Moody's Ratings (Moody's) has upgraded the long-term issuer ratings of the Government of Barbados' to B2 from B3. The outlook remains stable.
The upgrade reflects Barbados' track-record of fiscal consolidation, with sustained primary surpluses and a narrowing fiscal deficit that place debt on a firm downward trajectory. The government has implemented institutional and structural reforms that improve fiscal policy effectiveness, limiting the risk of fiscal slippage even when faced with external shocks, and reflect well on the strength of institutions and governance. The improved fiscal position and continued access to concessional external financing from multilateral creditors reduces government liquidity risk and the need to rely on external market funding. The upgrade is also driven by our expectations of higher real GDP growth compared to pre-pandemic performance - notwithstanding risks related to the unfolding global slowdown - supported by structural reforms and higher investment in key sectors, including investment in climate resilience efforts.
The stable outlook reflects our expectations that past reform efforts have strengthened Barbados' economic resilience, increasing the sovereign's shock-absorption capacity. The continued execution of the Barbados Economic Recovery and Transformation (BERT) plan and the government's commitment to fiscal prudence anchor our expectations for a steady reduction in government debt. In addition, Barbados' external position has strengthened, reflected in an adequate foreign exchange buffer, supporting its ability to respond to external shocks. Although Barbados has enjoyed strong post-pandemic growth performance, its economy remains reliant on tourism and is vulnerable to external shocks. In this event, we expect Barbados government will maintain prudent fiscal policies in line with its medium-term fiscal framework.
Barbados' local currency bond ceiling has been raised to Ba2 from Ba3, and the foreign currency bond ceiling raised to B1 from B2. The three-notch gap between the sovereign rating and the local currency ceiling reflects consistent macroeconomic policies and low political risk, low government intervention in the economy, and strong rule of law, balanced against limited economic diversification and susceptibility to shocks. The two-notch gap between the foreign-currency ceiling and the local currency ceiling incorporates still relatively high external vulnerability, persistent current account deficits and capital controls on foreign exchange movement.
Ratings Rationale
Rationale for the Ratings Upgrade to B2
- Stronger Fiscal Policy Framework And Larger Primary Surpluses Put Debt Burden On A Firm Downward Trajectory
Barbados has demonstrated strong commitment to fiscal and structural reforms that place government debt on a firm downward trajectory. The fiscal deficit narrowed to 1.6% of GDP in 2024, compared with an average of 4.6% of GDP between 2015 and 2018, prior to the debt restructuring. The government's fiscal consolidation efforts, including and state-owned enterprises (SOEs) reform, pension reform and measures to improve spending efficiency resulted in large primary surpluses of around 4% of GDP as the economy recovered from the pandemic shock. These efforts, along with tax reform and a strong economic recovery, drive our expectation that the debt-to-GDP ratio (excluding debt owed to the National Insurance Scheme) will decrease to around 80% in 2025, down from 89% in 2023. Over the medium-term, we expect Barbados debt to decline to 67% by 2030 on account sustained fiscal surpluses and solid real GDP growth. The government's fiscal efforts center around reducing debt burden to 60% of GDP by 2035.
Reforms to improve fiscal policy implementation and the institutional framework will solidify gains in fiscal policy effectiveness and ensure policy continuity in the coming years. The government introduced a medium-term fiscal framework in 2021 to enhance transparency of fiscal policy and ensure consistent implementation. The newly established Fiscal Council will help promote accountability and transparency of fiscal policy.
Barbados has also implemented significant structural reforms aimed at improving financial and operational efficiencies within the government and SOEs. The cumulative impact of SOE reform has been substantial, reducing transfers to SOEs from 2.5% of GDP in FY2018/19 to less than 1.5% in FY2023/24 with additional 0.3% of GDP reduction planned for FY2024/25, supporting the sustainability of these fiscal savings.
- Continued Access to Multilateral Funding Expands Financing Options and Reduces Government Liquidity Risk
Barbados' improved fiscal position, combined with access to financing from multilateral development banks and gradually improving domestic financing options, have significantly improved its financing flexibility. The government has also demonstrated improved access to market funding, securing a sustainability-linked loan in December 2024 to repurchase a portion of its outstanding domestic bonds, achieving fiscal savings that will be used to fund critical infrastructure investment in a sewage treatment plant. Domestic debt issuance is gradually increasing, with the government restarting the issuance of Treasury bills. Over time, we expect the government to introduce longer-term bonds, further improving its financing options.
We expect the government to rely mainly on concessional external borrowing from multilateral development banks to meet its external financing needs. The government may also tap private markets, as illustrated by the recent debt-for-nature swap with support from development partners to improve debt affordability and the maturity profile of its debt stock. Reliance on official financing sources to cover Barbados funding needs limits its exposure to market funding risk and contains its cost of funding.
- Structural Reforms and Investment in Priority Sectors Improve Growth Prospects and Resilience to Shocks
Barbados' economy has shown resilience to shocks and GDP growth has strengthened, supported by durable structural reforms and investment in both tourism and non-tourism sectors. Despite the economic effects of Hurricane Beryl, real GDP growth in 2024 remained strong at about 4% and the tourism sector displayed strong growth dynamics, with stay-over and cruise-ship arrivals increasing from the previous year.
