Economy and Trade
The island of Barbados has been independent of the United Kingdom since 1966. Settled initially by the British in 1627, the island was seen as an ideal location for sugar cane production, with plantations being worked by slaves until the abolition of slavery in 1834. Post-independence, tourism and light manufacturing became more important than sugar cane, and, by the 1990s, their combined contribution to GDP outstripped that of sugar production. In recent years, some three-quarters of GDP and 80% of exports have come from services. The country enjoys one of the highest per capita incomes in the region. Offshore finance and information services are important foreign-exchange earners, and thrive from having the same time zone as eastern US financial centers, and a relatively highly educated workforce. The government has made sustained efforts to reduce unemployment, to encourage direct foreign investment, and to privatize remaining state-owned enterprises. The public debt-to-GDP ratio of about 80% is likely to widen as the government undertakes a more expansionary fiscal policy to combat the impact of the global downturn.
Economic Policy over 12 Months
In July 2008, the Prime Minister of Barbados, David Thompson, who came to power in elections in January 2008, delivered his administration’s first budget speech. At that time, the price of oil had not yet collapsed under the impact of the global slowdown, and commodity prices were still at or near record levels. The slowdown had, however, already affected growth in the Barbadian economy, which slowed to 1.8% (estimated) during the first six months of 2008, according to the prime minister’s budget speech. This is in comparison to an average of 4.2% annual growth for the years 2004 to 2007. The major policy thrust of the incoming government was a pledge to end the alleged waste of the prior regime, which, after 16 years in power, had become embroiled in projects such as the notorious ABC highway “flyover” road-widening project, which overran its budget by many tens of millions of pounds before the new administration terminated the contract with the overseas construction company. Faced with price pressure on essential commodities and lower growth, the Thompson government, which had pledged to focus on domestic issues such as the cost of living, healthcare, and crime, committed to a stimulus package aimed at alleviating the impact of the downturn on the lower paid.
Despite the pressure of higher imported fuel costs, the island managed to achieve a capital account surplus for the first half of 2008 sufficient to offset import costs. Barbados’s net international reserves rose by US$115.9 million to US$1,663.9 million in June 2008. However, capital outflows increased through the second half of the year, shrinking the capital and financial account surplus to the point where it could no longer offset the external current-account deficit, leaving the island with a contraction of US$202 million in its international reserves.
The Central Bank of Barbados cut the minimum deposit rate by 25 basis points in April 2008, to 4.5% (down 75 basis points from November 2007). The rate was cut again during the year to 4.0%. The cut, and subsequent rate cuts, was partially forced by the need to maintain a positive differential with interest rates abroad, particularly in the United States, in order to provide some safeguards against the outward movement of capital.
The government and the private sector in Barbados are working to prepare the country for the Caribbean Community (CARICOM) Single Market and Economy (CSME), a European-style single market.
Economic Performance over 12 Months
Activity in the island’s construction sector, one of the main engines of growth, fell by 3.1% once the stimulus of building for the Cricket World Cup 2007 had passed. Manufacturing output and sugar production also saw growth falling back to just 1.1%. The island’s chemical production also declined, following a major fire at a chemical plant in 2007. At the same time, as growth declined commodity-price increases fueled inflation, pushing the rate to 5.0% by March 2008, as against 2.7% in September 2007. By January 2009, according to a review of the year by the Central Bank of Barbados, real output growth in the Barbadian economy had shrunk to just 0.7%, substantially lower than the 3.3% expansion in output achieved in both 2006 and 2007. This made 2008 the first year since 2002 that the island’s GDP grew by less than 1%. Higher expenditure by the government created a fiscal deficit estimated at 4.5% of GDP for 2008, as against a deficit of 1.9% of GDP for 2007.
In common with other island economies with a strong tourism component, Barbados has seen tourist numbers fall, in both the long-stay tourist category and the cruise segments. The picture was mixed, however, with an increase of 15.4% in total passenger arrivals in the cruise sector for the first half of 2008, being offset by contractions in the market in the second half of the year. Overall, the tourism sector declined by a fraction of 1% for the year as a whole, following an expansion of 14.3% in 2007.
The contraction in manufacturing was also marginal, at 0.4%, following a decrease of 2.9% in 2007. According to the Central Bank, a reduction of 1.3% in miscellaneous manufacturers coupled with downturns in chemicals (5.2%), non-metallic mineral products (1.1%), and furniture production (4.3%) outweighed improvements in other key subsectors.
In the international business and financial-services sector, preliminary data as at the end of September 2008 indicated that 371 new licenses were issued for international business companies, approximately 37 more than in the same period of 2007. Seventy-five new societies with restricted liability were licensed, compared to 126 a year earlier. One new offshore banking license was granted during the period, compared to five new licenses in the same period of 2007. The unemployment rate at the end of the third quarter was 8.4%, compared with 7.4% reported at the end of September 2007. The female unemployment rate was unchanged at 8.9%, while the rate of unemployment for males increased by 1.2 percentage points to 6.6%. The reduction in employment was mainly attributed to scaled-down labor demand in the utilities, construction, and distribution sectors (source: Barbados Central Bank). The BCB expects the Barbadian economy to contract by between zero and 2% in 2009, as a consequence of the global downturn.
Support for Inward Investment and Imports
Invest Barbados is the body charged with encouraging and stimulating inward investment to the country, as well as managing the Barbados brand. There is no restriction on foreign ownership of businesses.
Tax Exemptions
Barbados offers a range of tax-efficient vehicles through which investors can conduct international business. Contact Invest Barbados for details.
Statistics
GDP growth: 2.8% (2008)
GDP per capita: US$20,200
CPI: 5.5%
Key interest rate: 12.0%
Exchange rate versus dollar: Barbadian dollar pegged to the US dollar at a rate of BBD2:US$1
Unemployment: 10.7%
FDI: 362.2 (2003, BCB)
Current account deficit/surplus: −US$254 million (2007)
Population: 281,968
Source: CIA World Factbook except where stated
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