Bahamas, Commonwealth of the

Activity highly dependent on tourism

Growth has eased since its exceptional rebound in 2021 and 2022, and returned to its pre-pandemic level in 2023. It is still mainly driven by tourism, which has contributed to a reduction in the unemployment rate to 8.8% of the working population. In 2024, economic activity is expected to slow moderately. It will once again be stimulated by tourism, the main source of employment and export earnings, the latter accounting for 37.1% of GDP in 2023, compared with 32.7% in 2022. It is expected to maintain the same pace as in 2023, with an 11% year-on-year increase in tourist arrivals, 80% of which will come from the United States. Tourism-related construction, particularly in the hotel sector, supported by foreign direct investment, but also by local investment, both public and private (22.4% of GDP in 2023, for all investment), will also fuel growth and lead to job creation. The roll-out of the Sand Dollar, a digital currency introduced by the Central Bank of The Bahamas (CBB) in 2020, and compliance with FATF (Financial Action Task Force) AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) regulations is set to stimulate the financial sector (around 15% of GDP in 2022). That said, domestic consumption will remain weak, notably due to persistent inflation. However, inflation is likely to remain on a downward trajectory, providing relief for household purchasing power.

Growth in exports of goods (6% of GDP) is set to slow to 7.4% in 2023, with the US accounting for 64% of the total in 2022. This will particularly affect exports of bunker fuel, postage stamps and shellfish, which respectively accounted for 28%, 19% and 17% of total exports in 2022.

Improvement in public finances despite continuing high debt levels

The public deficit shrank further in the 2022-2023 financial year. The rebound in tourism, combined with the gradual withdrawal of financial aid relating to the pandemic, has helped improve public finances. A broader tax base, improved tax collection and controlled spending (24.2% of GDP in 2022-2023) should also help reduce the public deficit again in 2023-2024. The government is aiming to achieve a budget surplus by 2026. Public spending remains moderate, with priority given to supporting individuals, SMEs and public institutions. The debt burden is limiting the fiscal room for manoeuvre. The interest burden represents 4.2% of GDP and almost 21% of total revenues for the 2023-2024 financial year. Foreign currency debt is forecast at 36% of GDP for the end of 2024. Exposure to currency risk is mitigated by the pegging of the BSD to the US dollar. Sovereign risk remains high, as evidenced by sovereign spreads. The forecast gross borrowing requirement continues at a worrying 15% of GDP in 2024, although it has been met by domestic bond issues and CBB loans. This remains a challenge, despite the refinancing of the USD 300 million external bond maturing in mid-January 2024. The next maturity on the external market is scheduled for 2029, with a face value of USD 800 million.

In 2023, the current account deficit narrowed, mainly thanks to the boom in tourism. In 2024, it is set to narrow further thanks to lower world commodity and energy prices, which are nonetheless forecast to remain high. The surplus on secondary income will shrink slightly as a result of lower expatriate remittances (around 2% of GDP in 2022), but this should be offset by an increase in the surplus on the balance of services, boosted by tourism flows. Heavy dependence on imports will continue to explain the size of the current account deficit. The Bahamas is heavily dependent on imports from the United States (85% of total imports in 2022, with imports accounting for 43% of GDP in the same year), particularly to meet its fuel needs (16% of imports, 83% of which come from the United States). The deficit will continue to be financed by FDI (4.1% of GDP in 2022) and public sector borrowing. The Central Bank of The Bahamas (CBB) will continue to support the peg of the Bahamian dollar while maintaining sufficient foreign exchange reserves (equivalent to around five months of imports).

Stable political context but persistent crime

The Bahamas has recognised the British King Charles III as Head of State. Meanwhile, the government has been led by Prime Minister Philip Davis since the 2021 general election. Political stability is expected to continue until the next elections scheduled for 2026. It is ensured by the solid majority of the Progressive Liberal Party (PLP), a centre-left populist party led by Philip Davis. The PLP dominates, holding 32 of the 39 seats in the House of Assembly and 12 out of the 16 seats in the Senate. The political opposition is represented by the Free National Movement (FNM), which holds the remaining 7 seats in the House. The archipelago also faces a number of challenges, including high crime rates, an onerous cost of living and inflationary pressures, which are fuelling popular discontent. Violent crime, often linked to transnational drug trafficking, remains a major concern for the population and could dominate the political debate. Nevertheless, significant progress has been made in legislating to combat money laundering and the financing of terrorism (AML/CFT). In addition, the Davis administration is stepping up efforts to combat illegal immigration amid the worsening crisis in Haiti and the increased attempts to enter Bahamian waters illegally.

Externally, the Bahamas maintains strong bilateral relations with the United States and the United Kingdom. The country is also seeking to develop ties with new partners. In 2022, an agreement was signed with the United Arab Emirates to explore initiatives to promote tourism between the two countries. In 2023, an agreement was signed with Botswana to strengthen cooperation in tourism, financial services and a number of other areas.

Last updated: June 2024