BARBADOS
Rank: 28 Regional Rank: 6 of 29
arbados’s economy is 70.5 percent free, according to our 2007 assessment, which makes it the world’s 28th freest economy. Its overall score is 4.7 percentage points lower than last year, partially reflecting new methodological detail. Barbados is ranked 6th out of 29 countries in the Americas, and its overall score is well above the regional average.
B
The economy is 70.5% free
100
80
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Barbados’s business freedom, property rights, and labor freedom all rate highly, as do financial and monetary freedoms, although to a lesser extent. Business regulations, clearly laid out in commercial laws and generally followed, are simple and not cumbersome. The labor market is highly flexible and open. A focus on transparency levels the playing field for domestic and foreign businesses alike, though certain restrictions on foreign investment and moderately high taxes exist. A strong legal system allows for the effective adjudication of business disputes, as well as a relatively low level of corruption and the protection of private property. Despite a healthy respect for law and a relatively positive economic environment, Barbados does levy significant tariffs on non-CARICOM goods. Average tariff rates are similarly high, and non-tariff barriers are a hindrance to a more efficient flow of goods. BACKGROUND: Barbados has a two-party parliamentary system, and the Barbados Labor Party, led by Owen Arthur, has been in power since 1994. Tourism is the most important economic sector. Barbados emphasizes economic and cultural cooperation within the Caribbean region and the development of a common trade policy position within the Caribbean Community and Common Market (CARICOM) trade bloc. The heavily subsidized sugar industry, although diminishing in importance, remains an important employer and exporter. The offshore financial sector is smaller than others in the Caribbean but makes a significant contribution to the economy and is generally well regulated. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.
60
40
Americas Average = 62.3 World Average = 60.6
20
0
1995
2007
QUICK FACTS
Population: 0.3 million GDP (PPP): $4.6 billion 4.8% growth in 2004 1.4% 5-yr. comp. ann. growth $16,825 per capita Unemployment: 9.6% Inflation (CPI): 1.4% FDI (net inflow): $50 million (gross) Official Development Assistance: Multilateral: $33 million Bilateral: $3 million (36% from the U.S.) External Debt: $643.5 million Exports: $1.5 billion Primarily sugar and molasses, rum, food, beverages, chemicals, electrical components Imports: $1.8 billion Primarily consumer goods, machinery, food, construction materials, chemicals, fuel, electrical components
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BARBADOS’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 90 47 78.3 64.4 76.5 50 60 90 69 80
0
investors can be subject to performance requirements. Central bank approval is required for both residents and non-residents to hold foreign exchange accounts. Foreign currency transactions and current transfers are restricted by quantitative limits. Exchange control approval is required for direct investment and real estate purchases, and the central bank must approve all credit operations.
L L L L L L L L L L
50 100
FINANCIAL FREEDOM — 60%
Barbados has a smaller financial sector than other Caribbean financial hubs. Commercial banking is dominated by foreign banks, including Canadian, British, and Caribbean banks based in other countries. Citicorp Merchant Bank initiated operations in 2001. In recent years, the government has intervened in the domestic credit market to influence interest rates, restrict the volumes of funds, and borrow funds. Domestic financing is generally restricted to Barbadians or permanent residents. As of 2004, the offshore financial sector included over 4,500 international business companies, exempt insurance companies, and offshore banks. Legislation passed in 1998 tightened the controls against money laundering. The securities exchange is small, listing about two dozen local and foreign Caribbean companies in 2005. Sagicor, the largest local insurance company, controls 75 percent of the eastern Caribbean market.
100 = most free,
= world average
BUSINESS FREEDOM — 90%
Starting, operating, and closing a business are easy and free from burdensome regulation. Transparent policies and effective laws enhance competition and establish clear rules for foreign and domestic investors. The Company Act ensures flexibility and simplicity for establishing and operating companies in Barbados.
TRADE FREEDOM — 47%
The simple average tariff rate in Barbados was 16.5 percent in 2003. The government requires permits, licenses, or permission prior to importation and maintains restrictive sanitary and phytosanitary policies. Consequently, an additional 20 percent is deducted from Barbados’s trade freedom score to account for non-tariff barriers.
PROPERTY RIGHTS — 90%
Private property is well protected. The legal tradition is based on British common law. The highest court of appeal is the new Caribbean Court of Justice. By Caribbean standards, the police and court systems are efficient and unbiased, and the government operates in an essentially transparent manner.
FISCAL FREEDOM — 78.3%
Barbados has a high income tax rate and a moderate corporate tax rate. The top income tax rate is 37.5 percent, and the top corporate income tax rate is 30 percent. Other taxes include a value-added tax (VAT) and a tax on interest. In the most recent year, overall tax revenue as a percentage of GDP was 30.9 percent.
FREEDOM FROM CORRUPTION — 69%
Corruption is perceived as present. Barbados ranks 24th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.
FREEDOM FROM GOVERNMENT — 64.4%
Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 38.1 percent of GDP, and the government received 5.1 percent of its total revenues from state-owned enterprises and government ownership of property.
LABOR FREEDOM — 80%
The labor market generally operates under flexible employment regulations that enhance overall productivity growth. Under the Trade Union Act of 1964, employers have no legal obligation to recognize unions. Employees are guaranteed a minimum of two weeks of annual leave and are covered by unemployment benefits and National Insurance legislation. Enhancing labor market flexibility has become one of the key areas for further reform.
MONETARY FREEDOM — 76.5%
Inflation is moderate, averaging 4.5 percent between 2003 and 2005. Relatively moderate but unstable prices explain most of the monetary freedom score. Although prices are generally set by the market, an additional 10 percent is deducted from Barbados’s monetary freedom score to adjust for price control measures that distort domestic prices for basic food items and fuel.
INVESTMENT FREEDOM — 50%
Barbados permits 100 percent foreign ownership of enterprises and treats domestic and foreign firms equally, but the government is more likely to approve projects that it believes will create jobs and increase exports. Foreign
100
2007 Index of Economic Freedom