New York, March 01, 2022 -- Moody's Investors Service ("Moody's") has today
affirmed the Government of St. Vincent and the Grenadines' long-term
B3 issuer ratings and short-term non-prime rating,
and maintained the stable outlook. The affirmation of the B3 ratings
was driven by the following considerations:
1. Relatively modest impact of shocks on economic activity and
expected recovery; however St. Vincent's economy remains
vulnerable to climate shocks with limited diversification prospects
2. Debt projected to stabilize, albeit at higher levels,
and debt affordability to remain stable; access to concessional financing
provide liquidity for debt service payments
The stable outlook reflects Moody's expectations that growth will accelerate
this year, following the pandemic shock and volcano eruption last
year, which will facilitate fiscal consolidation and help stabilize
debt burden.
St Vincent and the Grenadines' local-currency ceiling remains at
Ba3 and foreign-currency ceiling remains B2.
RATINGS RATIONALE
FIRST DRIVER -- RELATIVELY MODEST IMPACT OF SHOCKS ON ECONOMIC ACTIVITY
AND EXPECTED RECOVERY; HOWEVER ECONOMY REMAINS VULNERABLE TO CLIMATE
SHOCKS
St. Vincent and the Grenadines was hit by two large shocks in quick
succession. The pandemic hit in 2020 and, like much of the
Caribbean, the economy suffered severe disruption in tourism activity
as international travel came to a halt. The following year,
an eruption of La Soufriere volcano destroyed part of the island economy
and caused significant damage to housing and infrastructure. Despite
these two large shocks, SVG reported a relatively moderate economic
contraction in 2020 and small positive real growth in 2021.
The economy contracted by estimated 5.2% in 2020.
In 2021, St. Vincent's economy expanded 0.8%
in real terms. We expect real GDP growth around 4% in 2022
and medium-term growth to revert to pre-pandemic rates or
around 2% on the back of ongoing rebuilding efforts and rebounding
tourism activity. Government capital expenditures will provide
strong support for growth in the next 2-3 years. In 2021,
capital spending amounted to 8.1% of GDP, accounting
for more than a fifth of total government spending.
The economy was supported by international financial assistance that SVG
received from multilateral donors, which enabled the government
to begin rebuilding work relatively quickly after the volcano eruption.
Economic activity associated to rebuilding efforts and strong import had
positive spillovers on government revenues through tax and import duties
collection in 2021. We expect economic recovery to solidify this
year, as reconstruction efforts continue and tourist arrivals rebound,
as the pandemic continues to recede.
St. Vincent's economy, like much of the Caribbean region,
is highly dependent on tourism and travel, which represents roughly
30% of economic activity and generated around 44% export
receipts in 2019. We expect tourism arrivals to rebound in 2022-23
as the pandemic recedes further and travel from key markets i.e.,
US, UK and Canada resumes. However, recovery in the
tourism sector will be contingent on the speed of post-volcanic
eruptions recovery efforts and vaccine distribution domestically.
The island economy is reliant on tourism and has limited diversification
prospects, which constrains the country's ability to achieve
higher levels of sustained growth. Although the government has
taken steps to support growth potential through infrastructure investment,
including in the new airport and exploring geo-thermal energy,
we do not anticipate growth dynamics to change significantly over the
medium-term.
St. Vincent is part of the six member Eastern Caribbean Currency
Union (ECCU). The Eastern Caribbean dollar (EC$) has been
pegged at EC$2.7 to the US dollar in a currency board system
since 1976. The monetary authority for the union, the Eastern
Caribbean Central Bank (ECCB), holds reserves in excess of 100%
of the union's monetary base to safeguard the peg, which has
been stable since its inception. Membership in the union has provided
St. Vincent with a stable exchange rate and an anchor for inflation.
