St. Lucia has called on the Barbados-based Caribbean Development Bank (CDB) to implement measures as quickly as possible to reverse the downgrading rating the financial institution has received from the US-based Moody’s Investors Services.

“The Bank must move quickly to create a dedicated risk management function, adopt comprehensive asset-liability management policies and carry out other necessary reforms to ensure that all its fundamentals get back on track and are sustained,” Prime Minister Dr. Kenny Anthony told the annual CDB board of governors meeting that ends here on Thursday.

At the start of the two-day meeting on Wednesday, CDB President Dr. Warren Smith announced that Moody’s had downgraded the credit ratings of the region’s premier development based financial institution by one notch from Aaa to Aa1.

Smith said that the downgrade followed a routine examination of the region’s premier development bank and that “we are disappointed at the decision”.

Prime Minister Anthony, who assumes the chairmanship of the CBD board of governors, said that regional countries have come to rely on the financial and operational strength of CDB over the years and that as the regional economy recovers and economic growth gathers pace, it is important that the CDB remains a cornerstone of the Caribbean’s development.

“The Bank has, for many years, maintained an international credit rating of “Triple A” with Moody’s Investment Service and Standard and Poors. We are, understandably, very concerned by the downgrading of the Bank by Moody’s to “Aa1” with a negative outlook, earlier this month. “

Anthony said that some of the underlying reasons for the downgrade “were somewhat surprising” noting that the “reliance in recent years on borrowing with bullet maturities, has evidently caused the payment profile of the Bank’s debt to be heavily front loaded, thereby increasing its exposure to refinancing risk.

“In addition, the Bank’s non-compliance with its own liquidity policy for the last five years, is a matter of great concern. The inevitable question is this: Were Directors and Governors explicitly informed? “

The St. Lucia prime minister said that in the opinion of Moody’s, those shortcomings were inconsistent with the standards associated with “Triple A” rated banks and reflect deficiencies in the management of the Bank’s assets and liabilities and in its financial planning. But he noted that on the positive side, CDB’s ability to service its debt in a timely manner appears not to have been compromised.

“Nevertheless, the Bank must move quickly to create a dedicated risk management function, adopt comprehensive asset-liability management policies and carry out other necessary reforms to ensure that all its fundamentals get back on track and are sustained.

“Other areas underlying the downgrade are CDB’s weak capital adequacy ratio despite the recent general capital increase, and the high degree of risk associated with its 55 per cent loan concentration in its four  top borrowers. The Bank must examine all available strategies to address those concerns with the relevant stakeholders, including its non-borrowing and borrowing members.

“The Bank must make every effort to stabilise and prevent further erosion in its credit rating, reverse the negative outlook and return to the higher rating threshold,” Anthony said.

Anthony’s whose St. Lucia Labour Party (SLP) was returned to power last November, following a five-year stint in opposition, said he was now “curious to find out what has changed in the years of my purgatory.

“Sadly, I have returned to find some of the old problems of the past. Some of these problems seem to defy solutions and repeat themselves as recurring decimals on our financial landscape,” he said, acknowledging that “some things have changed.

“We now seek to survive or cope, as the case may be, in a financial crisis of unprecedented magnitude. Perhaps, for the very first time since the establishment of the Bank, we have an opportunity to measure the Bank, to test its rules, practices and procedures against a crisis of untold severity.”

Prime Minister Anthony said that through no fault of the region, “we find ourselves in the aftershock of the worst economic crisis since the Great Depression.

“Most of our economies are burdened with high unemployment, high fiscal deficits, high debt ratios, nagging inflation and persistent poverty. Yet, we are not bereft of ingenuity. Our challenge remains to find viable solutions, both individually at the country level and collectively within the CDB family.”

Anthony said that despite the comparative resilience of St. Lucia, economic expansion has been slow in recent years, noting that the island experienced sluggish growth of one per cent last year, following an even lower rate of 0.6 per cent in 2010.

He said tourism, in terms of both the number of visitors and their spending in the local economy, contracted in 2011 by 3.9 per cent and 7.4 per cent respectively.

He said in agriculture, banana production fell by 55 per cent owing to the impact of Hurricane Tomas, rising input costs, loss of farmer confidence, limited access to affordable finance and the outbreak of Black Sigatoka.

Production of non-banana crops rose, but the performance of the livestock subsector was mixed. Construction and manufacturing activity grew modestly by 2.1 and 1.6 per cent respectively.

“The fiscal operations of the Government deteriorated sharply in 2011/2012, with significant growth in capital spending of 34.8 per cent leading to record capital expenditure and giving rise to a widening of the overall fiscal deficit. As a consequence, the total debt to Gross Domestic Product ratio rose from 62.2 per cent at the end of 2010 to 68.5 per cent at the end of 2011.

Anthony said that given the recent performance and the current state of the St. Lucia economy, his administration has identified three strategic priorities for economic recovery including creating jobs through the implementation of short to medium term projects and measures that will stimulate the productive sectors, while providing essential support for the government’s social agenda. He said there are also plans to expand the construction sector with targeted measures designed to encourage investment in housing and construction, which will restore the social and economic infrastructure of the country and have the knock-on effect of creating additional jobs in a virtuous circle; and consolidating government’s fiscal account by implementing measures to improve the revenue base, reduce the deficit and strengthen government finances.

He told the meeting that one of the major initiatives this year is the introduction of Value Added Tax (VAT) aimed at expanding the tax base, improving the efficiency of tax collections, reducing the burden on the productive sectors, encouraging investment and providing a more equitable and robust environment for economic growth.