Barbados Reform Agenda Pays Off as Vulnerabilities Have Been Reduced
- Barbados successfully exited its second consecutive International Monetary Fund (IMF) programme in May 2025, which helped to support the government’s Barbados Economic Recovery and Transformation (BERT) 2.0 domestic reform agenda. Over this period, the primary budget surplus rose by a significant 2.0% of GDP to 4.5%, helping the debt-to-GDP ratio drop back to about 100% last year from nearly 140% as recently as 2020.
- The government has indicated that it will maintain this austere fiscal stance in the coming years, with the primary surplus seen stabilising at current levels. It is expected that Barbados will continue to consolidate the improvements to its economic position in recent years, though it will remain highly vulnerable to shocks as a small island nation with a still heavy debt burden.
- At 7.0% of GDP in 2024, FDI inflows financed the bulk of Barbados’s sizeable current account deficit, which was pushed wider last year by the negative impact of Hurricane Beryl on the tradable sector. In 2025, it is anticipated that Barbados’ ‘core balance’ will come close to moving into surplus territory, aided by a slight narrowing of the current account deficit on the back of residual strength in the tourism sector and an improvement in the terms of trade driven by a decline in commodity prices. This, in turn, should allow the country to maintain its healthy reserve position, with the import cover ratio currently standing at six months.
- Despite an austere fiscal policy, the economic outlook remains favourable. It is anticipated that growth will ease to about 3.0% this year from 4.0% in 2024, with this deceleration largely a function of fading catch-up effects and the drag from increasingly binding capacity constraints in the key tourism sector, which directly accounts for roughly 20% of GDP, according to the Central Bank of Barbados.
- Notably, the persistently strong non-inflationary growth seen in recent years helped the unemployment rate hit a record low of 6.3% in Q1 2025 in non-seasonally adjusted terms (6.9% in Q1 2024), underpinning relative political stability that is further supporting the reform agenda and creating a positive, self-sustaining cycle that is expected to continue.
(Source: BMI Fitch Solutions)