The ratings on Barbados reflect increasing external pressures because of high current account deficits (10% of GDP in 2004 and 2005) and a consequent increase in external debt, much of it short term. As a result, and combined with declining international reserves, external liquidity has continued to deteriorate, with key liquidity indicators expected to weaken in 2005-2006. High fiscal imbalances, increasingly incompatible with the fixed-exchange-rate regime, place significant pressure on balance of payments, as they lead to high and rising merchandise imports for both consumption and investment goods at the time of a secular decline in the merchandise exports. The fiscal 2005 budget envisages an increase in capital spending ahead of the World Cricket Cup to be held in Barbados
