Credit Rating of Grenada by Standard and Poor’s

STATEMENT BY THE NATIONAL DEMOCRATIC CONGRESS (NDC) ON THE RECENT CREDIT RATING OF GRENADA BY STANDARD AND POOR’S.

The National Democratic Congress (NDC) is calling upon the Minister of Finance of Grenada, Dr. Keith Mitchell to act with diligence to conclude the ongoing Debt Restructuring negotiations which his government claims to have embarked upon and to advise the nation on the status of the Debt Restructuring as well as on the status of the debt owed to the Government of Taiwan by the state of Grenada.

This call comes in the wake of the recent credit rating action by the international Credit Rating Agency, Standard and Poor’s, in which it first affirmed its long and short term sovereign credit rating on Grenada as “SD/SD”, meaning that Grenada is selectively defaulting on its debt obligations, and then withdrew the rating, giving Grenada instead a rating of “NR”, signalling that the agency is either unwilling or unable to rate Grenada’s creditworthiness.

In advancing the rationale for its rating decision in its report of 31 October 2014, Standard and Poor’s explained that its actions reflected the Government of Grenada’s 2013 default on its loans and continuing non-payment status on its US$193 million bonds and EC$184 million bonds, both due in 2015.

The explanation offered by Standard and Poor’s is characteristic of the frankness with which the agency reports its findings. Over the years, the agency has reported its findings without fear or favour and without regard for the reputations of politicians.

For example, in its report of 10 July 2008, the last issued before the former NNP administration left office then, the agency reported that Grenada had the lowest credit rating of any country in the Caribbean.

In its previous Report of 21 May 2008, the agency attributed Grenada’s low credit rating to:

• High debt levels;
• Little progress in reducing the debt
• Poor fiscal discipline
• Lack of strategic planning; and
• Lack of political will to address the country’s fiscal and structural issues

In commenting on the NDC election victory in 2008, in its report of July 10th of that year, the agency observed that “in Grenada, the political environment has been equally polarized amid persistent allegations of the NNP’s lack of transparency and mismanagement.”

And:

“as Belize and now Grenada show, the overwhelming victory of the opposition party is a clear response to the mismanagement, corruption, and consequently electoral dissatisfaction with the ruling party, which was in office for many consecutive terms.”

This unratable credit status stands in stark contrast to Grenada’s situation under the NDC when, in September 2012, the country’s sovereign credit rating climbed to as high as B-/STABLE/B, with the Standard and Poor’s noting that “the Grenadian economy continues to recover modestly” and that “the stable outlook reflects our expectation that — unlike some other Caribbean nations — the servicing of the Grenadian government’s commercial external debt will not become an issue in the general election, which must be called by mid-2013”.

Given Grenada’s obvious lack of creditworthiness at present, we call on the Minister of Finance to act with diligence to conclude the debt restructuring negotiations. Failure to act with diligence will not only prolong our present uncreditworthy status but will limit government’s ability to raise badly needed resources to develop the country. Moreover, failure to act with diligence will reinforce an already negative investment climate, further depriving poor and ordinary Grenadians employment and the opportunity to earn a decent living to support themselves and their families.

This call for diligent action by the Prime Minister and Minister of Finance is not without good reason. In an article published in the Financial Times on 7 February 2014 under the caption “Creditors prod Grenada over lack of progress on debt”, it was reported that Grenada’s creditors who hold three-quarters of the country’s bonds had written an acerbic letter to the Minister of Finance, complaining of a lack of engagement since his government defaulted on the nation’s debt on 8 March 2013.

The article reported that Broad Span Capital, which is advising a committee of bondholders, stated that consistent requests by the creditors for meetings with the NNP Government had been rebuffed by its representatives.

The article also reported that the committee was concerned about the lack of progress in laying a solid foundation for a timely debt restructuring, considered “an important component of government’s plan to improve Grenada’s growth outlook and put its public finances on a sound footing.”

According to the article, the letter from the creditors addressed to the Minister of Finance stated that the creditors “strongly objected” to Grenada’s approach and urged The Prime Minister and his government to share more complete details of the country’s overall debt stock and engage in “good faith” talks as soon as possible.

The article concludes, quite rightly in our view, that early engagement of the creditors by the Government of Grenada is recognised as “an essential best practice in debt restructurings, as it significantly speeds up the process of normalising relations with creditors, and reduces the risk that creditors may decide not to support a structure that was designed without their input”.

Moreover, Dr. Mitchell must advise the nation as to the present status of the debt restructuring negotiations. In particular, We demand that Dr. Mitchell let the nation know when our country can reasonably be expected to conclude these negotiations and regularize its status as a country which honours its debt.

Similarly, we call on Dr. Mitchell to advise the nation on the status of the debt owed by Grenada to the Government of Taiwan. In 2013, it was reported that Taiwan had commenced legal action against the Government of Grenada in relation to that debt. Since then the government has been completely silent on this matter. No information has been shared with the nation on the status of these legal proceedings and how, if at all, this ongoing obligation is impacting on Grenada’s finances.

The Prime Minister has boasted that his government is transparent. This is the time to put his money where his mouth is.