Fiscal Consolidation Unlikely to Threaten Barbados’s Political Stability

• Fitch Solutions believes that the Barbadian authorities will proceed with fiscal restraint in the coming quarters, but will avoid major cuts to components like subsidies and the wage bill that are sensitive to social discontent.
• Barbados entered an IMF-backed reform programme in December 2022 that consists of a 36-month, USD189.0Mn Extended Fund Facility (EFF) and US11.3Mn Resilience and Sustainability Facility (RSF) to help the market cope with a series of recent shocks including the COVID-19 pandemic and natural disasters.
• More recent data shows that in H123, the government managed to record a primary surplus (1.2% of GDP) despite stable growth in the wages & salaries and transfers & subsidies components of spending. This is broadly in line with the government’s decision to raise the salaries of civil servants by 3.0% in FY2023/24 and FY2024/25. The government has also raised the personal tax allowance by 12.5% in the FY2023/24 budget, suggesting that while the government is committed to fiscal consolidation, it is avoiding major changes to more politically sensitive components of fiscal policy.
• This, coupled with a high degree of policy continuity and peaceful relations with neighbouring countries means that Barbados will stay among the most politically stable markets in the region.

(Source: Fitch Solutions)