Central Bank of Barbados Review of Barbados' Economy: January-March 2024

Despite challenges, Barbados' economy grew in early 2024, further strengthening key economic aggregates like the current account balance and debt-to-GDP ratio. Amidst challenges such as elevated foreign interest rates, geopolitical tensions, higher freight costs, and adverse local weather conditions, the economy sustained its growth trajectory. Real GDP increased by 4.1 percent during the first quarter of 2024, fuelled by visitor arrivals that surpassed the industry’s 2019 peak along with broad-based growth across various sectors. This economic expansion contributed to achieving an external current account surplus and a further strengthening of financial sector’s resilience. Moreover, it helped to attain the 2023/24 fiscal year primary surplus target and further reduced the debt-to-GDP ratio. 

Tourism led the economic expansion during the first quarter of 2024. Increased airlift capacity and promotional initiatives helped to achieve record levels of long-stay tourist arrivals, up 14.8 percent relative to quarter one of 2023. Spill-over effects from the industry boosted the performance of tourism-related services such as restaurants and other food services, and recreational activities. The construction sector also benefitted from both private and public projects including the continued development of tourism and commercial properties as well as public road and water infrastructure projects over the period. Inflation remained moderate while labour market conditions improved with the unemployment rate decreasing.  

Barbados’ external position improved. The current account improved by $178.2 million relative to the corresponding period of 2023, resulting in a surplus of $25.8 million (representing 0.7 percent of GDP). This improvement stemmed from higher tourism receipts and increased corporate taxes from the global business sector. Loans secured from multilateral organisations boosted the financial account. Consequently, gross international reserves recorded an accumulation of $250.8 million, culminating in a total stock of $3,250.4 million or 33.3 weeks of imports of goods and services.

Government achieved its primary balance target for the fifth consecutive fiscal year. Enhanced domestic economic activity boosted transaction-based, corporate, and personal income tax receipts. Rising interest payments and grants to public institutions drove increased spending, resulting in a fiscal deficit of $225.9 million (or -1.7 percent of GDP) by the end of FY2023/24. The Government achieved its primary surplus target of $481.4 million, equivalent to 3.7 percent of GDP. 

The debt-to-GDP ratio remained sustainable on its downward trajectory. The ratio fell to 114.3 percent reflecting the growth in economic activity. During FY2023/24, the debt stock rose reflecting sales of securities in the domestic capital market as well as inflows of policy loans from international financial institutions. Additionally, elevated global interest rates primarily influenced an increased interest-to-revenue ratio, which nonetheless remained below pre-debt restructuring levels. 

The financial system remained healthy and stable, with credit risk continuing to decline. Loan quality continued to improve, evidenced by declining non-performing loans. Moreover, an increase in both, domestic and foreign-currency deposits strengthened the liquid asset ratio. Capital adequacy ratios of deposit-taking institutions remained high, underpinning the sector’s stability and resilience. Additionally, credit balances increased, as disbursements grew faster than repayments. In contrast, banks’ profitability declined marginally, mainly due to rising operational expenses.