Despite its high population density and limited natural resources, Barbados has one of the more diversified and successful economies in the Caribbean. Since gaining independence from the United Kingdom (UK) in 1966, the island has enjoyed political stability, a factor that has encouraged the growth of tourism and other service industries. As a result, the country has dramatically reduced its dependence on sugar exports (although sugar remains the most important agricultural activity) and has developed not only its service sector but also some areas of manufacturing.
Strong growth in the 1970s came to an end with a recession in the late 1980s, as gross domestic product (GDP) contracted by 12.9 percent between 1989 and 1992. This drop was caused, in part, by difficulties in the sugar industry and by a downturn in tourism, due largely to a recession in North America. The International Monetary Fund (IMF) offered financial aid in return for a structural adjustment program that included pay cuts for public-sector workers and other austerity measures. The Barbados dollar was not devalued, however, as the government realized that the island's dependence on imported goods, including food, from the United States would create unacceptable hardship in the event of de-valuation . By 1993 the worst of the recession was over. In the late 1990s gross domestic product (GDP) growth was steady as tourism and export markets recovered. Growth between 1996 and 1998 was estimated at 4 percent annually, falling to 3.2 percent in 1999 and 2.8 percent in 2000.
The economic problems of the 1980s revealed underlying weaknesses in the Barbadian economy, which still exist today. The country runs a huge trade deficit , with imports 4 to 5 times the value of exports due to high demand for imported goods and food combined with poor export performance. The large public sector strains government resources in terms of salaries and other recurrent expenditures, resulting in regular fiscal deficits. The external debt stood at an estimated US$550 million in 1998. Tourism remains crucial to the economy, but Barbados faces serious competition from other Caribbean destinations, while its offshore manufacturing sector has been largely eroded by competition from lower-wage countries such as Mexico and the Dominican Republic.
More positively, the island has a diversified range of industries, producing consumer goods for the national and local markets. It also has a small but significant petroleum industry, producing enough fuel to meet about one-half of local needs, as well as significant reserves of natural gas.