By Hubert Edwards
On July 1, the Fiscal Year 2026/27 Budget came into force under the theme “A Budget that Builds on Progress.” A country that only a few years ago faced genuine fiscal strain now speaks of surpluses, of declining debt, and of an investment grade ambition that has moved from aspiration toward plausibility. The renewed mandate of May 12 affords the government political capital and the runway on which it can consolidate these gains. This is a moment for Bahamian optimism.
Now that the foundation is stronger, we can afford, indeed we are obligated, to maintain a more ambitious national conversation. The question before us is no longer whether The Bahamas can achieve fiscal stability. That question has largely been answered. The question of the next chapter is different, and in some ways more exciting: how do we convert stability into dynamism and sustained growth? How do we ensure that the growth which carried us through the recovery becomes robust enough to carry us into prosperity?
What follows is offered in that spirit, not as criticism, but as a contribution to the thinking about what comes next.
What the Ratings Story Is Telling Us
The past eighteen months have delivered a remarkable sequence of credit events. S&P upgraded The Bahamas to BB- in September 2025. Fitch assigned and then affirmed a BB- rating with a stable outlook. And in April of this year, Moody’s upgraded the sovereign to Ba3, completing a rare three-agency alignment. Moody’s cited the sustained strengthening of fiscal performance, revenue that has become “more durable, extending beyond the cyclical support from tourism,” and a meaningful reduction in liquidity risk. These are significant endorsements, and they deserve to be acknowledged as such.
But those who read rating reports closely, and I would encourage every serious observer of our economy to do so, will detect that the agencies have told us two stories at once. The first is the story of fiscal achievement, and it is glowing. The second is a more restrained story about growth, and it deserves careful attention.
Consider what the agencies have said. Moody’s, in the report that delivered the upgrade, projected that economic growth will moderate to around 2.1 percent in 2026 following the stronger expansion of 2025, reflecting an economy returning closer to its potential. It flagged the economy’s continued reliance on tourism as an exposure to external demand shocks, and climate vulnerability as a persistent structural concern. S&P, for its part, conditioned the prospect of further upgrades on The Bahamas continuing “to demonstrate solid growth and sustained near-balanced fiscal outcomes.” The International Monetary Fund has assessed our potential growth rate, the pace the economy can sustain once the recovery effects wane, at approximately 1.5 percent.
Examined together, these assessments carry an important message. The upgrades we have earned were built substantially on the fiscal side of the ledger. The path from BB- to investment grade involves three notches, each progressively harder to climb, and it will depend increasingly on the growth side. The agencies are not warning us. They are, in their own careful language, showing us where the next set of questions will be asked.
Understanding the Reversion to Potential
It is worth pausing to explain, in plain terms, what economists mean when they speak of growth “reverting to potential,” because this concept is central to our medium-term outlook and is not often discussed broadly.
The growth experienced in recent years, 4.2 percent in 2024 and, per the Bahamas National Statistical Institute’s stronger-than-expected estimate, 3.8 percent in 2025, reflected a particular set of circumstances: the impressive rebound of tourism from the pandemic, an upsurge of foreign direct investment, construction activity, and the natural momentum of an economy recovering lost ground. These factors are legitimate, but they are also, by their nature, transitional. Aneconomy can grow quickly while it is catching up. Once it has caught up, however, its growth generally settles toward the rate determined by its underlying capacity: its workforce and their skills, its infrastructure, its energy costs, its institutions, and its productivity.
This is the reversion now underway, as acknowledged across every serious forecast, including the government’s own. The IMF projects growth of roughly 2.1 percent this year, moderating thereafter toward the assessed 1.5 percent potential rate. Notably, the FY2026/27 Budget adopts an even more conservative assumption, projecting real growth of 1.8 percent for the coming fiscal year and the year that follows. There is nothing worrying in this pattern; it is the normal performance of a post-recovery economy, and both the rating agencies and the Ministry of Finance have priced it into their projection frameworks. But the pattern does carry an implication we should seek to fully understand: the growth rates of the recovery period were, by their nature, short-lived, and cannot be treated as foundational. Nothing of the future turns on them, only on the potential rate. Critically, absent deliberate action, a potential rate in the range of 1.5 to 2 percent represents a modest ceiling for The Bahamas, given its stated ambitions.
The Bahamas’ Performance Against Expectations
An objective discussion requires an important counterpoint. Over the past four years, The Bahamas has consistently outperformed IMF growth projections. In 2022, actual growth of 10.9 percent exceeded the projected 8 percent. In 2024, against an anticipated 1.9 percent, the economy grew by 3.4 percent. And in 2025, the BNSI’s estimate of 3.8 percent again surpassed the IMF’s 2.8 percent projection. Consecutive years of outperformance cannot be ignored. It is a pattern, and it entitles the country to a measure of confidence that external assessments of our capacity have tended toward the conservative.
