Outlook for the Barbados Economy in 2023

The global economy is expected to slow in 2023, but the Barbados economy is forecast to continue on its growth trajectory this year, expanding in the range of 4 to 5 percent. The Bank anticipates that the resurgence of the tourism sector will not be as rapid as in 2022. The momentum for a sustained economic recovery requires increased public and private sector investment. Such investments, including in tourism and the physical infrastructure, have the potential to enhance the economy’s productive capacity, modernise the economy, absorb labour, and create positive spill-over effects for small and medium-sized businesses.

But the road ahead remains challenging because of factors that continue to expose the vulnerability of the domestic economy. For example, inflationary pressures, though declining, remain elevated and the International Monetary Fund (IMF) expects inflation to persist, before declining to its norm in 2024. The lingering conflict between Russia and Ukraine has resulted in geopolitical tensions in Europe that could lead to reduced oil supply and elevated oil prices. Higher prices raise business costs and have the potential to constrict the purchasing power of consumers, which could slow the projected growth path.

Moreover, the aggressive measures taken by advanced economies to fight inflation have created the risk of recession. The depth of such a recession is uncertain, but tourism-based economies, like Barbados, face the risk of a slow-down at a critical juncture in the recovery.

The resurgence of COVID-19 cases in China and other Asian countries, which serve as critical cogs in global supply chains, also raises the risk of a global slowdown. The recent surge in the number of cases in China could negatively impact production and this may delay the start and continuation of projects on island and to create shortages within local industries that rely on imported inputs.

These diverse but interrelated risks underscore the importance of strengthening our marketing efforts and product quality within the tourism sector. All countries are susceptible to a weakening of the economic environment, but the need for economic resilience requires us to enhance our ability to grow market share over time.  In addition, given the risks to inflation and the reserves, we need to accelerate Barbados’ goals of net-zero by 2030 and 100 percent renewable energy. The EIA Short-Term Energy Outlook forecasts oil prices to average US $82 per barrel by the end of 2023, but future price increases can be anticipated in the event of further supply disruptions.

The ongoing inflation trend will raise imports further, but external reserves, boosted by already approved borrowings from international financial institutions, are expected to remain in excess of international benchmarks.

Government has committed to rebalance the fiscal position which was derailed by the health and climate events over the last few years. It is expected to achieve a primary surplus of at least 2 percent of GDP for FY 2022/23, but further improvements in the primary balance are needed to ensure that financing remains adequate and that the economy stays firmly on its trajectory to bring the debt-to-GDP ratio to its 60 percent target over the medium term. 

Concerted efforts to make SOEs more self-sufficient remain critical, while Government’s capital works programme will be a key driver of the growth effort. The combined effect of higher primary surpluses, increased capital spending, and ongoing recapitalisation of the NIS will limit the scope for substantial salary increases over the short term.

The strength of the recovery cannot rely on public sector spending alone. The recent pick-up in credit after several periods of weak loan demand is therefore encouraging, as is the reduction in non-performing loans NPLs. Financial sector stability is essential to the recovery, and the Central Bank will continue to work with the Financial Services Commission and financial institutions to further strengthen risk management, governance and compliance.

Government has set out an ambitious growth agenda in its Barbados Economic Recovery and Transformation Plan 2022. Success is predicated on eight pillars including the extent to which low- and middle-income housing, the green transition, and building out climate resilient infrastructure can, together with establishing Barbados as a logistics hub and promoting diversification in niche activities, propel economic activity. Given the long period of sluggish growth, there is an urgency of now to ensure that the growth is sustainable.

As we embark on a new programme with the International Monetary Fund, our focus on debt and fiscal sustainability must be complemented by a focus on growth.

As a society, we need the input of all stakeholders, embracing critical thinking, innovation, improved business processes, enhanced skills training and, where necessary, the acquisition of new skillsets.

We must not lose sight of the fact that reducing debt is linked to higher primary balances as well as to growth.

We must remain conscious that even with strong primary balances, governments need to borrow because such borrowing finances past deficits.

We must remain focused on the need for continued fiscal discipline, to engender confidence and to create conditions for borrowing on favourable terms, for example with long maturities and low interest rates.

We must encourage our private sector to rise to the challenge of supporting Government’s growth initiatives, to mobilise savings, embrace technology, and to seek out export markets that facilitate diversification.

If we retain our focus, we can meet the challenge to build a resilient economy that is able to achieve sustainable growth.

Reprinted from the Central Bank of Barbados' Review of the Barbados Economy in 2022.