The International Monetary Fund (IMF) on Thursday published the conclusions of the Article IV consultation undertaken by its Executive Board in Barbados earlier this year.
Following a visit to the jurisdiction by an IMF mission in June, the consultation was concluded on July 25, 2008, the Fund announced.
Commenting on the Barbadian economy, the IMF observed that it benefits from strong institutions and social and political stability, adding that the country has one of the highest per capita incomes in the region, compares favorably on a wide range of social, political, and competitiveness indicators, and enjoys an investment grade rating.
"These factors have helped Barbados become a prime location for high-end tourism and offshore financial services. As a small and open economy, however, Barbados lacks scope for diversification and is vulnerable to external shocks," the IMF report warned.
It continued:
"Barbados has weathered the global financial turmoil well, thus far, but a deteriorating external environment is posing significant challenges to the new government, elected in January. Fairly solid growth in 2007 continued through the first quarter of 2008, driven by strong tourism activity and helped by improved competitiveness vis-à-vis Europe and Canada."
"However, as the global slowdown is increasingly taking hold of Barbados' main trading partners, economic growth is expected to decline by 1 percentage point to 2.25% in 2008. Inflation, which was kept low by price controls, is projected to accelerate this year."
The IMF directors stated that they saw the main role for monetary policy as containing the risk of entrenching inflation expectations, and deemed the current policy stance to be appropriately tight.
The Financial Sector Assessment Program (FSAP) update was singled out for praise by the IMF officials, who found that "the financial system remains resilient in the face of the global turmoil".
To ensure that Barbados's financial sector continues to thrive, they encouraged the authorities to address the identified weaknesses in its prudential oversight and to implement the key recommendations of the FSAP update mission. In addition to a number of important provisions to strengthen banking regulation and cross-border cooperation, Directors recommended that priority be given to removing the gaps in the supervision of the nonbank sector.
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