Outlook for the Barbados Economy

The Barbados economy is on a path to recovery, and economic growth of approximately 10 percent is expected for 2022. However, the forecast is for slower global economic activity amid the tightening of financial conditions in advanced economies, the slowdown in production in China, and the potential return of COVID-19 cases during the winter period. The IMF’s global growth forecast is now 3.2 percent for 2022 and 2.7 percent for 2023, the weakest growth profile since the global financial crisis. This outlook poses a significant downside risk that has been accentuated by the uncertainty in the United Kingdom market. However, the recovery is expected to continue into 2023, predicated on a further upturn in the global tourism sector, coupled with the implementation of large private and public construction projects. Based on scenarios encompassing a weaker performance of the UK tourism market, growth is forecast to reach between 3.5 and 5 percent for 2023.

Future prices for energy and food have started to fall as global economic activity slows and global supply chains begin to normalise. These global declines will feature domestically with a lag. The local initiatives to reduce price pressures have started to bear fruit and will provide some ease until the price declines are realised. However, significant uncertainty remains as geopolitical tensions continue to mount, with developments within major global economies rippling across our major trading partners.  The current forecast for prices is 8.8 percent for 2022 and 3.3 percent in 2023.

As the recovery continues, government must continue its reforms, particularly of state-owned enterprises (SOEs). These reforms are intended to improve the quality of service while reducing the burden on the public finances and freeing up resources for needed infrastructural developments and improved resilience to climatic events. Better service quality in the public sector should also contribute to the overall enhancements in productivity and competitiveness in the private sector.

Placing the debt ratio on a downward trajectory towards 60 percent remains central to government’s strategy over the medium term. The target date is FY 2035/36 compared to FY 2033/34 established in 2018. The relaxation of primary balances during COVID led to increased borrowing which, together with the contraction in the size of the economy, had a negative impact on the ratio. However, with the recovery, the debt ratio has begun to revert to the downward trend initiated after the 2018 debt restructuring. The debt path anticipates that Government’s planned strengthening of fiscal policy will result in primary surpluses ranging between 3.0 and 5.0 percent of GDP.  The ongoing reduction in the debt ratio is designed to instil confidence, engineer further enhancements in Barbados’ credit ratings, similar to the recent B rating provided by FitchRatings, and again lead to access to both domestic and external capital markets, but at lower rates than before the debt restructuring.

With the successful conclusion of its four-year 2018 EFF programme with the IMF, Government has agreed to a successor three year EFF programme, with the aim of further improving macroeconomic stability and assisting Government in the implementation of structural reforms. In addition, Barbados will access the IMF’s innovative Resilience and Sustainability Trust (RST), which is geared towards providing affordable, long-term financial support to allow countries to increase resilience against climatic events. Approval by the IMF Executive Board will unlock SDR 226.8 million, equivalent to approximately US$293 million.

These arrangements are expected to act as a catalyst for additional multilateral financing. Access to these funds is underpinned by the demonstrated commitment of government to fiscal discipline and will help to boost external liquidity over the medium-term. The new borrowing from international financial institutions, with its favourable financing terms, is consistent with the attainment of the debt anchor of 60 percent. The recent debt-for-nature swap represents an important first step back into international markets, but access to local funding from domestic capital markets, which have been slow to recover post the debt restructuring, will help to maintain the balance between domestic and foreign borrowing.

Private capital flows, particularly for investment in tourism and alternative energy, are expected to complement public sector borrowing and strengthen reserve buffers which remain adequate to meet demands.