Beautiful Barbados is a well run, stable & peaceful country, a 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. In contrast to the other countries offering financial services in the Caribbean, Prime Minister Owen Arthurs and his responsible government have given Barbados the label of 'BUSINESS HAVEN'. Barbados tax haven status coupled with favorable business laws, tax incentives, grants, a very pro-business friendly government is attracting large levels of international investment and net capital inflows. The business environment consists of an english speaking work force with much lower wages when compared to the United States and Europe. With a demographic profile of a modern developed nation, Barbados hosts excellent satellite communication, international air travel and minimal government intervention.
POLITICS: independence from the United Kingdom in 1966. Prime Minister Owen Arthurs has held power since 1994.
ECONOMY: during year 2001 after 8 consecutive years of economic growth, Barbados finally entered a recession mirroring economic developments in the United States with year 2002 experiencing a further economic contraction. 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 surpassed sugar cane as the nation's largest income earner. From 1990-93, lower growth rates and higher volatility in capital flows created economic difficulties where unemployment peaked at 25 percent. The overall Barbadian economy is now stable due to prudent management, a reform package & stabilization policies resulting in an increasing international reserve position and sound macro-economic fundamentals including price stability and a lower unemployment level in the 9 to 10 percent range. Tourism arrivals has fallen 10 percent over the last 2 years although the outlook is mixed as it depends upon global security issues. Both the United States and the United Kingdom are important trade partners to Barbados.
Economic Statistics
GDP as measured by purchasing power parity is at $4 billion USD (2001), GDP/Capita is at $14,500 USD. GDP/Capita as measured by market prices have the figure at $7,350 USD. GDP growth fell by 1.8 percent in 2002 and contracted by a sharp 2.7 percent in 2001 at the start of the recession. Inflation has fallen from 7.7 percent in 1997 to the current 2.5 percent level. The current account is in deficit as year 2002 came in at 3.5 percent of GDP, 2001 at 3.7 percent. Capital account surpluses have offsetted this shortfall. National economic objectives for Barbados include 2.5 to 3.0 percent GDP growth coupled with inflation at 2 percent. Government fiscal deficit is at 1.25 percent of GDP. External debt to GDP is relatively low at 29 percent.
POSITIVE: government is privatizing and actively encouraging foreign investment, 97.6 percent literacy level, 76.4 year average life expectancy, high savings rate. CONCERN: ageing population within a generous social safety net, net importer of oil.
BANKING SYSTEM: sound with a well developed banking & insurance industry, international bank presence is plentiful. Non-performing loans are at 5 percent. Broad money growth came in at respectable 5.5 percent for 2002. Net international reserves are good at $700 million USD representing 6 months import coverage for year 2002. 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.
REGIONAL: Caribbean
CARICOM (Caribbean Community and Common Market) members and Barbados reveal a large labor cost differential as Barbados enjoys a much higher standard of living when compared to many of its neighbors within the southeastern Caribbean.
KNOWLEDGE: during year 2001, the offshore banking services industry in Barbados actually contracted due to Barbados' being on the list of the OECD's list of non-cooperative tax havens. By early 2002, Barbados was removed from this black list. Offshore financial services will play a vital role in the future economic well being for Barbados as this island nation is highly densely populated with 275,000 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 1.5 percent of Barbadian exports (total agriculture exports are only 5 percent of Barbados total) reflecting a major drop from its traditional income earner. Barbados is one of the world's preferred low tax destination for manufacturing, information technology and financial businesses.
CURRENCY: ISO symbol 'BBD', Barbadian dollar. At the time of review on April 12, 2003, the Barbadian dollar was valued at a level of 2 BBD to 1 US-dollar ('USD') as it has since July 5, 1975 reflecting the exchange peg to the USD. The Barbadian government is committed to this exchange peg as it has served Barbados well and helped to foster confidence in the Barbadian economy.
CURRENCY HISTORY: 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: BI.C forecasts the peg to stay as the USD has experienced a modest depreciation over the last 15 months in relation to many currencies including the Euroland euro. If however, the USD falls hard due to very unexpected circumstances, Barbados may indeed considering readjusting the exchange peg to a new appreciated level of 1.5 BBD to the USD in order to maintain price stability within Barbados. The increased global purchasing power of the euro may attract more European tourist arrivals as Europeans may find Barbados a cheaper place to visit with the exchange gain. This euro appreciation has reflected in Barbados accounting for a strong pick up in tourism in the 2nd half of year 2002 from Europe. European tourism will help to generate continued prosperity for Barbados.
Currency risk or devaluation to the peg will remain as Barbados is a small economy, thus making Barbados continually vulnerable to economic shocks. For example, any 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. However, the recent increases in the official international reserves further supports the exchange peg in the short term. Currency risk is minimized by Barbados sound fundamentals. UPDATED: April 12, 2003
