Central Bank of Barbados’ Comment on Standard and Poor's downgrade

The downgrade of Barbados' credit by Standard and Poor's is without justification. The current performance of the Barbados economy is better than a year ago in every dimension. The foreign exchange reserves have stabilized and there is no longer a threat to the value of the Barbados dollar. Tourist arrivals have held up in 2014, and tourist expenditures are estimated to have increased modestly. Airlift has increased for the coming winter tourist season and the tourism outlook has improved. We are witnessing the beginnings of a turnaround in hotel and villa construction, upgrades and refurbishment of tourism facilities, and other construction. The growth of tourism and construction and spinoffs to retail and business services should yield growth of about 1.5 percent in 2015.

Government has demonstrated commitment and fortitude in addressing the fiscal deficit. The adjustment was front loaded, with the shedding of 10 percent of the public sector work force and the introduction of university fees, along with tax and expenditure measures. Progress has been monitored and adjustments have been made throughout the year. In his most recent statement on December 16 the Minister of Finance made public the budgetary limits set for state owned enterprises, to achieve a fiscal target of no more than 7.2 percent, a saving of 5.3 percent, on the deficit for the last fiscal year.

In his December 16 statement the Minister of Finance  also provided further evidence of Government's firm commitment to fiscal consolidation: measures to limit tax exemptions are to be introduced in April, special temporary taxes that expire in March are to be renewed for one more fiscal year, and legislative limits on fiscal spending will be brought into force. Fiscal consolidation, improved public sector productivity and the achievement of a low and sustainable fiscal deficit remain the objectives of Government's medium term fiscal adjustment programme.

The servicing of Government's external debt presents no challenges, with a ratio of no more than 10 percent of expected foreign receipts on the current account devoted to interest and repayment. Interest payments absorb almost 30 percent of Government revenues, a proportion which is being reduced with the reduction in short term interest rates.

Barbados remains among the most entrepreneurial, competitive, transparent economies in Latin America and the Caribbean, and it enjoys a quality of life that is among the region's best. Our country is greatly admired for the strength of its institutions, which enables it to address difficult economic circumstances with a sense of purpose and with policies which produce sustainable growth and protect the value of our currency. We are confident in our economic strategy, and we will pursue it to success, with resolute determination and singleness of purpose.

December 20, 2014.