Bahamas

major macro economic indicators

(e): Estimate (f): Forecast *Fiscal year from July 1st to June 30th. 2023 data: 2022/23

Risk assessment

Resilient activity despite the US slowdown

Stagnation in household consumption caused by inflation dampened activity in 2022. US economic slowdown will further dampen growth in 2023. However, the Bahamian economy will manage to offset the deteriorating external environment to some extent. First, state-funded measures will support domestic consumption (66% of GDP in 2022), which is still weakened by inflation. Fuel and electricity subsidies will be extended, as will tax cuts on basic necessities. Public companies (water and electricity utilities are still in deficit) will continue to benefit from government subsidies (accounting for at least 3% of GDP for 2023), particularly to address rising production and operating costs. Second, and above all, the services sector activity will remain robust. Tourism will return to its 2019 level (52% of GDP for 2023), pulling employment in its wake. The unemployment rate is expected to rise to 9.8% in 2023, vs. 11% in 2022. In addition, investments (26% of GDP in 2022), both public (4% of GDP for 2022) and private, will benefit tourism infrastructures. The introduction of a digital currency by the Central Bank of The Bahamas and compliance with FATF (Financial Action Task Force) AML-CFT regulations will benefit the financial sector (15% of GDP in 2022). However, weaker goods exports (5% of GDP in 2022, with the US accounting for 88% of the total in 2021) will hamper ship building (32% of total exports in 2021), the manufacture of petrochemicals (24%) and the fisheries industry (10%).

Dependence on tourism and persistently heavy debt

In 2022, despite the heavy burden of energy imports (35% of GDP), the current account deficit narrowed on back of a rebound in tourism. The trend is expected to intensify in 2023. The surplus of the balance of services (tourism exports will grow by 4% of GDP in 2023) will continue to increase, while the import bill and expatriate remittances (3% of GDP in 2022) will fall. Portfolio investments (5.9% of GDP by 2023) and FDI (3.4% of GDP by 2023) will balance the current account deficit. It should be noted that the importance of the current deficit is largely explained by the imports of cruise ships (10.7% of GDP in 2021) by cruise passengers registered in the archipelago. Their counterpart can be found in the FDI flow. Foreign exchange reserves (at least 5 months of imports) will ensure the pegging of the Bahamian dollar (1 BSD = 1 USD).

The lifting of Covid-19 pandemic spending reduced the government deficit in 2022. In 2023, the primary surplus (i.e. excluding interest) is expected to increase slightly (1% of GDP for 2023 compared to 0.7% in 2022). Tax revenues (20% of GDP for 2023) should increase thanks to tourism revenues (12%) and taxes on financial transactions (3%). Public expenditure (19% of GDP by 2023) will also decrease. The end of reconstruction work after hurricane Dorian in 2019 and the reduction in the wage bill of government administrations will compensate subsidy growth. Moreover, the debt burden will remain high (6% of GDP in 2023).

While domestic issues will mainly finance the public deficit, sovereign risk will not diminish. Despite relatively favourable conditions (short-term interest rate of 6% at the end of 2022 on the international markets) and the refinancing of bonds maturing on 1 January 2024 (USD 300 million), the need for external financing (20% of GDP at least for 2023) remains a concern. In the short term, exposure to foreign exchange risk (at least 47% of the debt stock was denominated in foreign currency at the end of 2021) and external indebtedness (at least 45%) call for debt restructuring.

Insecurity still a burden and fiscal compliance efforts are required

The current head of state is King Charles III. The 2021 general election saw the victory of Philips Davis of the Progressive Liberal Party (centre-left populist party) over the outgoing Prime Minister Hubert Minnis of the Free National Movement (centre-right party). Riding on solid popularity (65% approval rating from the population in the autumn of 2022), based on the hopes of a relatively poor population in the promises of social reforms, and a comfortable parliamentary majority (32 seats out of 39 in Parliament), the Davis government will continue to consolidate public accounts and fiscal transparency efforts. To prevent a resurgence of the Covid-19 epidemic, the authorities will continue to impose health restrictions on travellers and local curfews. Against the backdrop of drug and arms trafficking, insecurity will remain high in the archipelago, particularly on the islands of Grand Bahama, New Providence and the major cities (Nassau and Freeport). Moreover, despite preparations for an upcoming referendum on the establishment of a republic, the country has strong diplomatic and economic ties with the British Commonwealth. Against the backdrop of the war in Ukraine, the Davis government has tightened its diplomatic relations with the United States. On that score it is worth noting that as a result of Western sanctions, the Bahamian central bank froze USD 420 million in Russian assets.

Last update: June 2023