Barbados Political Environment Highly Stable Despite Fiscal Restraint

• Despite IMF-backed fiscal austerity measures, Fitch Solutions is maintaining its Short-Term Political Risk Index (STPRI) score of 84.6 out of 100 for Barbados.
•  In December 2022, the IMF Executive Board agreed on both an Extended Fund Facility (EFF) and a Resilience and Sustainability Facility (RSF) deal with the former aimed at enhancing the country’s medium-term fiscal trajectory, particularly by reducing the country’s debt-to-GDP ratio. 
• While in theory cutting public spending could lead to public backlash, Fitch does not see a major risk to social stability in Barbados in the near term. The FY2023/24 budget (running from April 1, 2023, to March 31, 2024) has steered away from introducing any new tax measures; on the contrary, the personal tax allowance for pensioners rose by BBD5,000 to BBD45,000.
• Furthermore, the government agreed to implement a 3.0% wage bill increase this fiscal year, following negotiations with unions. These developments suggest that while the government is committed to consolidating its public finances, it is unlikely to do so in sensitive areas that would affect the government’s popularity and induce major discontent.
• The country’s high STPRI score relative to its neighbours’ is mostly driven by low unemployment and peaking inflation, coupled with broad policy continuity and stability.
• Downside risks to Fitch’s view come from the potential for deeper-than-anticipated fiscal austerity measures and a slower-than-expected economic recovery.

(Source: Fitch Solutions)