Barbados

Growth driven by tourism

After a strong post-pandemic recovery in 2022, growth moderated in 2023 but remained robust. Economic activity was still supported by the ongoing recovery in tourism (constituting about a third of GDP), with arrivals reaching 90% of their 2017-19 levels (January-September), facilitating the revival of the hospitality, retail, transportation and real estate sectors. In 2024, growth will be slightly lower as the recovery begins to fade. Tourism will continue to be a significant driver, although the anticipated slowdown in the UK and the US, key source markets, could impact arrivals. Financial services will also continue to expand. Private consumption (85% of GDP) will be a growth engine, benefiting from lower inflation despite local pressures on food prices and a durably high oil bill. Given the peg to the dollar and heavy dependence on US imports, an expected decrease in inflation in the United States will contribute to moderating prices in Barbados. Public consumption (12% of GDP) will be constrained by budget consolidation efforts. Investment (18% of GDP), mainly private, will grow with the development of projects related to tourism, climate, renewable energy and the financial sector.

Continuation of budget consolidation

A new Economic Recovery and Transformation Plan (BERT) that is in place until 2027 is accompanied by two joint IMF programs which were concluded in late 2022 for 36 months: the Extended Credit Facility (USD 113 million) and the Resilience and Sustainability Mechanism (USD 189 million). These programmes aim to finance structural reforms to enhance the country's resilience to climate change, diversify the economy, manage the debt trajectory and promote social cohesion. During the 2022-23 fiscal year, the primary surplus, amounting to 2.5% of GDP, exceeded the jointly defined target with the IMF (2% of GDP). This performance is primarily a result of improved tax collection and a gradual reduction in pandemic-related expenses. For 2023-24 and 2024-25, budgetary performance is expected to remain strong. Continued fiscal consolidation is projected to increase the primary surplus, excluding interest on debt, to 3.5% of GDP in 2023-24, aligning with the programme's targeted ratio. Efforts will mainly focus on expenditures, including reforms targeting the pension system and state-owned enterprises. Public debt, of which about 40% is external, was restructured in 2018/2019, reducing the total outstanding by the equivalent of 30% of GDP. Furthermore, under a "debt-for-nature" agreement (Blue bonds) concluded in late September 2022, the Inter-American Development Bank and The Nature Conservancy facilitated the repurchase and conversion of USD 154 million of expensive debt by providing their guarantee, redirecting the saved interest towards the preservation of 30% of Barbados' marine areas by 2030. The public debt burden will continue its downward trajectory. Assuming sustained fiscal discipline, it is expected to reach its target of 60% of GDP by 2035-36.

The narrowing of the current account deficit will be much smaller in 2024 than in 2023. While exports of financial services will maintain their momentum, the revival of tourism is expected to slow. Additionally, imports related to the rebound in consumption and investment will increase. Moreover, the country's high dependence on imports makes it vulnerable to fluctuations in global commodity prices. The current account deficit will continue to be financed by foreign direct investment (FDI) and multilateral organisations. Foreign exchange reserves, estimated at approximately 8 months of imports in September 2023, will maintain a comfortable level and increase as the current account deficit narrows.

Governance facilitated by a stable political environment

Since the 2021 referendum abolishing the British monarchy on the island while still maintaining Commonwealth membership, former Governor-General Sandra Mason has been the President of the island state. Prime Minister Mia Mottley, from the Barbados Labour Party (a moderately left-wing party), was re-elected for a second five-year term in the January 2022 snap elections. She enjoys significant popularity and her party wields an overwhelming parliamentary majority (all 30 seats in the House of Assembly and 12 of the 21 Senate seats). In this context, political stability is expected to be guaranteed until the next elections, anticipated in 2027. The conduct of policy, including the continuation of budgetary reforms under BERT and agreements with the IMF, should be facilitated. In response to increasing gang-related violence, Barbados has strengthened its criminal response for firearm-related crimes, as demonstrated by the Firearms Amendment Act 2022, which came into force on 1 January, 2023

On the foreign policy front, Barbados will maintain close relations with the United States, CARICOM, and the United Kingdom, particularly in the areas of combating climate change, drug and arms trafficking, and organised crime. At the same time, the country will strengthen its ties with Beijing, based on increased trade and investments. Since 2018, Barbados has been a participant in the New Silk Road initiative; China is reported to have invested over USD 100 million in infrastructure since 2013.

Last updated: December 2023