The Central Bank of Barbados has joined the government indicating that it was not surprised at the decision of the Moody's Investors Service to downgrade the island's credit rating to Ba1, into junk territory.
Finance Minister Chris Sinckler said that it was generally expected that since Standard and Poor's had made their adjustment to the country's credit rating some months ago, it was altogether likely that Moody's would align their rating accordingly.
The Central Bank added, however, that Barbados' economic strategy remains unaffected by the downgrade, and continues to focus on conserving foreign-exchange reserves and growing the foreign exchange-earning sectors.
"Thanks to a sufficiently tight fiscal stance, foreign-exchange reserves of BDS$1.4 billion on December 19, 2012, have been maintained at about the same level as at end-December last year."
Moody's rating also carries a negative outlook, with the rating agency saying that Barbados' economic prospects remain weak "due to its deteriorating competitiveness and declining productivity coupled with heavy dependence on tourism, particularly from the United Kingdom and the United States."
The Central Bank of Barbados' strategy for restoring sustainable growth is centred on the resurgence of tourism, international business, agriculture and agro-processing and the development of alternative energy, to ensure that there are additional foreign earnings to meet the demand for imports that will come with renewed growth.
"Moody's credit opinion acknowledges the high proportion of domestic debt in government's portfolio; because maturing debt is usually rolled over, and there are no extraordinary peaks in the amortisation profile, there is little risk that the expected domestic financing will not materialise," said the rating agency's statement.
"External debt service is only about seven per cent of the country's earnings of foreign exchange in 2012. In addition, government's Medium Term Fiscal Strategy (MTFS) sets out a sustainable path via which the country's debt can be reduced to comfortable levels by the fiscal year 2016-2017."
The Central Bank said the current pace of fiscal consolidation under the MTFS has helped to constrain the growth in the fiscal imbalance and the level of debt.
"A tighter fiscal stance is possible but undesirable: it would slow the growth of debt because the financing needs would be lower, but it would also cause economic contraction and aggravate the loss of jobs. The ratio of debt to GDP might well turn out to be even higher than is currently projected."