Two observations, however, help us hold this performance and the reversion argument together. First, much of the outperformance occurred in the recovery years, when forecasters appear to have systematically underestimated the speed and power of the tourism rebound. That transitional period is now fading. Second, a portion of the recent upside reflects the BNSI’s improvements in statistical methodology, resulting in the capture of economic activity that was always present but previously unmeasured. Better measurement is certainly a positive, but it represents a one-time recognition rather than evidence of a recurring gain in capacity.
The most constructive reading, in my view, is this: the outperformance record tells us that the Bahamian economy may well have greater underlying momentum than the IMF’s 1.5 percent assessment implies, perhaps significantly more. The reversion analysis, however, tells us we should not plan on it. Consequently, the government deserves credit for its own application of conservatism. By building the budget on a 1.8 percent growth assumption while the IMF projects 2.1 percent, the Ministry of Finance has ensured that if the economy outperforms yet again, the outcome flows directly into stronger fiscal outturns rather than disappointed targets. The task of national policy is to make the upside scenario the structural one, converting a pattern of above-expectation performances into a durable, higher potential rate.
Here is why this matters. The FY2026/27 Budget targets a fiscal surplus of $223 million, or 1.2 percent of GDP, with a primary surplus of 5.2 percent and debt falling below 60 percent of GDP by fiscal year-end. Moody’s projects primary surpluses averaging approximately 4 percent of GDP through fiscal 2028, describing them as among the strongest outcomes for similarly rated sovereigns. Debt is targeted to reach 50 percent of GDP by FY2030/31. All of these projections quietly rest on assumptions about growth and revenue buoyancy. A sustained 3 percent economy is likely to deliver them with some margin; a 1.5 percent economy delivers them only with additional effort. This is consistent with the IMF’s observation that achieving the debt target will likely require supplementary measures. This is not a flaw in the strategy. It is simply the mathematics of the environment the strategy must now operate in, and it is best to engage that arithmetic early, from a position of strength, rather than later, from a position of pressure.
Where Growth Is Found
If the reversion to potential is the challenge, then raising the potential rate itself is the natural response. This is where the national conversation must now concentrate. Potential growth is not a number handed down by the IMF but rather the sum of choices we make. The encouraging news is that many of the levers are already identified and well known, and arguably several are already in motion. What may be in question, if anything, is the quality and thoroughness of the implementation. What the moment calls for, therefore, is sustained intensity, careful strategic sequencing, comprehensive implementation built on proper, accurate, and reliable problem definition, and consistently disciplined follow-through. Here I examine four levers I consider to have substantial influence on future growth.
The First Lever: Energy
The construction of the reform programme, broadly speaking, appears to be what is needed: modernized generation, a transition toward cleaner and cheaper fuels, renewable integration, and the overhaul of an aging transmission and distribution network. These are the correct pillars, and the ambition behind them should be sustained. But candour, offered constructively, is part of any credible national conversation, and the experience of recent months must inform any assessment. Even adjusting for acts of God, the unusually hot early summer has subjected the electricity arrangements to an unforgiving stress test, and the resulting load shedding and rolling outages across New Providence and several Family Islands, with disruptions reaching businesses, homes, and critical facilities, suggest that the reform’s promise remains ahead of its delivery. For the households and businesses whose competitiveness depends on it, the cost of electricity has not yet fallen and, for geopolitical reasons, is not expected to fall in the short term.
Consequently, there are structural questions that are now more pronounced and that anticipate resolution. The departure of a corporate partner opens legitimate questions about the governance and continuity of the transmission and distribution programme, the status of the underlying contractual arrangements, and where responsibilities and obligations now rest. Equally, the financial condition and forward viability of the main provider remain to be demonstrated rather than assumed. These matters are not raised to assign fault; the state of our energy infrastructure is the accumulation of decades of decisions and indecisions, and no recent administration inherits it fresh. The issues are raised because clarity on these questions is itself an economic asset, and critical to the fiscal disposition of the country. Investors notoriously price uncertainty as a premium on expected returns, and, having regard for our stated ambition, we must remain ever mindful that many of them are active consumers of the output of rating agencies.
Indeed, this is where the energy question connects directly to the national ambition. The rating agencies, in upgrading The Bahamas, explicitly credited energy sector reform with reducing the contingent liabilities of state-owned enterprises. That credit is, in a real sense, an advance against delivery, an assumption of success already embedded in our improved ratings. Validating it requires outcomes: reliable summer supply, a transparent accounting of the grid arrangements, a clear and demonstrable path to financial viability, and above all a measurable reduction in the cost of power. Success in this sector must be counted in cents per kilowatt hour and uninterrupted service, rather than in stated milestones. The reality is that there is no single undertaking that can do more to lift the growth potential of the country. The corollary is that there are not many, either, that could do more damage to the growth, fiscal health, and ratings trajectory of the country if left unresolved.
