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Barbados At Risk Of Rating Downgrade

by Phillip Morton, Investors

25 November 2011

Barbados's BBB- credit rating could be downgraded to junk-grade status should authorities fail to implement the fiscal reforms needed to swiftly consolidate the island's budget.

S&P analyst, Olga Kalinana said: “Should the combination of lacklustre growth and insufficient fiscal adjustment [persist] in the next 12 months... a higher debt burden [would] impair fiscal flexibility,” increasing the risk of a downgrade from the current rating of BBB-.

Kalinana emphasized that the current fiscal position is “not sustainable in the long-term and present[s] an increasing risk to the government’s credit profile, especially in the context of the [territory's] small, open, and vulnerable economic structure”.

“The negative outlook reflects our opinion that we may lower the ratings on Barbados over the next year if the government’s fiscal policies fail to arrest the rising debt trajectory or if Barbados’s economic recovery is delayed.”

The International Monetary Fund, in a report published in October 2011, suggested that measures taken to date had fallen short in terms of bringing the island's fiscal house into order. “While recent measures to bolster revenues, including the hike in the value-added tax rate were bearing fruit, losses in state owned bodies continue to be a drag,” the IMF added. The Fund admitted that the lacklustre recovery in the island's economy presented significant challenges.

The Fund predicts that growth in Barbados is to amount to just 1% of GDP in 2011, despite improved tourism arrivals.

TAGS: tax | business | fiscal policy | international financial centres (IFC) | offshore | Barbados

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