IMF: Economy remains robust amid global risks but…

The International Monetary Fund (IMF) said the Barbadian economy is holding firm, with steady growth and low inflation, but warned that rising global uncertainty and commodity prices could push up the cost of living in the year ahead.

Following ten days of talks on the latest version of the homegrown Barbados Economic Recovery and Transformation Plan (BERT 2026), IMF mission chief Michael Perks said the economy remains sound with robust economic activity.

“However,” Perks cautioned, “the outlook remains subject to downside risks, including heightened global policy uncertainty, commodity price pressures, and Barbados’ vulnerability to natural disasters. 

“Guided by sound macroeconomic policies, economic activity remained robust in 2025, with growth estimated at 2.7 per cent, driven by tourism, construction, and business services. The labour market remained strong, and inflation continued to moderate to an average of 0.9 per cent. The current account deficit reached 5.7 per cent of GDP, while foreign direct investment strengthened significantly, supporting the balance of payments.” 

Gross international reserves remained at about US$1.5 bn ($3 bn) at end-2025 (equivalent to around six months of imports), ample to support the exchange rate peg.

Perks continued: “Fiscal performance continued to be strong, with the fiscal primary surplus reaching 4.2 per cent of GDP in FY2025/26, and high corporate income tax revenues enabling an expansion of public investment in infrastructure and resilience. 

“Looking ahead, growth is expected to remain positive in 2026, though at a more moderate rate, as external headwinds are partly offset by tourism-related construction and rising public investment. Higher commodity prices are expected to place upward pressure on inflation and the current account deficit, although international reserves are projected to remain ample. External conditions are expected to normalise thereafter, but the outlook remains subject to unusually high uncertainty, with risks tilted to the downside.

“Barbados made strong progress in implementing its first two BERT plans, supported by previous Fund arrangements. A gradual and sustained improvement in the fiscal accounts helped put public debt on a firm downward path, while important structural fiscal measures were implemented, including state-owned enterprise (SOE) and pension reforms. International reserves were rebuilt and in 2025 Barbados successfully returned to international capital markets. Important steps were also taken to build resilience under the Resilience and Sustainability Facility.”

According to the IMF mission chief, a new precautionary standby arrangement with the Fund, concluded during his discussions with the Mottley administration, will build on previous achievements to support the BERT 2026 plan’s transformation agenda by helping maintain prudent macroeconomic management.

Perks pointed out that fiscal policy will continue balancing debt sustainability with development needs. This, he suggested, will require sustaining strong primary fiscal balances to keep public debt on track to reach the 60 per cent of GDP target by FY2035/36, while maintaining fiscal space for critical investment, resilience and social spending.

Any fiscal measures responding to external shocks should be temporary, targeted to the most vulnerable, and consistent with the fiscal anchor, the IMF official suggested. “Disciplined fiscal policy will also help to maintain ample international reserves and support the exchange rate peg, which remains an essential anchor for macroeconomic stability. 

“Steadfast implementation of structural reforms will help further build policy credibility and strengthen policy frameworks and institutions. The agenda will be supported by technical assistance from the Fund and other partners.”

 

(EJ)