The US-based international rating agency, Moody Investors Service, has given Barbados a negative rating outlook indicating that the islands fiscal deficits would remain high for the next few years.
Moodys said that the Baa3 local and foreign currency bond ratings reflect the islands medium economic strength, high institutional strength, low government financial strength, and medium susceptibility to event risk.
Moody's opinion on Barbados' credit rating remains unchanged since June 2011.
Barbados' ratings have a negative outlook. The negative outlook reflects Moody's view that even if deficits continue decreasing slowly as contemplated by the government's strategy of gradual fiscal consolidation, they are likely to remain large in absolute and relative terms for the next few years, the agency said.
It said that as a result, government debt ratios could soon deteriorate to levels that are not consistent with an investment grade rating.
The negative outlook also reflects the possibility that pressures on Barbados' fixed exchange rate could result due to the increasing current account deficit in a context of the government's large fiscal deficit, it said.
Moodys said that given the negative outlook, Barbados' ratings are unlikely to face upward pressure in the near-to-medium term.
The outlook could return to stable if Moody's determines that the government is likely to exceed the currently anticipated pace of fiscal consolidation, economic growth is likely to pick up on a sustained basis, and the government presents a credible medium-term plan to reverse the recent increase in debt ratios, said the rating agency.
It said that relatively high income levels historically supported by its strong reputation as a tourist destination and sound financial system given a strong presence of Canadian-owned banks, also contribute to the islands credit strengthens.
But it noted the challenges include large fiscal deficits that are expected to remain high for the next several years, high and increasing government debt ratios, poor economic growth prospects, limited economic diversification, deteriorating competitiveness and growing external imbalances.
Earlier this week, the Central Bank of Barbados (CBB) said that the global economic crisis is slowing the inflows of foreign exchange into the island and as a result it recorded economic growth of less than one per cent.
The CBB said the global environment continues to constrain prospects for a vigorous economic recovery as the poor economic performances of the United Kingdom and the United States continue to depress demand for Barbados tourism services.
However, modest gains are expected from the gradual improvement in length-of-stay. Private investments in tourism-related projects and corporate building activity are anticipated to further expand construction output for the remainder of 2012.