Standard & Poor’s Ratings Services said yesterday that it has lowered its long-term sovereign rating on the Dominican Republic to ‘B+’ from ‘BB-‘ and removed it from its CreditWatch with negative implications, where it was placed on 15 May 2003. At the same time, Standard & Poor?s assigned a negative outlook for the Dominican Republic, with the short-term rating remaining a grade of ‘B’.
“The Dominican Republic’s downgrade reflects continued economic pressures due to the collapse of Banco Intercontinental S.A. (Baninter), the country’s third-largest bank, and to the significant costs, both direct and indirect, associated with the central bank’s bailout,” said credit analyst Richard Francis. “The negative outlook reflects the continued uncertainty over the net cost of the bailout, and the vulnerability of the financial system as a result of poor banking supervision and regulation,” he added.
Francis says S&P expects fiscal performance to deteriorate significantly in 2003 as a result of the Central Bank’s bailout of Baninter, with the general government deficit expected to rise to 9% of the GDP in 2003, from just above 2% in 2002.
The Dominican Republic’s general government interest burden, as measured by interest expenditure to revenue, is expected to approach 20% in 2003, up from 7% in 2002, due to the large deficit and sharp depreciation of the Dominican peso (nearly 30% this year to date).
“Real GDP growth is likely to slow significantly in 2003, to 0.5% from nearly 4% in 2002, as a result of tight monetary conditions and central government spending cuts, especially in capital expenditure,” Francis said. “The country’s medium-term growth prospects have likely diminished as well. Policymakers face significant challenges in reestablishing macroeconomic stability and domestic confidence,” he noted.
For the complete press report, see http://reuters.com/financeNewsArticle.jhtml