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The Impact of the Sectoral Distribution of Credit on the External Current Account in Barbados

  • Central Bank Of Barbados
  • 23 May,2023
  • 114
  • Working Papers,
  • Print

This paper seeks to determine the impact that the growth in the sectoral distribution of credit and other control variables can have on the external current account balance in Barbados. To do so, it employs an ARDL bounds testing cointegration approach coupled with quarterly data from 1994 to 2017. The findings suggest that increased credit to the public sector and households has both a short-run and long-run negative impact, while credit to the secondary sector only has a negative short-run impact on the current account. Additionally, other variables such as international prices, foreign incomes, external interest rates and the output gap can influence the current account balance in Barbados. This suggests that greater efforts are needed to increase the export base of the country and control the accumulation of external government debt. Moreover, the country can benefit by diversifying its exported goods and services to take advantage of increased foreign incomes in the long-run.

The_Impact of the Sectoral Distribution of Credit on the External Current Account