Beautiful Barbados is a stable and peaceful country, a historically prosperous island paradise located in the southeastern Caribbean. It has earned the status of middle income nation based primarily on tourism and financial services similar to the growing pattern within many Caribbean nations today although Barbados is one of the most developed Caribbean countries. Barbados over the years has earned the label of 'BUSINESS HAVEN'.
POLITICS: independence from the United Kingdom in 1966. Prime Minister David Thompson of the Democratic Labor Party (DLP) has held power since January 2008, next election in 2013.
ECONOMY: severely impacted by the current global financial crisis of 2008-10.
In the early 1990's, Barbados made a strategic economic shift from agriculture and sugar exports to new key industries including tourism, light manufacturing and offshore financial & banking services. It was during the 1990's that these new higher paid industries such as offshore financial services, tourism and light industry surpassed sugar cane as the nation's largest income earner.
Historically, there has been at times where Barbados small economy hits significant financial turbulence. From 1990-93, lower growth rates and higher volatility in capital flows created economic difficulties where unemployment peaked at 25 percent. During the other years, stability took hold year after year due to prudent management, a reform package & stabilization policies resulting in an increasing international reserve position and sound macro-economic fundamentals.
At present, the economic situation is dicey for Barbados with a trade & fiscal deficit, a national debt that is exploding at over 110 percent of GDP due to a drop in tourism and offshore financial service revenues. National economic objectives for Barbados include 2.5 to 3.0 percent GDP growth coupled with inflation at 2 percent.
Economic Statistics
Total GDP as measured by purchasing power parity stands at 5 billion USD (2009) with corresponding GDP per Capita at 17,700 USD. Total GDP as measured by market prices has the figure at 3.6 billion USD. GDP growth is forecasted at zero growth for 2010, year 2009 fell by a stunning 5.6 percent, year 2008 at positive tepid 0.7 percent, year 2007 at 3.3 percent, year 2011 projected at 2 percent. Inflation quotes include year 2007 at 5.5 percent, April 2010 at 3.7 percent, recent inflation peak occurred in September 2008 at 11.2 percent. The current account is in deficit, year 2006 came in at a very large 12.5 percent of GDP, year 2009 lower at 5 percent. The trade shortfall measured at 1.2 billion USD (2007). Government fiscal deficit came in at 8.5 percent of GDP (2009), the fiscal account was last in surplus in year 2005. Unemployment currently measured at 10.6 percent. Composition of economy at 78 percent services, 16 percent industry, agriculture at 6 percent. Within the energy sector: electricity is balanced, the oil account is in deficit at approximately 8,600 bpd (2007) and the natural gas account is balanced. Major trade partner: Trinidad and Tobago.
POSITIVE: 97.6 percent literacy level, 76.4 year average life expectancy, high savings rate, low crime rate, political stability, sovereign debt at investment grade status, potential to further exploit natural resources within petroleum, natural gas and fish.
CONCERN: ageing population within a generous social safety net, net importer of oil.
BANKING SYSTEM: sound, a well-developed banking & insurance industry and highly regarded international bank presence. Net international reserves are comfortable at 615 million USD (2010) representing 6 months import coverage. Several of the world's most prestigious and well known global banks have branch offices in Barbados due to its sophisticated telecommunications infrastructure and favorable tax & banking laws. Central Bank of Barbados provides for sound monetary policy, the discount rate was at 10 percent (2008).
KNOWLEDGE: Offshore Financial Services
Offshore financial services will play a vital role in the future economic wellbeing for Barbados as this island nation is highly densely populated with 284,500 (2010) people and is limited by its small geographical size of just over 431 square miles. In order to maintain its middle income status, offshore banking services is the only logical way to achieve this goal as sugar cane exports have fallen dramatically over the decades as it now only represents 1 percent of GDP reflecting a major drop from its traditional income earner. Barbados is one of the world's preferred low tax destinations for manufacturing, information technology such as software & database management and financial businesses.
CURRENCY: ISO symbol 'BBD', Barbadian dollar, Barbados dollar. At the time of review on August 14, 2010, the Barbadian dollar was valued at a level of 2 BBD to 1 US-dollar ('USD') and/or 2.5508 BBD to the Euroland euro (EUR). The hard peg to the USD has been in place since July 5, 1975.
CURRENCY HISTORY: the BBD replaced the East Caribbean dollar (XCD) at par in 1973. The XCD circulated from 1965 until 1973 where the XCD replaced the former British West Indies dollar. Barbados did experience a foreign exchange currency crisis in 1990-91 resulting in fiscal discipline in order to restore balance. Appreciation of the USD from 1995 to 2000 did hurt Barbados international competitiveness with the fixed exchange peg.
CURRENCY FORECAST: BankINTRO.com is forecasting that USD peg is now vulnerable to devaluation, perhaps a new valuation of 3 BBD to the USD maybe required. Economic variables need to be realigned such as exports and to make labor relatively less costly for tourism, etc. The labor cost structure is out of whack in Barbados where it is cheaper to import than produce at home. The BBD currency is overvalued.
Devaluation risk to the peg has been heightened after a long period of stability. Barbados a small economy with an unsustainable public debt is now becoming more vulnerable particularly if GDP growth does not return with a strong thump in 2011. significant prolonged drop in tourist visits, a serious change to international tax and/or banking laws, and any change in the status of protected sugar markets abroad could impact the capital account or deplete international reserve holdings. Barbados current healthy official international reserves position helps to support the currency but continued play of negative macro-economic variables suggests Barbados may indeed be at one of those blue moon moments of currency exchange pressures. Barbados seems to be presently in the eye of the hurricane storm, are more violent economic winds possibly to take hold in the near term?
East Caribbean Dollar (XCD)
One possible scenario is for Barbados to rejoin the Caribbean common currency zone.
CARICOM (Caribbean Community and Common Market) and adopt the East Caribbean dollar (XCD) for further exchange stability as Barbados is held hostage to world macro events due to its tiny economy. Membership to a currency zone will help to shield this external risk. For further information on the XCD, please visit the currency summary in the BankINTRO.com currency index for “East Caribbean dollar”.
