North & Central America and Caribbean

Barbados
Last reviewed: 04 June 2009

Country information

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ECONOMY

Basic Economic Facts

GDP, current prices: (US$3,49m) (2007) (EIU)
GDP per capita: US$7,350 (2007) (Central Bank of Barbados)
Annual Growth: 4.3% (2007) (Central Bank of Barbados)
Inflation: 4.2% (October 2007) (Central Bank of Barbados)
Unemployment: 7.1% (Q3 2007) (Central Bank of Barbados)
Major Economic Sectors: tourism, offshore financial services, construction and utilities, sugar, light manufacturing, component assembly for export, agriculture, information technology services.
Major export partners (2006): CARICOM 37.0%, US 10.6%, UK 12.3% (Barbados Statistical Service)
Major import partners (2006): US 37.25%, CARICOM 26.0%, UK 5.9% (Barbados Statistical Service)

After eight years of steady growth in the mid- to late-1990s, the economy contracted slightly at the beginning of the century. The downturn was mainly caused by a slump in the key tourist industry, with falling overall numbers in tourist arrivals and low hotel occupancy, made worse by the events of 11th September 2001. The Government of Barbados launched a series of tourism initiatives to increase airlift capacity and earmarked a substantial amount of money for an advertising campaign aimed at the US and European markets. This resulted in a return to growth, up to a peak of 4.9% in 2004, although this has subsequently fallen slightly to 4.3% in 2007.

The tourism sector, which depends to a high degree on the UK (provides approx. 38% of long stay visitors), performed strongly in 2004 with an 8.8% increase in long stay visitors and a 25% increase in cruise ship passengers but experienced a 3.8% decline in 2005 (0.8% fall in long-stay, 21.6% fall in cruise ship arrivals). But 2007 saw the industry rebound, growing by 3.3% (cruise ship passenger arrivals rose by 12.3% in the first 11 months of 2007)

2006 saw a slight recovery in the tourism sector - output grew by 2.5% compared to the decline in 2005. The industry grew by 3.3% in 2007, with cruise ship passenger arrivals being up by 12.3% on 2006 figures, with the added benefit of a new direct flight between Florida and Barbados. Visitor numbers from other Caribbean countries have fallen due to high regional airfares. However, high fuel costs, shorter cruise ship itineraries and fewer cruise ship visits to Barbados remain of concern to industry operators, along with uncertainties over UK consumer demand. Similar slowdowns in mainland Europe will have a slight impact, but they are much less important to the economy in comparison with the British market.

Despite plans to restructure and diversify the sugar industry in the face of EU price cuts, output rose by 3.1% in the 2007 crop season. However, revenues were the same, with the fall in the EU price offset by the increase in the value of the Euro. Further price cuts will be made next year, with 36% cuts to be made by 2010. Proposals for restructuring the industry remain under development. The future of the EU banana regime is also uncertain, with the tariff and quota system being challenged in the WTO by Ecuador, Colombia and the USA. Without some form of protection, the regional banana industry is unlikely to survive.

Offshore oil and gas exploration has seen high levels of interest from foreign companies. While there is no guarantee of finding reserves, initial indications are that this could be worth pursuing. Any success would have the potential to transform the economy, moving it away from a significant reliance on tourism.

Inflation in October 2007 was down to 4.2% compared to 7.6% in October 2006. Strong capital inflows and increased deposits boosted bank sector liquidity. The country’s largest conglomerate, Barbados Shipping & Trading (BS&T) has been taken over by Neal & Massy, a Trinidadian company, significantly reducing the proportion of production capacity controlled from within Barbados. There are therefore raised concerns over the creation of semi-monopolies in some sectors.

The government recorded a fiscal deficit in the first half of 2007 after a period of surpluses. Total government expenditure has increased by 9.7% compared to the previous year, although capital spending is down following the completion of many major investment projects. An IMF Article IV mission in July stressed the need for fiscal consolidation to help reduce the current account deficit and public debt.

Barbados was taken off the OECD's list of tax havens in January 2002.