Sep 2006 Financial News

Barbados' Economy at 'delicate stage'

Sep 01, 2006

BARBADOS' ECONOMY is at its most vulnerable stage since the turn of the 21st century when it comes to external shocks.

But people shouldn't push the panic button, suggests Moody's Investors Service, because the vulnerability index, which more than doubled since 2001, is expected to decline this year and in 2007, albeit by a small margin.

The vulnerability index, which measures the extent of a nation's exposure to external and other economic shocks, was at 50.3 in 2001, rising to 71.2 in 2002. But it skyrocketed to almost 113, last year.

"Barbados' external vulnerability indicator has deteriorated since 2001 and it is now higher than the average of similarly rated countries," warned Moody's.


Foreign currency

Countries which match Barbados' A1 foreign currency ceiling for bonds, range from Bulgaria and Croatia to Korea and Mexico. Nations like India, Indonesia, Colombia, Costa Rica, Egypt, El Salvador, Guatemala, Honduras, Jamaica, Jordan, Mauritius, Romania, Suriname, Jamaica, Morocco, Nicaragua, Argentina, the Dominican Republic and Panama are rated lower than Barbados.

The world's richest nations, including Canada, the United States, Britain, Italy, France, Germany and other members of the Europe Union, are all rated above Barbados with an Aaa rating.


Business sector

But in focusing Wall Street's attention on Barbados' vulnerability indicator, Moody's was quick to point to some "mitigating" factors.

At the top of the list "is the fact that a sizeable increase in non-residential deposits directly related to the growth of the country's international business sector" contributed to a "part of the deterioration". The deposits were not "of a speculative nature", Moody's explained.


Assets

Secondly, Barbados' authorities "can request the private sector to repatriate a portion of their assets held abroad – the so-called second tier reserves", if the country ran into some turbulent economic head winds.

Rubbing its economic crystal ball, Moody's forecast for Barbados includes:

Economic growth of four per cent this year and in 2007;

A slight decline in the nation's current account deficit;

A drop in the level of external debt this year and in 2007;

Continued tapering off of inflation this year and again in 2007; and

General government debt as a percentage of revenue should remain at a standstill at 61.3 per cent in 2006 and 2007.

BARBADOS' ECONOMY is at its most vulnerable stage since the turn of the 21st century when it comes to external shocks.

But people shouldn't push the panic button, suggests Moody's Investors Service, because the vulnerability index, which more than doubled since 2001, is expected to decline this year and in 2007, albeit by a small margin.

The vulnerability index, which measures the extent of a nation's exposure to external and other economic shocks, was at 50.3 in 2001, rising to 71.2 in 2002. But it skyrocketed to almost 113, last year.

"Barbados' external vulnerability indicator has deteriorated since 2001 and it is now higher than the average of similarly rated countries," warned Moody's.


Foreign currency

Countries which match Barbados' A1 foreign currency ceiling for bonds, range from Bulgaria and Croatia to Korea and Mexico. Nations like India, Indonesia, Colombia, Costa Rica, Egypt, El Salvador, Guatemala, Honduras, Jamaica, Jordan, Mauritius, Romania, Suriname, Jamaica, Morocco, Nicaragua, Argentina, the Dominican Republic and Panama are rated lower than Barbados.

The world's richest nations, including Canada, the United States, Britain, Italy, France, Germany and other members of the Europe Union, are all rated above Barbados with an Aaa rating.


Business sector

But in focusing Wall Street's attention on Barbados' vulnerability indicator, Moody's was quick to point to some "mitigating" factors.

At the top of the list "is the fact that a sizeable increase in non-residential deposits directly related to the growth of the country's international business sector" contributed to a "part of the deterioration". The deposits were not "of a speculative nature", Moody's explained.


Assets

Secondly, Barbados' authorities "can request the private sector to repatriate a portion of their assets held abroad – the so-called second tier reserves", if the country ran into some turbulent economic head winds.

Rubbing its economic crystal ball, Moody's forecast for Barbados includes:

Economic growth of four per cent this year and in 2007;

A slight decline in the nation's current account deficit;

A drop in the level of external debt this year and in 2007;

Continued tapering off of inflation this year and again in 2007; and

General government debt as a percentage of revenue should remain at a standstill at 61.3 per cent in 2006 and 2007.

Tony Best
National News (Barbados)
Wednesday, August 30, 2006
http://www.nationnews.com/story/365443642362865.php