While global macroeconomic uncertainty presents a downside risk to growth and investment in 2025, we expect investment in tourism, infrastructure and energy transition in next two to three years will continue to support solid growth rates and further improve resilience to shocks. In addition, the government is targeting around 5% of GDP in public investment annually in the coming years, compared with just 1.3% of GDP in 2018, which will also support the economy and its resilience.
We expect real GDP growth rate of around 3% in 2025-2026, higher than the economy's average growth rate of less than 1.5% in the years preceding the debt restructuring (2015-2018). Sustaining higher real GDP growth will address one of the key weaknesses of Barbados' credit profile and will facilitate the government's efforts to reduce debt burden and create more economic opportunities for the population.
Rationale for the Stable Outlook
The stable outlook reflects our expectations that Barbados will continue to reduce its debt burden while maintaining a prudent fiscal stance. Even so, the government debt burden and debt affordability will remain weaker than similarly rated peers. Despite the challenges posed by a potential economic downturn globally that could affect tourism activity in the country, we expect fiscal policy to remain prudent, limiting the risk of fiscal slippage. Given Barbados' access to multilateral funding and improving access to domestic financing, the government is also less exposed to volatility in market funding.
Environmental, Social, Governance Considerations
Barbados' ESG Credit Impact Score (CIS-3) reflects its high exposure to environmental risks related to climate change and social risks related to aging population, which is mitigated by efforts to improve climate resilience, improve immigration policies and strong governance.
Barbados' E issuer profile score (E-4) reflects the economy's exposure to environmental risks due to the impact of weather-related shocks, which are expected to increase in severity due to climate change. Exposure to physical climate risk and high water stress negatively impacts performance in the tourism sector, a key industry for the island. Barbados' exposure is somewhat mitigated through ongoing efforts to improve resilience to shocks, transition to renewable energy sources, and support from development partners.
Exposure to social risks (S-3) reflects negative demographic trends, balanced against adequate provision of basic services, a welfare state, and relatively strong education outcomes. Future social pressure may arise if economic growth weakens, reducing support from economic reforms and leading to weaker fiscal consolidation. The government efforts to attract inward migration to the island, particularly from Barbadians abroad would contribute to stronger potential growth and mitigate those risks.
Relatively strong institutions and governance framework support Barbados' credit profile, balanced against a recent history of default, leading to a moderately negative exposure to governance risk (G-3 issuer profile score).
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GDP per capita (PPP basis, US$): 20,765 (2023) (also known as Per Capita Income)
Real GDP growth (% change): 4.2% (2023) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 3.4% (2023)
Gen. Gov. Financial Balance/GDP: -1.7% (2023) (also known as Fiscal Balance)
Current Account Balance/GDP: -8.9% (2023) (also known as External Balance)
External debt/GDP: 53.3% (2023)
Economic resiliency: ba2
Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.
On 09 April 2025, a rating committee was called to discuss the rating of the Barbados, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have materially increased. The issuer's institutions and governance strength, have materially increased. The issuer's fiscal or financial strength, including its debt profile, has materially increased. The issuer's susceptibility to event risks has not materially changed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATINGS UP
Upward pressure on Barbados' rating could result from continued progress on fiscal consolidation and structural reform efforts that lead to a sustained decline in the government's debt burden and improved debt affordability, beyond our current expectations. Sustained higher rates of economic growth, supported by successful implementation of structural reforms, coupled with clear evidence of improved competitiveness could also lead to a rating upgrade.
WHAT COULD CHANGE THE RATINGS DOWN
Negative pressure on Barbados' rating could emerge if external shocks or lower policy effectiveness than we currently assess derail the government's fiscal consolidation and structural reform efforts, reversing the favorable trend expected in debt burden and reducing its financing options. Renewed pressures on foreign-exchange reserves would introduce risks to external accounts, which could also lead to negative rating action.
The principal methodology used in these ratings was Sovereigns published in November 2022 and available at https://ratings.moodys.com/rmc-documents/395819. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.
Barbados economic strength is set at "ba3", below the initial score of "ba1", to reflect short track-record of stronger real GDP growth compared to average growth rates, and Barbados exposure to external shocks that may weaken growth performance in the near-term. Barbados institutions and governance strength is set at "ba1", below the initial score of "baa3" on account of recent history of default. The final score for fiscal strength is set at "b3", above the initial score of "caa2" to account for lower exposure to exchange rate risk due to Barbados long-standing currency peg, despite relatively large share of foreign-currency denominated debt. This leads to a final scorecard-indicated outcome of B1-B3, compared to an initial scorecard-indicated outcome of Ba3-B2. The assigned rating is within the final scorecard-indicated outcome range.
REGULATORY DISCLOSURES
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At least one ESG consideration was material to the credit rating action(s) announced and described above. Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/rmc-documents/435880.
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Samar Maziad
Vice President - Senior Analyst
Ariane Ortiz-Bollin
Associate Managing Director
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