Barbados

Growth driven by tourism and investment in green energy

In 2025, the economy will continue to grow for the fourth consecutive year, although at a slower pace than in 2024, due to the gradual attenuation of the post-pandemic recovery. Tourism will enjoy another robust year, building on its strong performance in 2024 (+10.7% compared to 2023), with visitor numbers exceeding pre-crisis levels. The industry will benefit from increased air transport capacity and an increase in cruise ship activity. The year will be marked by an expansion of the hotel and restaurant offering, as well as the inauguration of the Barbados Heritage District, a complex comprising a memorial, a research institute and a museum. These developments will stimulate related services – accommodation, catering, retail, transportation, entertainment and business services – thus promoting job creation and contributing to a further decline in unemployment (7.1% at the end of September 2024 after 8.3% a year earlier). However, an economic slowdown in the main source markets could weigh on arrivals. Financial services will also continue to develop. The construction sector will be stimulated by investment (17% of GDP) in tourism projects, upgrades of road and hydraulic infrastructures and the development of projects related to the climate and renewable energies. Private consumption (80% of GDP in 2024) will continue to grow strongly, supported by contained inflation. However, continued fiscal consolidation efforts will keep public consumption (11% of GDP) at a low level, preventing a stronger GDP performance in 2025.

Inflation is expected to remain contained in 2025 thanks to the moderation of energy and imported food prices. However, disruptions to supply chains resulting from geopolitical conflicts could increase transportation costs, while unfavourable weather conditions may further limit local agricultural production. Given the Barbadian dollar's peg to the US dollar, the impact of monetary policy on inflation and credit is weak. The central bank is expected to keep its key rate at 2% in 2025, a level unchanged since April 2020.

Ongoing budget consolidation

The government will continue to implement its national Economic Recovery and Transformation Plan (BERT), launched in 2022 and scheduled to run until 2027. It aims to reduce debt, diversify the economy, accelerate the energy transition and strengthen competitiveness. It also includes investments in education and health, the provision of affordable housing and the strengthening of social safety nets. BERT is rounded out by the IMF's two joint programmes that expire in December 2025: the Extended Credit Facility (USD 20 million remaining) and the Resilience and Sustainability Mechanism (USD 40 million remaining). Regular reviews of the Fund confirm that the country is on track to meet its quantitative targets, suggesting a possible renewal of the programmes after 2025. The government will continue its fiscal consolidation efforts in 2025/26. These will focus mainly on rationalising expenditure, notably through reforms of the pension system and public enterprises. The government will strengthen tax collection, particularly corporation tax, property tax and value added tax. The continued economic recovery will also promote revenue consolidation, thus contributing to the improvement of the primary surplus (public balance excluding interest on the debt) and the reduction of the budget deficit.

Public debt (60% of which is domestic) relative to GDP will continue its downward trajectory in 2025, supported by continued fiscal consolidation (primary surplus of around 4% of GDP) and solid growth. In addition, the country is adopting innovative solutions in the area of sustainable financing, enabling it to invest in climate resilience without increasing its public debt. At the end of 2024, the government carried out a debt-for-climate swap. It issued nearly BBD 593 million (USD 300 million) in new national debt to local banks. The debt was issued at a low interest rate (3.5%) thanks to the guarantees provided by the Inter-American Development Bank and the European Investment Bank. The funds obtained were used to buy back more expensive national bonds (at 3.75%, 4.25% and 8%). Although this conversion does not affect the stock of the debt, the interest savings, estimated at 220 million Barbadian dollars (125 million USD) over ten years, will be reinvested in the South Coast Water Reclamation (SCWR) Project.

Imports will continue to be robust in 2025 due to increased demand for consumer and capital goods as private consumption and investment increase. Prices of imported products (food, energy) will remain high, thus maintaining a significant trade deficit. However, this deficit will be largely offset by the increase in the services surplus, driven by growth in exports related to tourism and financial services. This development will strengthen the country's external position, leading to a further reduction in the current account deficit. The latter will continue to be financed by foreign direct investment and loans from multilateral institutions. Foreign exchange reserves, estimated at seven months of imports at the end of 2024, will continue to be comfortable in 2025 on back of the net inflow of foreign currency from increased tourism revenues and contributions from multilateral organisations.

Governance facilitated by a stable institutional environment

The moderately left-wing Barbados Labor Party (BLP), led by Prime Minister Mia Mottley, will continue to govern without real opposition. The party’s strong popularity and overwhelming parliamentary majority (29 out of 30 seats) will guarantee political stability and governability until the next elections in January 2027. The priority of her tenure is focusing on structural reforms and the pursuit of fiscal consolidation, in line with the objectives set with the IMF. These reforms aim to stimulate the business environment and reduce a public debt-to-GDP ratio that is among the highest in the region. At the same time, the government will focus on issues of social justice, with measures to improve access to secondary education and to fight crime. Continued economic recovery will promote social stability, but the economic difficulties of the population could exacerbate an increase in crime and sporadic protests.

The country will continue to emphasise regional economic cooperation through the Caribbean Community (Caricom). It will maintain close relations with the United States and the United Kingdom, particularly in the fight against drug and arms trafficking and organised crime. Its relations with China will continue to strengthen through increased trade and investment. Finally, the government intends to increase the island's influence as an offshore financial centre, which will lead to new tax agreements with its commercial and investment partners.

Last updated:March 2025