April 11, 2025
Fitch Ratings has assigned the Commonwealth of the Bahamas a Long-Term Foreign-Currency Issuer Default Rating (IDR) of ‘BB-‘. The Rating Outlook is Stable.
A full list of rating actions is at the end of this rating action commentary.
Key Rating Drivers
Strong Governance; High Debt: The ratings reflect the Commonwealth of the Bahamas’s high GDP per capita and strong governance, as reflected in recent progress on structural fiscal consolidation. These strengths are offset by low potential growth, heavy reliance on tourism and the country’s exposure to climate-related shocks. The ratings are also constrained by high interest and debt burdens relative to peers, although these are on an improving trend due to ongoing fiscal consolidation efforts.
Fiscal Position Continues to Improve: Government finances have improved markedly over the past couple of years, with the fiscal deficit declining to 1.3% of GDP in the fiscal year ended June 2024 (FY2023/24) from 3.7% in FY2022/23. The primary surplus reached 2.9% in FY2023/24, the highest level in at least 25 years. This fiscal consolidation reflects strong growth in revenue to 20.7% of GDP in FY2023/24 from 16.2% in FY2017/18, as a result of improved revenue administration and some new measures.
Fitch forecasts additional revenue growth, including from the new global minimum tax of around 1% of GDP and further revenue mobilization, which will improve the deficit to 0.5% in FY2024/25. We expect a surplus of 1.2% in FY2025/26, which is less than the 2.8% expected by the authorities, based on their expectation of additional revenue measures.
Debt High but Declining: Fiscal consolidation aims to decrease the still-high debt-to-GDP ratio, which was 81.5% of GDP in FY2023/24, including guaranteed public sector debt (2.2% of GDP). Debt has declined considerably since its FY2019/20 peak of 99.0% but is still well above the ‘BB’-median of 53.3% and the pre-Covid ratio of 65.0%. Fitch expects it to fall to 77.7% by FY2025/26. The 50% of GDP target by FY2030/31 is ambitious but achievable with additional measures. Most government debt (57%) is in the domestic market and is generally of shorter duration, exposing the government to rollover risk; although, it does have non-concessional financing from multilateral and bilateral partners and may tap the external market this year. Interest-to-revenue is high at around 20%, although we expect it to decline.
Tourism Drives the Economy: The Bahamas’s economy is built around the tourism industry, which has robust cruise and stay-over sub-sectors. The industry benefits from the ability to diversify the product across the archipelago, as well as the country’s proximity to the U.S. We estimate real GDP growth at 1.9% in 2024, down from 2.6% in 2023, reflecting the tapering-off of the post-pandemic rebound. We forecast growth to slow to 1.6% by 2026. Potential growth at 1.5% is low compared to the projected ‘BB’ median of 3.7% in 2025-2026, although it is higher than the Bahamas’s pre-pandemic average of 0.9%. This reflects expanded tourist interest. Lower potential growth reflects structural constraints, including labor market challenges and the small size of the economy, and the relative maturity of the tourism sector.
Risk of Shocks Are Persistent: As a small, tourism-dependent economy, the Bahamas is exposed to external shocks, most notably its dependence on imported goods, its exposure to the US economic cycle and its presence within the hurricane belt. The government has instituted some mitigants to these risks, including the deployment of insurance and contingency funds to address the impacts of a large hurricane. Even so, a severe shock could have serious implications for the economy and the government’s finances.
Current Account Deficit is High: The current account deficit (CAD) is high at 8.6% of GDP in 2024 compared to the ‘BB’-median of 2.3%; although it is improved from the 10.6% average between 2005 and 2019. Rapid growth in tourism has bolstered services exports, offsetting the increase in goods imports. We expect the balance to remain broadly stable, improving to 8.3% and 8.1% in 2025 and 2026, respectively. International reserves have been stable at USD2.6 billion or 3.8 months of current external payments in 2024, which is low in the context of the pegged exchange rate and the economy’s external vulnerabilities. However, the domestic financial sector has substantial external liquidity of its own that serves as a buffer in the event of shocks.
Monetary Policy is Limited: Due to the fixed exchange rate, the Central Bank of the Bahamas (CBB) has limited monetary policy tools at its disposal. There is no use of the monetary policy rate and, unlike some other Caribbean islands with pegged rates, the CBB does not rely on reserve requirements. Instead, it mainly uses macroprudential rules and capital controls to manage monetary conditions, highlighting some shortcomings and lack of flexibility in the policy framework.
Financial Services is a Second Economic Pillar: Unlike many Caribbean countries, the Bahamas financial services industry serves as a second, albeit considerably smaller, pillar of the economy, accounting for around 9% of GDP. The offshore sector, which predominantly serves private wealth clients, benefits from its proximity to the US and the relatively large volume of expats who have a home on the islands. It has consolidated in recent years, although that has likely levelled off. The domestic banking sector is stable and highly liquid. Non-performing loans are elevated at 8.1% of GDP in 2024, although these are considerably reduced from the peak of 21.6% in 2013. Most banks are well-capitalized with two- to three-times more reserves than the required 15%.
ESG – Governance: The Bahamas has an ESG Relevance Score (RS) of ‘5’ [+] for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model (SRM). The Bahamas has a high WBGI ranking at 69.4, reflecting its long track record of stable and peaceful political transitions, well established rights for participation in the political process, strong institutional capacity, effective rule of law and a low level of corruption.