednesday that indications are that Moody’s will downgrade St. Maarten from its current status of BAA1 to BAA2.

Moody’s ratings are important as investors use it to determine how a country is faring before investing, Gibson told reporters at the Council of Ministers press briefing on Wednesday afternoon. It is also one of the factors taken into consideration by financial institutions when a country is looking to borrow.

Moody’s Investors Service provides international financial research on bonds issued by commercial and Government entities and with Standard and Poor’s and Fitch Group, is considered one of the Big Three credit rating agencies.

Gibson said St. Maarten’s ratings with Moody’s up until this point stands at BAA1. “The rating that is being indicated and a final decision has not yet been made, but all indications are that Moody’s will downgrade St. Maarten to BAA2 rating,” the Minister said. “It sounds like when you go from one to two you are making progress, but not a rating of two. It is not as good as one.”

He said the factors being attributed to the “possible downgrade” is St. Maarten’s low paced economic growth. Information from Moody’s indicates that the country’s growth has been 0.5 per cent for several years now and the outlook for the future is grim, given the global economic conditions.

Gibson said indications are that the growth of St. Maarten will not change significantly. “This year we might probably have a growth of 0.3 or 0.5 per cent. This is significant in terms of when we look at the region, there are other islands doing better than St. Maarten. There are some things that we are not doing that we have to start to do and if we don’t do them then the trend will continue that we will be downgraded,” the Minister warned.

The country should not focus solely on projected economic growth, but also look at its institutions and take measures to upgrade and improve them to meet Moody’s standards and that of other organisations. “We have to change. If we do not take the necessary steps to change we will have more of the same in the future than we have had in the past,” he noted.

Moody’s has also indicated that the Committee for Financial Supervision CFT is scheduled to terminate its services in St. Maarten in 2018 and when this occurs St. Maarten will be “exposed” to world market interest rates on borrowing. St. Maarten currently borrows at 2 and 2.5 per cent due to CFT arrangement and the country’s “favourable” relationship with the Netherlands.

“If you don’t have the necessary institutions in place after CFT to carry out supervision that meets international standards, it means you won’t have a 2.5 per cent advantage. You will then be borrowing on international market and exposed to borrow at 6 and 7 per cent for your needs,” Gibson said.

“I am signalling that we have to change and we have to do things differently. We have to pay attention to the benchmarks that we have to meet to have a better grade as far as our performance is concerned,” he noted.

Source: The Daily Herald Moody’s may downgrade country, poor economic growth a factor