The Hidden Cost of Weak Budget Projections: Forecast Deviation and Debt Buildup in Barbados

Dec 2018
The Barbados economy has been challenged over the last decade by elevated fiscal deficits and a rapid build-up in debt. While the country has made efforts to address this challenge through revenue and expenditure measures, budget targets have often been missed. This study indicates that budget under performance has contributed to the debt accumulation in Barbados. When comparing actual to budgeted targets set out in the budget, the study indicates that there has been an underestimation of expenditure and lower-than-expected revenue in several years. Particularly, systematic underestimation of transfers without adequate compensation in revenues has increased debt, underscoring the need for institutional and fiscal reforms. At the same time, the under-execution of capital expenditure highlights the need for better allocation to this growth-promoting spending, which has suffered from limited fiscal space.