BRIDGETOWN, Barbados – The Barbados economy is poised to sustain its growth trajectory through the latter half of 2024, buoyed by heightened activities in both the traded and non-traded sectors.
Economic Outlook
The economic growth rate for 2024 is projected to reach approximately 3.9 percent, largely fueled by a resurgence in tourism, which is set to bolster growth in non-traded sectors. Continued public and private sector investments are expected to propel growth in the short to medium term. Key investments include ongoing infrastructure developments in the travel sector, renewable energy initiatives, digitization of public services, upgrades to public utilities, and enhancements in skills training through educational programs.
Tourism Growth
Tourist arrivals are anticipated to exceed pre-pandemic levels across all markets by the end of 2024, driven by popular events like the Crop Over festival and increased flight capacities. The demand for Barbados’ tourism offerings remains strong, with early bookings from major source markets surpassing the previous year by over 18 percent. Additionally, cruise tourism is set to recover with the expected return of summer cruise activities and increased cruise ship visits in the final quarter of the year.
While the prospects are encouraging, several risks could impact growth. The July 2024 World Economic Outlook indicates global growth is forecasted at 3.2 percent for the year, below the 3.8 percent average from 2000 to 2019. Contributing factors to this slowdown include rising borrowing costs, geopolitical tensions, and productivity challenges. Stronger-than-expected global expansion could enhance the demand for Barbados’ tourism and exports, yet downside risks such as slower global growth could hinder domestic forecasts by dampening tourist activity and export demand.
High airfare prices may also impede the tourism sector’s recovery. Environmental threats posed by climate change, including extreme weather events and natural disasters, add further uncertainty, potentially disrupting travel and affecting agriculture.
Inflation Trends
Domestic inflation is projected to moderate in the medium term, with the 12-month moving average expected to settle between 3 and 3.5 percent by the end of 2024. This trend is supported by an anticipated decline in international food prices and a decrease in global oil prices from their recent peaks.
Nonetheless, factors such as potential voluntary oil production cuts by OPEC+ and ongoing geopolitical conflicts could lead to an increase in international oil prices. Furthermore, disruptions in vital supply chains, such as those caused by the Red Sea crisis and water shortages in the Panama Canal, might escalate freight costs. Domestic agriculture may also face challenges due to adverse weather conditions, which could elevate local prices, significantly impacted by events like Hurricane Beryl in July 2024.
External Position
Barbados is expected to maintain a strong external position in the medium term. Anticipated growth in tourism and foreign direct investment are anticipated to bolster foreign exchange reserves. Initiatives aimed at promoting electric vehicles and sustainable products will further protect the economy from fuel price fluctuations, creating a solid foundation for long-term economic stability.
Fiscal and Debt Sustainability
The government remains committed to maintaining fiscal health and debt sustainability as outlined in the BERT-2022 program. Efforts to enhance revenue collection and streamline public spending are currently underway, including reforms to improve the approval process for tax waivers.
The 2024 budgetary proposals detail the transition to a revised duty and tax exemption system, requiring entities to requalify for concessions based on compliance with new criteria. This modernization aims to minimize revenue loss and ensure the economic benefits from waivers are realized. Revisions to the corporation tax structure will align with global standards and are expected to have a positive revenue impact going forward. Additionally, ongoing restructuring of state-owned enterprises aims to enhance efficiency and reduce public funding requirements.
The debt-to-GDP ratio is on a sustainable downward path, with continued economic growth and primary surpluses forecasted to achieve debt targets by FY2035/36. However, climate-related unpredictability remains a risk to this trajectory.
The government’s proactive investment in climate-resilient infrastructure, supported by international partnerships, exemplifies its commitment to mitigating risks associated with its debt portfolio.
Financial System Stability
The financial system is expected to remain stable in the latter half of 2024, supported by strong capital levels and a positive macroeconomic environment. Non-performing loans are anticipated to remain low while profitability stays consistent. Increased economic activity in tourism and other sectors is expected to drive demand for credit, even as the import landscape shifts. A growing labor market is projected to bolster deposit growth through the year.
As Barbados navigates its journey towards inclusive and sustainable economic growth, collaboration among all stakeholders will be crucial in addressing challenges and capitalizing on emerging opportunities. The sustained recovery in tourism and robust foreign investments provide a strong foundation for future prosperity. Achieving this potential requires a united effort from public and private sectors, civil society, and the global community.
Collectively, we can foster innovation, enhance productivity, and build a resilient economy capable of withstanding global uncertainties. It is imperative to act decisively and invest wisely to secure a flourishing future for Barbados.
