Assessing Barbados' 2025 Budget: Economic Challenges and Optimism
The article analyzes the recent budget presentation in a challenging economic environment, highlighting areas of improvement and existing weaknesses such as sectoral imbalances, high debt levels, and social challenges.
For the third consecutive year, the budget was presented shortly after the estimates and with the country in an economic adjustment programme with the International Monetary Fund (IMF). At the outset, let me state that in my assessment, this year’s budget was an improvement over the previous two presented by the substantive minister of finance, Prime Minister Mia Mottley.
In aiming to provide an appropriate framework within which to assess the budget, the existing social, economic, and financial environment should be understood. Arising from the recent discussion on the Estimates for 2025-2026, projected government expenditure (on an accrual basis) is a record of $5.13 billion, estimated taxation revenue (on an accrual basis) is $3.98 billion, with a deficit of $1.15 billion. The deficit is to be financed through borrowing with greater reliance on domestic sources.
The budget was presented with optimism of real growth of the economy of 3.9 per cent for 2025. Nevertheless, several structural weaknesses exist in the economy. These include unbalanced sectoral growth with the economy over-reliant on the tourism industry; weak export capacity; high trade deficit; low productivity; and the labour market characterised by a high level of underemployment and low participation rates, especially among females.
Other weaknesses include lower than desirable levels of private sector investment; high taxes which have a constraining social and economic impact; insatiable appetite for borrowing with the debt level reaching $15 billion and debt service projected at $1.78 billion for 2025-2026 following the record level of $2.05 billion for the previous year; and inefficient state-owned enterprises which continue to be financially burdensome on public funds.
Challenges also exist at the social level. These include worrying levels of violent and other crimes, and high levels of dispossession and poverty, as families continue to bear the brunt of high food prices and high cost of living. The high food prices make it very difficult for some families to pursue a healthy diet, thereby contributing to a high incidence of non-communicable diseases.
Strengths of the budget
First, the budget gives due recognition to the administration’s efforts to make the country more climate resilient through the establishment of a Resilience and Regeneration Fund.
Second, measures aimed at enhancing the protection of the vulnerable in society, like expanding the eligibility criteria for special needs grants and increasing the stipend per child in foster homes, are laudable.
Other measures, including the $5 million podiatry project for seniors, increasing the income tax threshold to $50,000.00 for pensioners, non-taxable meal allowance for hotel workers, increasing the maternal leave provision from 12 to 14 weeks for single birth and to 17 weeks for multiple births, and paternal leave of three weeks for men, are commendable.
Third, efforts to stop the slide in agricultural production through the lease-to-own arrangement of 20 vertical farms and 20 broiler tunnel ventilation systems, and the reduction of the water rate for registered farmers from $1.80 per cubic metre to $1.00 per cubic metre can be viewed as moves in the right direction. It should, however, be noted that the small scale of many non-sugar farming operations does not make adoption of the proposed technologies a cost-effective option for them. Also, the adoption of the new technologies by larger farming units will enhance their efficiency and yield greater economies of scale, resulting in some fringe crop and poultry farmers exiting the industry.
Fourth, the Budget gives recognition to the need to utilise more of the savings in credit unions for productive purposes, namely financing real estate, renewable energy, and tourism-related projects. The focus on increasing the transformation rate (the rate at which savings are transformed into investment activities) through the credit union system can be seen as an alternative mechanism to the Unit Trust Corporation promised in the 2023 Budget which was never established.
Fifth, the expansion of deposit insurance to include credit unions is a positive move since it guarantees savers in credit unions recovery of some percentage of their funds should the institutions experience disruption. However, financial regulators must be wary of the moral hazard problem which may be exacerbated with a deposit insurance scheme. Moral hazard relates to the situation where management of financial institutions takes on riskier than normal activities once a measure of protection is provided for the funds of depositors.
Weaknesses of the budget
The budget is deficient in many ways. First, the relationship between the estimates, the Barbados Economic Recovery and Transformation (BERT) programme, and the budget was not articulated. An important issue not considered is the impact of the measures outlined on the fiscal deficit, which was estimated at $1.15 billion in the estimates. Indeed, the fact that the revenue-raising measures, expenditure items, and others resulting in loss of taxation revenue are not valued in their entirety means that the net impact of the budget on government finances is indeterminate.
Another consideration is the extent to which the outstanding measures in BERT 2.0 and those contained in BERT 3.0 to be implemented later this year will affect the pace of implementation and impact of the provisions in the budget… Second, the macroeconomic impact of the Budget was not addressed. That is, the measures were not assessed in relation to key economic variables such as growth, prices, employment, balance of payments, debt, and the fiscal deficit.
Third, the Budget was silent on the need for a well-articulated diversification strategy for the economy. The treatment given to agriculture and manufacturing was woefully inadequate, and the discussion on advancing the renewable energy sector was not convincing.
Minister Straughn’s emphasis on tourism projects reinforces the administration’s economic strategy with heavy reliance on the tourism industry.
Though the tourism sector is important to the economy through its linkages to other sectors, direct and indirect employment, and foreign exchange generation, including the injection of foreign direct investment for new hotel projects, over-reliance on tourism is very risky.
