In Barbados, Political Stability Will Persist, Despite Rising Risk Of Protests

  • The Barbados Labour Party (BLP), led by Prime Minister Mia Mottley, will maintain high expenditure levels in the short term to ensure social stability while the tourist industry, which contributes around 40.0% of GDP, continues to recover from the effects of the pandemic.
  • As stimulus measures from the pandemic era are still in place with the ongoing economic recovery, spending is expected to remain high in 2022 at 35.1% of GDP, higher than the 31.3% observed during FY2015/16 - FY2019/20. Notably, the most recent budget still includes the stimulus payments from the COVID era to improve household earnings in Barbados and raise pension contributions for public sector employees. Additionally, as the government continues to finance research into renewable energy sources, capital expenditures will also continue to rise.
  • In the near future, Fitch anticipates that the government of Barbados will be able to finance increased expenditure initiatives thanks to the Extended Fund Facility (EFF) agreement with the IMF. The four-year, USD290.0Mn deal was approved in 2018 and revised following the pandemic and Hurricane Elsa, which made landfall in July 2021, lowering the primary balance target from 6.0% of GDP to -1.0% currently. This will allow the government to keep countercyclical spending initiatives in place for longer, maintaining social stability even as multiple variants have delayed the rebound of the tourism sector.
  • However, amidst the Russia-Ukraine conflict, which has driven up global energy prices, the government has opted not to implement substantial fuel subsidies, though it has capped the value-added tax on fuel. This has resulted in isolated demonstrations as Barbadians feel the direct impact of higher fuel costs. Further, as global growth slows, there is an increasing risk that demand for international travel in Barbados’ key source markets, the US, UK and Canada, will wane, slowing the country’s rebound. This would likely increase unemployment and the risk of social unrest, particularly if the government also removes income support measures.

(Source: Fitch Solutions)