SECOND DRIVER -- STABLE DEBT LEVEL AND INTEREST COST, BUT DEBT
BURDEN WILL REMAIN ABOVE PEERS OVER THE RATING HORIZON
Moody's expects debt to increased marginally over the next 2-3
years due to ongoing construction efforts after the Volcano and large
infrastructure projects underway; however debt will stabilize around
83% in next 2-3 years. As a result of pandemic and
natural disaster shocks, fiscal performance deteriorated in 2020-21
and government debt increased from 67% of GDP to 80% in
2021. In the five years preceding the pandemic, debt levels
had remained stable and below 70% of GDP on account of positive
contributions from growth and primary surpluses.
Following a fiscal deficit of around 5% of GDP in 2020 and 2021,
Moody's forecasts fiscal deficits to reach 7% of GDP in 2022
on account of continued infrastructure spending and transfers to the vulnerable.
Before the pandemic, St. Vincent tended to maintain lower
fiscal deficits. Overall fiscal deficit averaged just under 2.7%
of GDP between 2010 and 2020, which compared favorably with the
average deficit for the median B-rated sovereign of 3.4%
of GDP over that same period.
Despite the increase in debt burden, which weakens the sovereign's
fiscal profile, debt remains highly concessional and debt service
remains manageable. Debt affordability will remain broadly stable,
with interest-to-revenue ratio below 10% for 2022-23.
Liquidity risks remain broadly contained due to continued access to concessional
funding from bilateral official creditors and multilateral development
banks, which supports the island's infrastructure development
projects and provides liquidity for debt service payments.
The government remains committed to reducing its debt burden over time,
in line with ECCU criteria to 60% of GDP by 2035. A rebound
in activity and higher sustained growth would be needed to facilitate
debt reduction.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectations that growth will accelerate,
which will facilitate fiscal consolidation and help stabilize debt burden.
ESG considerations
St. Vincent's ESG Credit Impact Score is highly negative (CIS-4)
reflecting high exposure to environmental and social risks and moderately
strong institutions.
St. Vincent's exposure to environmental risks as very highly negative
(E-5 issuer profile score) reflecting high exposure to physical
climate risk; through its exposure to weather-related shocks
that can cause severe economic disruption to the island's vital tourism
sector.
Exposure to social risks is highly negative (S-4 issuer profile
score) due to low income levels and a deficiency in education outcomes
and the provision of services.
St. Vincent's governance reflects the country's relatively favorable
scores in the Worldwide Governance Indicators, balanced by a mixed
track record of fiscal policy implementation. We assess exposure
to governance risk as moderately negative (G-3 issuer profile score).
GDP per capita (PPP basis, US$): 12,750 (also
known as Per Capita Income)
Real GDP growth (% change): -5.3 (also known
as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): -1.0
Gen. Gov. Financial Balance/GDP: -5.5
(also known as Fiscal Balance)
Current Account Balance/GDP: -0.1 (also known as External
Balance)
External debt/GDP: 54.8
Economic resiliency: b1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 24 February 2022, a rating committee was called to discuss the
rating of the St. Vincent and the Grenadines, Govt of.
The main points raised during the discussion were: The issuer's
economic fundamentals, including its economic strength, have
not materially changed. The issuer's fiscal or financial strength,
including its debt profile, has materially decreased. The
issuer's susceptibility to event risks has not materially changed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
There is limited potential for a rating upgrade in the near term.
Higher sustained economic growth, combined with a faster pace of
fiscal consolidation, would be credit positive and support a higher
rating. A significant improvement in the government's credit
profile associated with a steady decline in the debt-to-GDP
ratio could exert upward pressure on the rating.
Downward rating pressure could emerge if St. Vincent's access
to external liquidity on concessional terms were curtailed, leading
to liquidity pressures that impact debt service payments. If a
large adverse environmental shock were to lead to a substantial deterioration
in St. Vincent's fiscal and debt metrics or materialization of
contingent liabilities from state-owned enterprises or increased
commercial borrowing would be credit negative.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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issued on a support provider, this announcement provides certain
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support provider and in relation to each particular credit rating action
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
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for additional regulatory disclosures for each credit rating.
Samar Maziad
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Alejandro Olivo
MD-Sovereign/Sub Sovereign
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
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