Growth In Barbados Will Accelerate In 2022 As Tourism Rebounds

  • Barbados’ real GDP growth is expected to accelerate from 1.7% in 2021 to 7.5% in 2022 as the effects of the COVID-19 pandemic diminish. Following a slower than expected rebound in international tourism in 2021, over the coming months, Fitch expects that growing demand for international tourism and rising vaccination rates in source markets will provide tailwinds to growth. 
  • However, rising oil prices caused by the Russia-Ukraine conflict will keep energy and commodity prices elevated in both Barbados and key tourism source markets, weakening purchasing power, possibly resulting in elevated ticket prices and undercutting growth. 
  • In accordance with Barbados’ debt reduction programme, it is expected that expenditure growth will slow to 4.2% in FY2021/2022, from 15.1% in FY2020/2021. Over the coming years, the government is expected to further tighten fiscal policy as pandemic-era spending is removed. After government debt exceeded 160.0% of GDP in 2018, Barbados entered into a four-year Extended Fund Facility with the IMF. While the guidelines of the programme were temporarily suspended to account for Covid-19-related spending, the government will return to prioritising fiscal consolidation in 2022, inhibiting growth. 
  • In addition, investment has remained muted in recent years. The rapid rise in government debt weakened Barbados’ attractiveness for investment. Foreign direct investment increased by just 2.6% y-o-y in H1 2021, from an estimated 22.0% increase in 2020. Over the coming months, however, we expect that the recovery in the tourism industry will boost investment sentiment only modestly, hindering overall growth. 
  • Risks to the Agency’s growth forecast are weighted to the downside, if inflation should continue to rise above analysts’ expectations in Barbados’ key source markets, such as the US (6.1%) or UK (6.2%), then demand for international travel would weaken, hindering growth. Additionally, rising COVID-19 case levels in either Barbados or source markets may disincentivise traveling abroad, further delaying a full recovery of the tourism sector.

 

(Source: Fitch Solutions & NCBCM Research)