Barbados

Growth driven by tourism and investment in green energy

Economic growth is expected to slow in 2026, but remain historically strong, driven primarily by the island’s robust tourism industry. This will stimulate related activities, notably hospitality and construction. Investment in the tourism sector (16% of GDP) is projected to undergo one of its largest expansions in decades, with nearly USD 1 billion planned for new hotel projects on the south coast, the west coast and in the capital. Among these projects is the opening of the luxury Pendry Barbados hotel and residential complex, expected in 2026. These investments have been made possible by structural reforms undertaken by the government and public spending focused on climate resilience projects. They are expected to generate thousands of new jobs, thereby supporting private consumption (80% of GDP in 2024). However, an economic slowdown in key source markets (the UK, the US and Canada) could weigh on tourist arrivals and disrupt FDI flows aimed at hotel construction.

Public investment will focus on sustainable tourism and renewable energy, in line with the national goal of meeting 100% of energy needs through renewables by 2030, using mechanisms such as the Smart Energy Fund II. Financial services are also expected to continue expanding. However, ongoing fiscal consolidation efforts will keep public consumption (11% of GDP) low, preventing a stronger GDP performance in 2026.

Inflation is expected to remain low, supported by declining import prices — particularly fuel — and by the currency peg to the US dollar, made possible by strong foreign reserves. This stability will favour private consumption. However, risks persist in the shape of supply chain disruptions, oil price shocks associated with geopolitical tensions and higher US tariffs. Barbados, like many Caribbean countries, imports some of its goods through the US, including products originating from third-party countries. Given the Barbadian dollar’s peg to the US dollar, the impact of monetary policy on inflation and credit is limited. The central bank is expected to keep its policy rate at 2% in 2026, and unchanged since April 2020.

Continued fiscal consolidation

The government will continue implementing its Barbados Economic Recovery and Transformation Plan (BERT), launched in 2022 and scheduled through 2027. The plan’s objective is to reduce debt, diversify the economy, accelerate the energy transition and strengthen competitiveness. It also includes investments in education and health, provision of affordable housing and reinforcement of social safety nets. The two IMF programs supporting BERT ended in June 2025 after their final disbursements. The government does not plan to introduce a new agreement with the Fund but will maintain fiscal consolidation efforts in 2026 and 2027, relying on continued tax reforms, stronger fiscal institutions and lower interest burdens. Revenues will also benefit from tourism growth. The primary surplus (excluding interest payments) is expected to remain close to 4% of GDP. Barbados could thus record its first budget surplus since 1990, apart from 2019, the year of its debt restructuring.

Fiscal discipline and high primary surpluses will help reduce one of the highest debt ratios in the region. About 60% of public debt is domestic, while most external debt is owed to multilateral institutions, which enhances its sustainability. The IMF has assessed public debt as sustainable and the risk of a sovereign crisis as moderate. The government’s target of reaching 60% of GDP by fiscal year 2035-2036 is considered achievable but depends on maintaining high primary surpluses and avoiding economic shocks.

The external position will be supported by a surplus in services, driven by tourism and financial services, which will be the main factor reducing the current account deficit. However, the trade deficit will remain high due to strong dependence on imports — particularly food and energy — along with those linked to construction projects. Lower import prices will partially reduce this deficit. Interest payments have declined since the debt restructuring. The current account deficit will continue to be financed by foreign direct investment, representing about 6% of GDP, in line with the historical average of the past two decades, as well as by multilateral loans. Foreign exchange reserves, estimated at about nine months of imports at end-2025, will remain comfortable in 2026 thanks to net inflows from tourism revenues and multilateral financing.

Stable institutional environment facilitating governance

The centre-left Barbados Labour Party (BLP), led since 2018 by Prime Minister Mia Mottley, governs without real opposition. Her immense popularity and overwhelming parliamentary majority (29 out of 30 seats) will ensure political stability and governability until the next elections, which are due to be held no later than January 2027, for which Ms. Mottley has already announced she intends to seek a third term in office. Her mandate focuses on structural reforms, notably continued fiscal consolidation in line with IMF objectives. These reforms aim to improve the business environment and reduce one of the highest public debt-to-GDP ratios in the region. At the same time, the government emphasises social justice and crime reduction. The ongoing economic recovery will support social stability, but economic hardship could exacerbate the recent rise in crime and sporadic protests. Strikes, however, are expected to be few in number thanks to regular dialogue under the Social Partnership Initiative, which brings together government, unions and the private sector. Meanwhile, debate over constitutional reform will continue in 2026 following Barbados’s transition to a parliamentary republic in 2021. Debate focuses on increasing the number of parliamentarians, achieving gender parity in the Senate, and strengthening the Prime Minister’s powers relative to the President. The latter, Jeffrey Bostic, a BLP member, has held office since November 2025 and is the country’s second President since the abolition of the monarchy.

The country will continue to emphasise regional economic cooperation through the Caribbean Community (CARICOM). It will maintain close ties with the US and the UK (the former colonial power), particularly in combating drug and arms trafficking and organised crime. Relations with China will keep strengthening through increased trade and investment. Additionally, the government aims to enhance the island’s profile as an offshore financial centre, leading to new tax agreements with trade and investment partners. Last, Mia Mottley will continue her influential role as a spokesperson for small island developing states in international forums, especially on issues related to climate change.

Last updated: December 2025