Barbados

major macro economic indicators

(e): Estimate (f): Forecast *Fiscal year from April 1st to March 31st. 2023 data: 2023/24

Risk Assessment

Resilient growth thanks to tourism

Recovery in tourism (30% of GDP compared to 40% in 2019) boosted activity in 2022. Growth will resist external pressures in 2023. First of all, tourism (generating 40% of jobs in 2022) will continue to drive activity, although the gloomy Anglo-Saxon economic situation could slow its recovery. Added to the positive impact of easing inflation on household income, economic growth will favour domestic consumption (52% of GDP in 2022), despite a possible fall in expatriate remittances (2.5% of GDP in 2023) which mainly come from North America. Moreover, private investment (15% of GDP in 2022) will increase in tourism infrastructure, the renewable energy sector, and the financial sector, and continue to offset the decline in public investment (2% of GDP in 2022). Last, the slowdown of CARICOM neighbours (73% of exports of goods, excluding hardware in 2021) will have little impact on industrial and agricultural production. Exports of fuel (21% of total exports in 2021), rum (17%), paper labels (4%), cement (3%) and margarine (3%) will increase moderately, while sales of medical re-agents (7%) are set to increase significantly.

Durably high current account deficit and public debt despite fiscal consolidation

In spite of the recovery in tourism, the increase in oil (10% of GDP) and food (8%) imports widened the current account deficit in 2022. The deficit should remain high in 2023. The relative decline in energy and food prices, as well as the moderate rebound in tourism, will reduce the trade deficit (6% of GDP for 2023). The income balance (2% of GDP for 2023) is expected to remain in deficit due to the increase in profit repatriation by foreign tourism operators and the decrease in expatriate remittances. FDI inflows (5% of GDP in 2023) and multilateral loans (less than 3% of GDP, with the IMF, IADB and others) will balance the current account deficit. In addition to energy and food dependence, the high level of the deficit can be explained by imports of hotel equipment (31% of imports in 2021, 10% of GDP in 2022) and automobiles (respectively 5% and 2%). Last, the reserves of the Central Bank of Barbados remained sufficient (7 months of imports in February 2023) to ensure the currency peg to the USD.

The fiscal deficit decreased in 2022 after having increased owing to the Covid-19 pandemic. Fiscal consolidation will continue in 2023. A large primary surplus (i.e., excluding interest charges) has been achieved (3.1% of GDP in 2023 compared to 2.8% in 2022). First, tourism revenues will continue to support tax revenues (29% of GDP for 2023). Second, public expenditure (26% excluding interest) will be more limited. The recapitalisation of the National Insurance and Social Security organisation will be offset by the tightening of salaries in the civil service. In addition, the debt burden will remain high (at least 4.4% of GDP by 2023).

A new Economic Recovery and Transformation Plan (BERT) that will run until 2027 goes hand in hand with the two joint IMF programmes concluded at the end of 2022 for 36 months: the Extended Fund Facility (USD 113 million) and the Resilience and Sustainability Facility (USD 293 million), totalling 6.1% of 2023 GDP. These facilities will provide valuable financing for the green transition, vocational training, and education, low- and middle-income housing construction, as well as capital for tourism companies and central bank reserves. In addition, the need for public financing (10% of GDP for 2023) will remain sustainable as it is mainly financed by concessional external borrowing. On that score, following debt restructuring in 2018-2019, maturities of domestic debt (60% of the total debt in 2023) were extended. Public debt (60% domestic and in local currency, 40% external and in foreign currency) was restructured in 2018-2019, allowing a large reduction in service costs. The domestic portion, which is largely short term, was either converted into long-term debt or benefited from a commitment by commercial banks to automatically renew it over 10 years. As for external debt, the bond maturing in 2029 (USD 530 million) benefits from a grace period of 5 years. In total, the restructuring operation reduced the total outstanding amount by an equivalent of 30% of GDP. In addition, in a so-called "Blue bonds" agreement concluded at the end of September 2022, the Inter-American Development Bank and The Nature Conservancy enabled the buyback and conversion of USD 154 million of onerous debt by providing a guarantee, redirecting the interest saved to the preservation of 30% of the Barbadian seabed by 2030.

Continued fiscal reforms and crime concerns

Since the 2021 referendum abolishing British royalty on the island (but not Commonwealth membership), former Governor General and non-partisan Sandra Mason has been the state's president. Prime Minister Mia Mottley of the moderate left-wing Labour Party, who was re-elected for a second 5-year term in the January 2022 snap elections, enjoys large popularity and an overwhelming parliamentary majority (all 30 MP seats and 12 of the 21 Senate seats). Under BERT and the new agreement signed with the IMF, she will continue to implement fiscal reforms, with the notable aim of achieving a primary surplus of 6% in the medium term, thereby reducing debt to 60% of GDP by 2035, and restructuring loss-making public enterprises. Crime fuelled by drug trafficking and poverty will warrant a tougher criminal response. Diplomatically, Barbados will maintain close relations with the US, CARICOM and the UK, particularly in the fight against global warming, drug and arms trafficking, and organised crime. However, the country has been a member of the New Silk Roads since 2018, with China reportedly investing over USD 100 million in infrastructure since 2013.

Last update: June 2023