The coronavirus pandemic was the most recent reminder of the riskiness of an economic strategy that is heavily skewed towards tourism. The tourism industry might be challenged soon as a result of geopolitical issues and the emerging trade war initiated by President Donald Trump of the United States of America, which could lead to recessionary conditions in the international economy.
Fourth, the omission of discussions on the status of the transitional arrangement in the sugar industry involving the Barbados Sustainable Energy Cooperative Society Limited (CoopEnergy) and the status of the Farmers Empowerment and Enfranchisement Drive (FEED) programme is another deficiency of the budget.
An impasse was declared in the relationship between the government and CoopEnergy in November 2024 by the president of CoopEnergy. Subsequent to the revelation of the impasse, the public was informed that the government was awaiting CoopEnergy to honour its financial commitment to the new arrangement.
The opportunity was missed in the budget presentation to update the public on the status of the impasse between the government and CoopEnergy, and the mechanism (and quantum) through which the government continues to support the sugar industry.
There is also concern about the FEED programme. This programme, managed by the Barbados Agricultural Development and Marketing Corporation (BADMC), is pivotal to the country achieving its objective of reducing the import food bill by 25 per cent. Despite spending in excess of $15 million on the project, agricultural production has not improved, and there has been no reduction in the food import bill.
The unwise decision to increase the water rate from 66 cents per cubic metre to $1.80 per cubic metre for farmers in BADMC irrigation districts forced some farmers to terminate production and others to scale back their operations, thereby hampering the FEED programme. The reduction in the water rate to $1.00 per cubic metre will be welcomed by the remaining farmers in the programme. However, the budget should have discussed initiatives to deal with other challenges farmers face in the programme, notably land availability, access to water, and marketing support.
Fifth, the discussion on public debt was paltry. The administration continues to advance a position, supported by the Central Bank of Barbados, that the value of the debt is not important once the debt-to-GDP ratio is declining. This is a very convenient position to hold, especially since the same administration was so concerned about the level of debt on taking office in May 2018 that it hastily implemented a debt default which reduced the debt by about $4 billion or 26 per cent. On that occasion, the debt was reduced from $15.84 billion to $11.7 billion. It has subsequently increased to $15 billion.
The reality is that the quantum of public debt is important. Persistent high debt diverts financial resources away from social and economic developmental activities in order to meet debt service obligations. This challenge is magnified when the interest cost of the debt is excessive.
The country is on a dangerous debt trajectory, occasioned by the administration’s voracious appetite for borrowing. Between June 2018 and February 2025, the administration borrowed $7.3 billion and repaid $7.53 billion. Of particular concern is debt repayment outstripping borrowing by $360 million in 2024-2025 when debt service is expected to surpass $2 billion for the first time. Between the years 2025-2026 through to 2029-2030, debt service is projected conservatively to be $8.45 billion, an annual average of $1.69 billion.
With fiscal deficits in excess of $1 billion in recent years, the figures indicate clearly that the country will be stuck with extremely high borrowing unless the administration changes its expenditure and borrowing policies… A sixth concern with the Budget relates to the credibility of the administration occasioned by the introduction of new taxes and fees. Two recent newspaper articles reported the assurance given by a policymaker that there will be no new taxes in the Budget. Such a commitment was very surprising given the overriding objective of a Budget and the state of public finances.
It is, therefore, understandable if businesses and individuals affected by the following measures feel betrayed: a car rental levy of $10.00 per day to be included in the daily car rental fee; excise tax of 20 per cent on selected salty snacks; an increase in the contribution rate from 0.1 per cent to 0.25 per cent of employees and self-employed people into the Resilience and Regeneration Fund; expansion of the contributor pool by requiring employers to match contributions of each of their employees; and removal of the cap of the maximum insurable earning ceiling to make contributions to the Resilience and Regeneration Fund.
Seventh, the measures to address the high food prices and high cost of living are cosmetic rather than substantive. They will have minimal impact on the daily struggle experienced by poorer sections of society.
The main factor inhibiting the administration from dealing with the cost-of-living crisis in a more decisive way in the budget is the limited fiscal space available because of the record level of planned expenditure in 2025-2026. Persisting with runaway expenditure in a high debt environment attaches crucial importance to taxation revenue. Hence, the administration has very little scope to reduce taxes in order to ease the high food prices and address the cost-of-living crisis.
Eighth, the budget provides generalities and statements of intent rather than specific initiatives to advance the transformation of the education system. This is disappointing given the urgency in implementing transformative education initiatives, and the adequate time and financial resources expended in the planning phase of the education transformation project.
A final deficiency in the budget is its time-independence, that is, there is no link to the previous year’s budget. In this regard, the budget does not discuss the impact (or lack thereof) of the measures outlined in last year’s budget.
Notwithstanding the structural and other deficiencies of the budget, I acknowledge the improvement in the content and delivery of this year’s budget. Minister Ryan Straughn is deserving of thanks for his effort.
Anthony P. Wood, a former lecturer in economics, banking and finance at UWI Cave Hill, was a Cabinet minister in the Owen Arthur administration.
