Barbados Central Bank Disputes S&P Analysis

by Carla Johnson, Investors Offshore.com

16 February 2004

International Ratings Agency Standard & Poor’s last month assigned a ‘Negative’ outlook for Barbados’s currency ratings, despite Central Bank figures showing an improvement in the fiscal finances.

In its release, S&P asserted that “fiscal problems are at the heart” of the jurisdiction’s credit weaknesses. The agency cited an inflexible exchange rate regime (the Barbadian dollar is pegged to the dollar at 2 to 1) as the major reason for this.

Standard & Poor’s revealed that of the ten nations it has assigned a Negative currency outlook, five are in the Caribbean or Central America, including Costa Rica and Panama, where inflexible foreign-exchange regimes (crawling peg for Costa Rica, and fully dollarised for Panama), were once again cited.

The Central Bank of Barbados however, disputed S&P’s analysis, pointing to an improvement in the fiscal deficit from 5.9% of GDP to 4.5% in 2003, which the bank forecasts will reduce to 3.5% in 2004. It also stated that foreign exchange reserves were at historically high levels.

“Further, the Bank is of the view that the stability of the Barbados economy in the past few decades can in fact be partly attributed to its fixed exchange rate regime. The Bank views this as an advantage,” the institution commented in response to the S&P rating.

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