Ratings Model for Caribbean Flawed: Scotia

The way in which sovereign risk is assessed for small countries like the Caribbean needs to be revised, according to Pablo Breard, Scotia’s head of international economic research. “I think the whole system for sovereign analytics – and that includes ratings – needs to be changed,” Breard tells LatinFinance. “The [small] size of these economies is one of their major structural vulnerabilities. You can’t apply the same model for debt sustainability for Turkey as you do for Jamaica.” A consequence of this is that small countries with lower ratings are unable to fund fiscal imbalances in international markets, and lack sufficiently liquid and developed local markets to do so. “That issue needs to be addressed,” says Breard, who adds that there is a need on the part of the sovereigns in the region for adjustment and belt-tightening going forward. “The favorable conditions for sovereigns to tap the debt markets are deteriorating,” he warns. Breard was speaking on the sidelines of a Euromoney/LatinFinance Caribbean Investment Forum in Trinidad last week.