NASSAU, BAHAMAS- Ratings agency Fitch says expectations for continued economic and fiscal policy direction in The Bahamas have strengthened following the re-election of the governing Progressive Liberal Party (PLP), with the agency forecasting a gradual move toward budget surpluses despite pressures linked to the global energy shock, slower tourism growth and affordability concerns.
“We continue to forecast a gradual move to budget surpluses, despite possible growth and fiscal pressures from the energy shock,” the ratings agency said.
The PLP secured a decisive victory over the main Free National Movement (FNM) and Coalition of Independents (COI), winning 33 of 41 seats in the House of Assembly. Fitch said the party’s win on May 12 supports policy continuity.
The agency noted that this marks the first time in nearly 30 years that an incumbent party has been re-elected in The Bahamas, a country with a long history of significant electoral swings between the two major parties.
Fitch said affordability emerged as a key campaign issue for voters, driven by high housing and living costs, as well as recent pressures from the global oil price shock stemming from the U.S.-Iran war.
“The Bahamas’ reliance on tourism and imported goods leaves it highly exposed to international economic and geopolitical developments that can quickly affect domestic politics,” Fitch said.
Ahead of the election, the PLP implemented measures aimed at easing affordability pressures, including permanently reducing VAT on food to zero percent on April 1, a move expected to cost about $15 million annually, following a prior cut from 10 percent to five percent.
Fitch also highlighted the government’s strategic fuel hedge introduced in December 2025, which locked in oil prices at US$70 per barrel and helped cushion the economy from the immediate effects of the energy shock.
While inflation data since the onset of the U.S.-Iran war are not yet available, Fitch said rising energy costs are filtering through supply chains and are expected to increasingly weigh on the Bahamian economy.
Despite affordability concerns that could push for more aggressive fiscal easing, Fitch expects fiscal policy to remain broadly unchanged.
The agency said revenue-driven fiscal consolidation has strengthened general government finances and projects the general government deficit will remain at 0.5 percent of GDP in the fiscal year ending June 2026, due to the oil price shock and weaker tourism growth, compared with the government’s target of a 0.5 percent surplus.
However, Fitch noted this would still represent the smallest deficit in 25 years.
It forecast a slight improvement in the general government deficit to 0.4 percent of GDP in 2027 before deficits gradually shift into surplus over the medium term, with primary surpluses expected to remain at or above three percent.
Accordingly, Fitch expects gross general government debt to continue its downward path, falling to 73.6 percent of GDP in 2026 and 71.8 percent in 2027.
While this remains below the 89.5 percent recorded in 2020, Fitch said debt is still well above the ‘BB’ category median of 52.6 percent, limiting fiscal flexibility in the event of future shocks.
The ratings agency also flagged state-owned enterprise debt and pension obligations as medium-term risks, while warning that a significant negative economic shock remains the main threat to debt sustainability.
Fitch expects the Bahamian economy to grow by 2.2 percent this year, though at a slower pace following a period of above-potential expansion.
The agency said short-term risks from higher energy prices could weigh on tourism through increased costs and softer demand, though it noted mitigating factors including The Bahamas’ proximity to the United States, its strong cruise tourism position and its safety record.
Fitch added that a prolonged oil price shock could also delay expectations that current account deficits will normalize and that international reserves will increase slightly, noting that The Bahamas’ wide current account deficit is largely financed by tourism-related foreign direct investment inflows.
