Above: Bridgetown (CJ Photo)

By the Caribbean Journal staff

New York-based ratings firm Moody’s Investors Service has downgraded Barbados’ government bond rating to B3 from Ba3.

The three-notch downgrade reflected several factors, Moody’s said, including the increasing size of the country’s fiscal deficit, increasing government debt ratios and an expected decline in international reserves this year.

The firm also pointed to central bank financing of the country’s fiscal deficit, which it said would “increase pressure on the country’s currency peg to the US dollar.”

The country’s fiscal deficit exceeded 11 percent of GDP in the 2013/2014 fiscal year, while debt ratios are projected at above 100 percent of GDP by fiscal year 2014/2015.

The country’s outlook remains negative, reflecting what Moody’s called an expectation that the government would “continue to find it difficult to meet its fiscal deficit targets owing to both weak revenues and expenditure rigidities,” along with high levels of domestic short-term borrowing undermining the country’s government debt profile and continued central bank financing of the fiscal deficit.

“While an upgrade is unlikely given the negative outlook, we could stabilize the outlook if the government’s fiscal consolidation plan leads to a stabilization of debt ratios, the economic outlook improves on a sustained basis with GDP reporting positive growth, the government materially decreases its reliance on short-term debt and central bank financing, and international reserves steadily increase,” the firm said.