Barbados has earned an upgrade in its long-term issuer ratings from B3 to B2 by Moody’s Ratings, reflecting the country’s sustained fiscal discipline, economic recovery, and improved debt management. The outlook remains stable.
According to Moody’s, the rating improvement stems from Barbados’ consistent primary surpluses, narrowing fiscal deficits, and a firm downward trajectory in public debt. The government’s implementation of institutional and structural reforms has enhanced fiscal policy effectiveness and bolstered resilience against external shocks.
The rating agency also cited Barbados’ continued access to concessional financing from multilateral creditors, reducing liquidity risks and limiting reliance on external market funding. Expectations of stronger GDP growth, compared to pre-pandemic levels, are another key driver. This growth is expected to be supported by ongoing structural reforms and increased investment in critical sectors, including climate resilience.
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Stable Outlook Supports Long-Term Vision
Moody’s maintains a stable outlook, anticipating that Barbados’ reform-driven economic framework will continue to support resilience and prudent fiscal management. The government’s adherence to its Barbados Economic Recovery and Transformation (BERT) plan and commitment to fiscal discipline are viewed as central to a sustained decline in debt levels.
Additionally, the country’s foreign exchange reserves have strengthened, providing a buffer against external economic shocks. Despite remaining vulnerable due to its tourism-dependent economy, Barbados is expected to maintain fiscal prudence even if faced with a global slowdown.
Improved Ceilings Reflect Lower Risk
Barbados’ local currency bond ceiling has been upgraded to Ba2 (from Ba3), and its foreign currency bond ceiling to B1 (from B2). These improvements reflect low political risk, a stable macroeconomic environment, and a strong rule of law, though tempered by ongoing challenges like limited economic diversification and vulnerability to global shocks.
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Key Drivers Behind the Upgrade
1. Strengthened Fiscal Framework and Lower Debt Burden
Barbados has made significant progress in reducing its debt. Fiscal deficits have narrowed sharply—from 4.6% of GDP between 2015 and 2018 to just 1.6% in 2024. Structural reforms, such as improving spending efficiency and reforming state-owned enterprises (SOEs), have led to primary surpluses of around 4% of GDP.
Moody’s projects that debt-to-GDP (excluding obligations to the National Insurance Scheme) will fall to around 80% by 2025, down from 89% in 2023. By 2030, that figure is expected to decline further to 67%, as Barbados works toward its target of reducing public debt to 60% of GDP by 2035.
To promote accountability, the government introduced a medium-term fiscal framework in 2021 and established an independent Fiscal Council to monitor and enforce fiscal rules.
2. Enhanced Financing Flexibility
Barbados has broadened its financing options through multilateral funding and re-entry into domestic markets. In December 2024, the government secured a sustainability-linked loan to repurchase domestic bonds—generating fiscal savings now earmarked for infrastructure projects like a new sewage treatment facility.
With the resumption of Treasury bill issuance and plans to launch longer-term bonds, domestic financing is gradually expanding. Multilateral loans are expected to remain the government’s primary source of external funding, reducing reliance on volatile capital markets.
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3. Structural Reforms and Investment Drive Economic Resilience
Economic growth remains strong. Despite the disruptions caused by Hurricane Beryl in 2024, real GDP growth reached approximately 4%, buoyed by a robust tourism rebound. Growth is projected to average 3% annually over 2025–2026, outpacing the sub-1.5% rates seen between 2015 and 2018.
Public investment is also on the rise—expected to average around 5% of GDP annually compared to just 1.3% in 2018. These investments will span tourism, infrastructure, renewable energy, and climate adaptation, contributing to higher productivity and shock resilience.
ESG Considerations
Moody’s notes Barbados’ high exposure to climate-related risks such as hurricanes and water stress, which impact key sectors like tourism. Nonetheless, these risks are somewhat mitigated by ongoing investments in climate resilience and renewable energy.
The nation’s aging population also presents a medium-term social risk. However, proactive immigration policies and a solid welfare infrastructure help moderate these challenges. Governance remains strong despite a past default history, and institutional strength continues to support the country’s credit profile.
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What Could Affect Future Ratings
Potential for Upgrade:
- Continued fiscal consolidation and structural reform
- Sustained, above-trend GDP growth
- Improved competitiveness and reduced reliance on tourism
Potential for Downgrade:
- Fiscal slippage or weaker-than-expected policy execution
- Significant external shocks disrupting economic performance
- Pressure on foreign exchange reserves or external financing constraints
Moody’s concluded its review with a recognition of stronger institutions, improved economic fundamentals, and a healthier fiscal outlook—all contributing to Barbados’ upgraded B2 rating.
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