Inter-American Development Bank (IDB) economists believe Government will find it more difficult to achieve a fiscal target that is key to reducing the public debt burden, if it prolongs support for Barbadians facing persistent cost-of-living pressures.
While lauding the authorities for the “tremendous progress in recent years in fiscal consolidation and debt reduction”, the IDB’s Caribbean economics team are cautioning that “important risks remain for Barbados”, including high and volatile energy prices resulting from disruptions to the Strait of Hormuz, “stubbornly high” interest rates and financial pressures.
Government’s ability to maintain primary surpluses in line with the targetted debt-to-GDP ratio of 60 per cent by fiscal year 2035/2036 would, therefore, be more challenging in those circumstances, they advised.
This assessment is shared in the new IDB Caribbean Economics Quarterly titled Fiscal Resilience Debt Reduction And Domestic Resource Mobilisation In The Caribbean.
Central Bank Governor Dr The Most Honourable Kevin Greenidge recently reported in the half-year economic review that Government achieved a primary surplus of $537.5 million, equivalent to or 3.2 per cent of GDP.
He said this was $55.2 million below the same period a year earlier, but was “$353.5 million above the BERT 2026 programme floor”.
Greenidge also reported that sustained primary surpluses and continued economic growth kept public debt on its downward trajectory, with the debt-to-GDP ratio declining by 1.1 percentage point to 93.7 per cent, from 94.8 per cent at the end of fiscal year 2025/26.
The Governor added that “a strong primary surplus and sharply lower amortisation requirements substantially reduced Government’s financing pressure during the first quarter of fiscal year 2026/27”. Gross financing requirements declined from $1.1 billion to $365.4 million.
With the IDB report having a cut-off date of July 17, this meant that the analysis was completed before the Central Bank’s half-year review was shared.
However, the IDB economists led by regional economic advisor for the Caribbean, Valerie Mercer-Blackman and economics principal specialist Henry Mooney concluded that “on the domestic front, the authorities will need to maintain primary surpluses above four per cent of GDP through at least 2032 to stay on track with their objective to lower the debt-to-GDP ratio to 60 per cent by fiscal 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,” the report stated.
“On the external front, global instability could bring pressure on oil and commodity prices and cause tighter financial conditions. Finally, natural disasters remain an underlying threat. The authorities’ continuous commitment to implementing the reform agenda helps mitigate these possible risks,” the publication added.
The IDB economists said the cost of living measures Government introduced to give consumers an ease could offer temporary relief but that “it is important that they be well-targeted and not made permanent, so as to not compromise the fiscal stance”.
“At the macro level, the economy has buffers against external shocks. The country’s fixed exchange rate regime helps keep observed inflation under control and inflation expectations anchored,” the IDB team noted.
“Moreover, Barbados has international reserve assets and authorities have recently secured the availability of International Monetary Fund funding against external contingencies.”
The Caribbean Economics Quarterly examined how the six members of the IDB Caribbean Department – Barbados, The Bahamas, Guyana, Jamaica, Suriname, and Trinidad and Tobago – have managed fiscal policy and public debt since the COVID-19 pandemic.
It also looked at policies that could support the next phase of fiscal resilience in the region.
A central finding of the report was that the next phase of fiscal resilience “will depend heavily on domestic resource mobilisation”.
“The first stage of post-pandemic adjustment benefited from tourism recovery, commodity-price effects and the withdrawal of emergency support measures. Going forward, governments will require stronger and more resilient tax systems to finance debt reduction, climate adaptation, and infrastructure investment,” the economists said. (SC)