2009 Index of Economic Freedom

Quick Facts

Population:

• 0.3 million

GDP (PPP):

• $5.0 billion
• 3.9% growth
• 3.1% 5-year compound annual growth
• $18146 per capita

Unemployment:

• 10.7%

Inflation (CPI):

• 5.5%

FDI Inflow:

• $36.0 million

Barbados's economic freedom score is 71.5, relatively unchanged from last year, making its economy the 22nd freest in the 2009 Index. Improvements in trade freedom and government spending were offset by a loss of investment freedom. Barbados is ranked 2nd out of 29 countries in the South and Central America/Caribbean region, and its overall score is well above the global average.

Transparent policies and effective laws concerning entrepreneurial activity are reflected in high ratings in business freedom, property rights, and freedom from corruption. Business regulations, laid out in commercial laws and evenly applied, facilitate private-sector growth. Relatively flexible labor policies also support overall competitiveness. Transparency levels the playing field for domestic and foreign businesses alike, despite certain restrictions on foreign investment and moderately high taxes. A strong legal system adjudicates business disputes effectively and encourages a relatively low level of corruption.

Barbados also levies significant tariffs on non-CARICOM goods. Average tariff rates are high, and non-tariff barriers hinder the more efficient flow of goods. Better budget management could help to track and rein in spending on big public projects and support government commitments to reduce the fiscal deficit.

Background Back to the top

After 14 years in power, the Barbados Labor Party was succeeded in January 2008 by the Democratic Labor Party. New Prime Minister David Thompson promised to fight inflation, improve health care, and deal with crime. Tourism accounts for more than 11 percent of GDP in a relatively broad-based economy. Informatics and light manufacturing are important, and the offshore financial sector, though smaller than others in the Caribbean, earns significant foreign exchange and is generally well regulated. The once-dominant, heavily subsidized sugar industry now accounts for about 1 percent of GDP. The government has had difficulty financing a new refinery to produce sugar, generate 30 megawatts of power, and produce ethanol. Barbados emphasizes economic and cultural cooperation as well as a common trade policy within the CARICOM trade bloc.

Business Freedom 90.0 Back to the top

Entrepreneurial activities are free from burdensome regulations, and the overall process for obtaining licenses and starting a business is straightforward. The Company Act ensures flexibility and simplicity in establishing and operating companies in Barbados. Transparent policies and effective laws enhance competition.

Trade Freedom 64.6 Back to the top

Barbados's weighted average tariff rate was 12.7 percent in 2006. The government requires permits, licenses, or permission prior to importation and maintains restrictive labeling, sanitary, and phytosanitary policies. Ten points were deducted from Barbados's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 70.9 Back to the top

Barbados has a high income tax rate and a moderate corporate tax rate. The top income tax rate is 35 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT), an excise tax, and a tax on interest. The property transfer tax rate was reduced in 2007. There are extensive grounds for exemption for each tax levied. In the most recent year, overall tax revenue as a percentage of GDP was 32.6 percent.

Government Size 66.3 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 33.5 percent of GDP.

Monetary Freedom74.5 Back to the top

Inflation is rising, averaging 6.0 percent between 2005 and 2007. Although prices are generally set by the market, ten points were deducted from Barbados's monetary freedom score to adjust for price-control measures that distort domestic prices for basic food items, transportation, and fuel.

Investment Freedom50.0 Back to the top

Foreign and domestic capital are treated equally under the law. Barbados permits 100 percent foreign ownership of enterprises and regulates domestic and foreign firms equally, although the government favors projects that it believes will create jobs and increase exports. Companies can freely repatriate profits and capital from foreign direct investment if they registered with the central bank at the time of investment. Central bank approval is required for residents and non-residents to hold and transact in foreign exchange accounts. Despite transparent policies and effective laws, bureaucracy can be cumbersome. The government can acquire property compulsorily for public use upon prompt payment of compensation at fair market value.

Financial Freedom60.0 Back to the top

Barbados has a smaller financial sector than other Caribbean financial hubs, with six commercial banks dominated by Caribbean Community and Common Market (CARICOM) institutions. As of 2007, the offshore financial sector included 4,932 international business companies, 426 exempt insurance companies, and 54 offshore banks. The relatively well-established and competitive banking sector provides a wide range of services for domestic and foreign investors. While ensuring that strong regulatory standards are maintained, the government also seeks to expand product offerings in other financial services. Compliance with international supervisory standards is high for both offshore and onshore banking institutions. Guidelines revised in 2006 further refined controls on money laundering. The domestic insurance sector is vibrant, and its regulatory framework is flexible. The small securities exchange listed about two dozen local and foreign Caribbean companies in mid-2007. A two-tier listing regime allows smaller companies to list without having to meet the same requirements that more established companies have to meet. Exchange controls are being eased. In 2007, the government abolished all CARICOM-related exchange controls, and all restrictions concerning non-CARICOM transactions are to be removed eventually.

Property Rights90.0 Back to the top

Barbados has an efficient legal system based on British common law. Private property ownership is well protected. The Caribbean Court of Justice is the court of final appeal for Barbados and other CARICOM member states. By regional standards, the police and courts are efficient and unbiased, and the government operates in an essentially transparent manner.

Freedom From Corruption69.0 Back to the top

Corruption is perceived as present. Barbados ranks 23rd out of 179 countries in Transparency International’s Corruption Perceptions Index for 2007. Barbados is a narcotics trafficking transit country that attracts drug money–laundering operations.

Labor Freedom80.0 Back to the top

Flexible employment regulations enhance overall productivity growth and create job opportunities. Employees are guaranteed a minimum of two weeks of annual leave and are covered by unemployment benefits and national insurance legislation. Under the Trade Union Act of 1964, employers are not legally obligated to recognize unions.