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Moody’s rejects Central Bank’s growth projection

International ratings agency Moody’s has rejected the Barbados Central Bank’s growth projection of 0.3 per cent for this year.

Pointing to what it described as the island’s fiscal challenges and persistent economic weaknesses, Moody’s warned today that instead of growth, the local economy was expected to contract by 1.0 per cent in 2014. “Exacerbating the credit-negative fiscal trends, Barbados’ economy continues to struggle, and was unable to achieve growth in the first six months of this year, extending its subdued performance over the past seven years,” reported the global ratings agency.

It expects ongoing challenges in the key industries of tourism and offshore services, as well as austerity measures to weigh down economic activity for the rest of the year.

“Therefore, we project a 1.0 per cent year-over-year contraction in 2014,” Moody’s said.

Despite recent positive developments in tourism, such as an additional chartered flights out of Europe, it also pointed out that Barbados’ main industry continues to face significant headwinds.

“In the first half of 2014, total visitors declined 0.2 per cent year-over-year from the low base established last year,” stated the entity.

Moody’s also said that, given the larger budget gap in the last fiscal year, it was now estimating that the Freundel Stuart administration needed a total adjustment of at least $450 million (5.2 per cent of projected 2014 GDP), to reach its deficit objective in the current fiscal year.

“The fiscal first quarter ended in June was an important test for the Government’s ability to deliver its ambitious deficit reduction programme, introduced in August 2013, as the majority of measures are targeted to take effect in the current fiscal year,” said Moody’s.

The agency said that although it foresaw fiscal consolidation to accelerate over the next three quarters, Government will remain constrained by revenue underperformance, difficulty reining in transfers and subsidies and rising interest costs.

“Consequently, we are adjusting our 2014 budget deficit projection to 8.5 per cent of GDP from 8.0 per cent, about two percentage points above the Government’s target, with risks firmly tilted to the downside,”

Moody’s said that while public sector layoffs completed earlier this year had reduced the Government’s wage bill by about nine per cent relative to the first quarter of the previous fiscal year, transfers and subsidies – the largest item on the expenditure side – declined only 1.6 per cent.

It noted that interest expense had increased by 14 per cent, limiting the overall decrease in fiscal outlays to just 1.3 per cent.

“In our view, this illustrates how difficult it is for the Government to curtail socially sensitive expenditures and control interest costs,” Moody’s added.

The ratings agency also expressed concern over the state of the country’s foreign reserves.

“After recovering slightly during the previous three quarters, foreign exchange reserves have resumed their decline, and as of 30 June, remained around 25 per cent below early-2013 levels. This decline occurred, despite a slight recovery in long-term private financial inflows that traditionally help support the Central Bank’s international reserves,” Moody’s said, while cautioning that any further erosion in reserves would likely put added pressure on this country’s currency, which is pegged to the US dollar.


8 Responses to Moody’s rejects Central Bank’s growth projection

  1. Nicksie No Regrets Clarke
    Nicksie No Regrets Clarke July 23, 2014 at 10:57 pm

    Surprise surprise -_-

  2. Dean Scantlebury
    Dean Scantlebury July 23, 2014 at 10:59 pm

    I think we all knew the growth percentage quoted by the Central Bank’s mouthpiece was a lie.

  3. Ryan Bayne
    Ryan Bayne July 23, 2014 at 11:02 pm

    I already know that Moody’s got Central Bank on their toes.

  4. Movement of Concerned Citizens
    Movement of Concerned Citizens July 23, 2014 at 11:58 pm

    So did we!

  5. Zakir Hussain Patel
    Zakir Hussain Patel July 24, 2014 at 12:02 am

    U do know MOODY”S are bunch of JHONNY:S with no History, Look at Wanna Self problems b4 grading Others

  6. Santini More
    Santini More July 24, 2014 at 6:24 am

    Since these incompetent jokers came to power, Moody’s forecast for the Barbados economy has been more accurate than the Minister of Finance or the Governor of the Central Bank….Time to stop the lies, We the people of Barbados deserve better.

  7. bernard and india walker July 24, 2014 at 11:16 am

    Right now . I can say that you are not paying close eyes on what you can import as a money maker . With your country being a year round (almost) warm weather place. Attention to where I live USA and Europe and the far east. Brazil any 1 ??. World cupperz still have to vacation. Now to the serious stuff. Who did Rihanna hire for the Monster tour !! Dancers first

  8. Patrick Blackman July 24, 2014 at 1:26 pm

    I don’t understand how bajans can believe everything this rating agency says and not what the governor has said. These agencies are criminal organizations who work for the highest bidder. Don’t you fools remember 2008 when they rated all the bonds and securities at the highest rating when they knew that they were junk. And you trust these crooks. Shame on you…..


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