International credit rating agency Fitch Ratings will be keeping a close eye on Government’s effort to improve its finances, as it flags state-owned enterprises (SOEs) as a continued “risk to the budget”.
Further improvements in key metrics like a lower debt-to-gross domestic product (GDP) ratio will also be on the international credit rating agency’s radar, as will the country avoiding a major shock like a hurricane.
Joshua Grundleger, director, sovereigns, Fitch, who is the primary analyst for Barbados, highlighted these key areas of focus for the firm, as he assessed that overall, “Barbados continues to be a positive story, although the economy is clearly slowing after a number of years of very rapid growth, amid global headwinds”.
Fitch recently affirmed its B+ rating with a positive outlook for Barbados.
Grundleger told BARBADOS BUSINESS AUTHORITY last week: “We are mainly focused on monitoring the continuation of fiscal consolidation and improvement in metrics, particularly debt-to-GDP, as well as the avoidance of any shock that could reverse the progress that has been recently made.”
On the positive outlook, he said: “Rating outlooks are generally a one- to two-year horizon. As you know, we applied the positive outlook last year given the improving fiscal metrics and overall commitment to fiscal discipline.
“The oil price shock and its impact on the economy is certainly a point of focus, particularly given Barbados’ small size and high external exposure. Overall, though, the shock has thus far remained relatively small and manageable, and the policy response has helped cushion the impact.
“These sort of shocks can slow progress in fiscal consolidation, but obviously by maintaining the positive outlook we still expect the progress to continue,” Grundleger added.
Fitch published the full rating report on Barbados last week and said that Government’s fiscal consolidation was continuing, while cautioning about the risk posed by SOEs.
“Government finances continue to improve, despite the weaker economy. The fiscal deficit narrowed to 0.2 per cent of GDP in fiscal year 25/26 from 0.8 per cent of GDP in fiscal year 24/25, as revenue growth of 2.9 per cent year-over-year outpaced expenditure growth of 0.6 per cent,” the report noted.
“We expect the fiscal year 26/27 fiscal deficit to deteriorate to 0.9 per cent of GDP, given an expected 12.6 per cent year-over-year acceleration in expenditures, driven by higher costs of goods and services and increased [capital expenditure].”
Fitch added: “Even so, revenues are forecast to expand 9.9 per cent despite global challenges, given the implementation of the qualified domestic minimum top-up tax, a new corporate tax aligned with the OECD’s global minimum tax.
“The [top-up tax] is expected to increase corporate tax revenue by more than $450 million in fiscal year 26/27, reflecting both extraordinary one-off receipts from prior fiscal years’ payments and an increase in the revenue base over the medium term.”
First ever surplus
The credit rating agency stated that “revenue and expenditure growth will both taper over the medium term, enabling Barbados to return to its consolidation programme, although public sector wage negotiations are set to commence, which could pose risks to the expenditure forecast”.
It is, therefore, forecasting that there will be “a deficit of 0.6 per cent of GDP in fiscal year 26/27 and the first ever surplus of 0.1 per cent of GDP in fiscal year 27/28, absent the materialisation of an external shock”.
On SOEs, the report cautioned: “However, state-owned enterprises (SOEs) continue to be a risk to the budget. The Government has taken steps to reduce both the contingent risk from and transfers to SOEs, including at the Barbados Agricultural Management Company and the Transport Board.
“Further progress will be more difficult as the outstanding issues are not as easily addressed, particularly at the Barbados Water Authority and Queen Elizabeth Hospital, both of which have ageing infrastructure.”
Another observation in the report was that Barbados’ public debt had declined from high levels, as measured by the debt-to-GDP ratio.
“Strong primary balances, which have averaged about 3.5 per cent, have contributed to a meaningful decline in the central government debt burden, which fell to 94.4 per cent of GDP in fiscal year 25/26 from a peak of 134.6 per cent in fiscal year 17/18,” it stated. “Fitch expects this to continue, with debt falling to 87.2 per cent by fiscal year 28/29. This is still extraordinarily high compared to peers – the ‘B’ median was 53 per cent in 2025 – but shows substantial progress.
“Barbados has a medium-term debt anchor of 60 per cent by fiscal year 35/36. We believe the Government can meet its target but that this will require continuation of the current fiscal discipline, including high primary balances, and the avoidance of a significant external shock or a domestic recession.”
Fitch is projecting overall that for Barbados “general Government gross debt should remain on a steady downward path, assuming the Government can continue running large primary surpluses”.
“The main risk to debt sustainability would be a large external shock, such as a hurricane, that would have negative implications for the economy and Government finances,” the report stated. (SC)