Fitch warns of tourism pressures

About six months after affirming Barbados’ credit rating and changing the outlook to positive, Fitch Ratings is warning of increased pressure on tourism and prices for the island if war in the Middle East persists.

It is also predicting that the country’s economic growth will “taper to two per cent over the next two years”.

Fitch Ratings published a Barbados update last week which examined the latest credit developments, and gave an assessment on future economic and fiscal performance.

The international credit rating agency said that the immediate impact from the energy shock caused by the war in the Middle East was expected to be minimal, but could worsen depending on how long the conflict lasted.

Minimal impacts

“The economic and fiscal impacts on Barbados will be minimal under Fitch’s baseline of an average global oil price of US$70 per barrel in 2026. We expect tourism to be stable, given still positive economic growth in the United States and United Kingdom”, it said.

“Higher energy prices will increase domestic prices, albeit it from historically-low inflation rates. The Government has mitigated some of these dynamics by absorbing 50 per cent of electricity price increases, locking in imported fuel prices at US$92 per barrel and capping fuel taxes for three months.”

However, Fitch had concerns about downside risks for Barbados from a longer conflict.

“Downside risks will increase if the Iran war continues for longer than expected, if the current ceasefire does not hold and energy prices remain elevated for the rest of the year,” it advised.

“The tourism and inflation channels, as well as the external position, will experience greater pressure under a downside scenario of average oil prices of US$100 per barrel.

“This could yield more calls for fiscal support and pause the improvements in both economic and fiscal metrics that have underpinned recent credit momentum.”

On Barbados’ economic prospects, Fitch predicted slower economic growth over the next two years.

“The economy continues to grow above potential, expanding 2.7 per cent in 2025, which is on par with the average in 2023-2024 and well above the flat growth experienced prior to the pandemic,” it stated in the update.

“Given the plateauing of tourism growth and global economic uncertainty, Fitch Ratings expects real GDP growth to taper to two per cent over the next two years.”

The agency acknowledged that tourism “remains the engine of the economy”, with total arrivals growing by 6.7 per cent in 2025, down from 17.7 per cent growth in 2024.

Economic shock

“The cruise industryled growth, with cruise arrivals up 9.6 per cent, while the more lucrative stay-over arrivals grew 3.3 per cent, we expect arrival growth to taper but still be strong, unless there is a prolonged economic shock,” the report predicted.

Fitch saw Government’s fiscal position as “still strong”.

It elaborated, stating: “Government finances continue to improve with the general government deficit shrinking to an estimated $83 million – 0.5 per cent of GDP – in the fiscal year to end-March 2026 – fiscal year 25/26.

“The fiscal balance will maintain positive momentum, moving to neutral – zero per cent of GDP – in fiscal year 26/27 and a small surplus – 0.1 per cent – in fiscal year 27/28. As a result, debt/GDP has shrunk to 95 per cent in 2025, still much higher than the ‘B’ [credit rating] median of 51 per cent. We expect progress to continue with debt/ GDP falling to 91.3 per cent in 2026.”

Fitch also said that Barbados’ stock of foreign reserves compared favourably with other countries it rated ‘B’, although the current deficit was high.

“The current account deficit expanded to 7.6 per cent in 2025, after shrinking to 3.8 per cent of GDP in 2024, just under the post-pandemic average,” the report added.

“Outflows weighed on international reserves, which fell to US$1.6 billion – five months of current external payments) from US$1.7 billion – 5.7 months – in 2024. This compares favourably to ‘B’ peers at 4.4 months, although Barbados’s high external exposure argues in favour of additional buffers.” (SC)

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