May 27, 2025
Booming economies in the Caribbean, alongside fiscal consolidation and institutional reforms, have driven upward momentum for many sovereigns in the region, Fitch Ratings says in a new report. Of the sovereigns that we publicly rated, three – Aruba (BBB-/Positive), Jamaica (BB-/Positive) and Barbados (B+/Stable) – have been recently upgraded, while the Dominican Republic has a Positive Outlook on its ‘BB-’ rating.
Credit improvement has been supported by fiscal consolidation and the establishment of fiscal rules and independent commissions to oversee public finances. Governments have taken advantage of the past few years’ substantial economic growth to support this fiscal consolidation. Growth has been driven by a combination of the rapid post-pandemic rebound in tourism and incipient fundamental economic developments, including investment in tourism sectors and attempts to diversify local economies and tourism industries.
However, challenges persist and will become more acute as growth tapers toward potential of 1.5% to 2.0% over the next few years and further reforms become more difficult to implement. Despite considerable fiscal improvement and falling debt, debt burdens are still high and many countries are exposed to off-balance-sheet liabilities in state-owned enterprises. Most of the small undiversified economies in the Caribbean are pressured by structural economic limitations, including labor market challenges, such as high informality, elevated unemployment, low productivity, and low population growth driven by net emigration.
The region is also highly exposed to external shocks. These include hurricanes, volatility in international markets and pressures from the external sector. Caribbean countries generally do not have sufficient buffers to address the potential impact of these shocks, although there are exceptions.
The positive momentum will likely continue over the coming years, before waning. Absent a negative shock or ambitious new reform programs, Fitch expects many regional sovereigns’ ratings to settle at levels that reflect fundamentally stronger credit profiles.
‘Caribbean Credit Profiles Improve, but Structural Challenges Remain’ is available via the link above or at www.fitchratings.com.