WASHINGTON, Aug 19, CMC – The Inter-American Development Bank (IDB) says despite tremendous progress in recent years in fiscal consolidation and debt reduction, important risks remain for Barbados.
In its “Fiscal Resilience, Debt Reduction and Domestic Resource Mobilization in the Caribbean,” report, the IDB said that Barbadian authorities will need to maintain primary surpluses above four per cent of gross domestic product (GDP) through at least 2032 to stay on track with their objective to lower the debt-to-GDP ratio to 60 percent by the financial year 2035/2036.
“At the same time, persistent cost-of-living pressures could lead to prolonged support for vulnerable households through higher transfers and subsidies, making it more challenging to achieve the targeted primary surplus.
”On the external front, global instability could bring pressure on oil and commodity prices and cause tighter financial conditions,” the IDB report noted, adding that natural disasters remain an underlying threat.
“The authorities’ continuous commitment to implementing the reform agenda helps mitigate these possible risks, “ it said.
The Washington-based financial institution said that stable and contained inflation continued during the first quarter of 2026 in Barbados, even as global geopolitical tensions intensified. As highlighted in the Central Bank’s latest Review of Barbados’ Economic Performance, real GDP expanded by an estimated 1.7 per cent in in the first quarter of 2026, supported by sustained activity in tourism, business and other services, and construction.
“Overall, the economy is expected to grow by 2.5 per cent this year. Point-to-point inflation rose to 1.3 per cent in February 2026 from a decline of 0.3 per cent in February 2025, driven mainly by stronger demand for restaurant dining. The 12-month rate up to February was 1.1 per cent. The unemployment rate stood at 7.2 percent at the end of December 2025.”
The IDB report notes that tourism and agricultural activity expanded, while manufacturing contracted. Total arrivals increased by 1.2 per cent in the first quarter of 2026 with respect to 2025, reaching 237,194 visitors, with gains in all main source markets: United Kingdom (one per cent), United States (0.5 per cent), and Canada (1.3 per cent).
In contrast, manufacturing output declined by 2.3 per cent in the first quarter of the year, driven by lower production of food, beverages, furniture, and chemicals that outweighed gains in construction-related materials. Agriculture sector output increased for a sixth consecutive quarter, with overall production growth of 4.1 per cent, supported by stronger fishing and livestock production.
The IDB said that a key development was the staff-level agreement approved in June between the International Monetary Fund (IMF) and Barbadian authorities on a 36-month precautionary Stand-By Arrangement for US$257 million.
It said the arrangement provides insurance against external shocks while supporting reforms under the Barbados Economic Recovery and Transformation Plan 2026 focused on productivity, competitiveness, fiscal sustainability, financial market development, human capital, and climate resilience.
“Against this backdrop, authorities have followed a prudent foreign exchange management policy, ensuring the availability of ample reserve assets. Also, as mentioned above, the government has ensured multilateral funding against external contingencies. Finally, authorities have implemented a series of policies to cushion the population from the impact of international energy-price swings on the domestic cost of living.”
The IDDB said that external conditions are expected to normalise eventually, but the outlook remains subject to unusually high levels of uncertainty and the balance of risks is tilted to the downside, particularly in relation to global geopolitical tensions and their impact on energy prices.
Fiscal performance in Barbados was solid in the financial year 2025/2026 with the overall fiscal deficit narrowing to 0.3 per cent of GDP, compared with a deficit of 0.8 per cent of GDP in financial year 2024/2025.
The primary surplus reached 4.2 per cent of GDP, above the four per cent surplus recorded the year prior. Both direct and indirect tax revenue collection were above expectations, driven by large corporate income tax receipts and strong economic activity in construction and retail. The public sector debt ratio continued to decline, supported by economic growth and primary surpluses, falling to 94.9 per cent, down four percentage points from the end of financial year 2024/2025.
The report noted that fiscal performance has improved in recent years even as it acknowledged that the COVID-19 pandemic had a strong impact on the fiscal stance in Barbados.
“On the one hand, revenue collection significantly dropped due to subdued economic activity, and on the other, public spending rose because of support provided to businesses and households in distress. Government revenues reached a low of 23.2 per cent of GDP in financial year 2021/2022 but have since risen to 26.5 per cent of GDP”
Expenditure peaked in financial year 2020/2021 at 30.6 per cent of GDP and stood at 26.7 per cent of GDP in financial year 2024/2025.
“The government has implemented measures to increase collection, such as a corporate tax reform and steps to rationalize spending. In addition, fiscal space has freed up, allowing capital expenditure to rise to 4.1 pe rcent in financial year 2025/2026 compared to pre-pandemic figures below two per cent.
“Moving forward, government priorities in terms of fiscal policy include strengthening revenue policy and administration, continuing with the review and rationalization of tax concessions, increasing compliance, modernizing customs and tax administration, and enhancing public financial management.
The debt trajectory has been on a downward path as a result of improved fiscal performance, despite a setback during the onset of the pandemic. The debt-to-GDP ratio reached a high point of 134.6 per cent in financial year 2017/2018, prompting debt restructuring.
“Although progress was under way and the ratio dropped by 33 percentage points in two years, it spiked again in financial year 2020/2021 to 129.6 per cent. As pressure from the pandemic eased and economic growth strengthened, the debt burden decreased.
“Furthermore, recent liability management operations have helped improve the debt service profile. Barbados is on track to achieve its goal of reaching a debt-to-GDP ratio of 60 per cent by financial year 2035/2036.
The IDB said that the commitment to the reform agenda and adherence to fiscal prudence has led to steady improvements in Barbados’ sovereign credit ratings. The country regained access to international capital markets in June 2025, when it issued a US$500 million bond with a 10-year maturity and an eight per cent interest rate. Net proceeds were used for liability management.
The IDB report said that this marks the first international bond issuance since debt restructuring in 2018. Standard & Poor’s last upgrade took place in October 2025, with a rating of B+ and a stable outlook. Moody’s sovereign credit rating for Barbados stands at B2 with a stable outlook, while Fitch’s rating is at B+ with a positive outlook.
CMC/ah/ir/2026