The Second Lever: Human Capital
The latest Labour Force Survey brought good news: unemployment at its lowest sustained level in years, rising participation, and thousands of Bahamians absorbed into work. Yet there is a countervailing observation which must be received as valuable intelligence rather than complaint: employers across multiple sectors report persistent difficulty finding the skills their expansion requires. The response must be deliberate, intentional, and strategic, some of which is in evidence, including deeper alignment between BTVI, the University of The Bahamas, and industry; expanded apprenticeship pathways with employer co-investment; targeted certification in the trades, maritime services, and technology; and a calibrated approach to work permits that fills genuinely scarce skills today while Bahamian capacity is built for tomorrow. Every dollar invested in closing the skills gap is, in a very real sense, a dollar well invested in defending fiscal projections and influencing growth.
The Third Lever: The Ease of Doing Business
Capital is mobile, and the investor’s experience of our administrative machinery, from approvals and permits to exchange control processing, land registration, and dispute resolution, is a component of our existing and potential growth rate. The digitization agenda underway should be pursued with the understanding that every reduction in an approval timeline is a form of economic stimulus that costs the country nothing, yet is invaluable to its fiscal ambitions and to the growth needed to achieve them.
The Fourth Lever: Capital Markets
A growing economy needs domestic capital participating in its own growth. Deepening our capital markets, mobilizing pension and institutional savings toward productive domestic investment, and expanding the instruments through which everyday Bahamians can own a share of national development would strengthen both the growth rate and its distribution, ensuring that expansion is not only measured in GDP but felt at the micro level, in households.
The Ratings Uncertainty
All of this takes us back to the investment grade ambition, because it deserves a sincere framing which is neither pessimistic nor complacent.
The path from BB-/Ba3 to investment grade is achievable, but it is not automatic, and the uncertainties are worth sober consideration. The rating agencies have been clear that further upgrades depend on the continuation of two things simultaneously: strong fiscal outcomes and solid growth. Subject to views that can be taken on the accounting, the fiscal side now has a well demonstrated record. The growth side, on the other hand, is the variable most exposed to forces beyond our shores: the strength of the American consumer, global energy prices, geopolitical developments, and the ever-present climate risk. A hurricane season, a US slowdown, or a plateau in stayover tourism would test the growth assumptions embedded in the current trajectory, and with them, the timeline for further upgrades. To these external uncertainties we must add the assumptions the rating agencies have already made about the positive impact of energy reforms. Where recent upgrades have extended credit in advance, the delivery must follow, or the assumptions will, in time, have to be revisited.
This is not an argument for anxiety. It is an argument for insurance, and the best insurance against external growth shocks is domestically generated growth capacity. A Bahamas that lifts its growth potential from 1.5 percent toward 2.5 or 3 percent through energy reform, skills development, administrative efficiency, and diversification is a Bahamas whose investment grade case becomes progressively harder for any agency to resist. That is the deepest logic of treating the investment grade ambition as an organizing discipline for the entire reform agenda. Everything done should be examined through the prism of whether, and how, it positively moves the needle on the country’s growth potential. The impetus for reform must be grounded in the economic payoff of success versus the cost premium that will be imposed if things go otherwise. Such thinking would, for example, naturally direct action toward deep and fundamental SOE reform, an area from which some of the greatest fiscal space can be unearthed.
A Conversation Worth Having
The last several years have answered the question of whether The Bahamas could restore fiscal credibility. The answer, confirmed by three rating agencies, is yes. The years ahead will answer different questions: whether the response is sustainable, and whether we can build, deliberately and together, an economy whose capacity matches its credibility.
Sustainability, in this context, has a precise meaning. It asks whether the surpluses are built from durable revenue and genuine efficiency, rather than from deferral and restraint that merely postpone costs. It asks whether the growth is reaching households, firms, and payrolls, rather than resting in the aggregates. And it asks whether the investments postponed today, in infrastructure, in people, and in institutional capacity, will retard growth for tomorrow. These are questions of quality, not merely of quantity, and they form the standard against which the next five years should be assessed. We will return to these questions in due course.
Fundamentally, these are not questions for government alone. They belong to employers investing in training, to educators aligning programmes with industry, to financial institutions channelling capital toward Bahamian enterprise, to influential voices and advisors, to those privileged to be consulted on policy, to those who have consigned themselves to silence, and to all of us who participate in the national conversation. The budget that took effect on July 1, 2026 builds on progress. Progress properly harnessed becomes transformation. Transformation is exactly what The Bahamas needs to approach its full possibilities and expand its growth potential.
The foundation has been laid. The next chapter is now ready for all of us to help write.
Hubert Edwards is a Chartered Accountant and Attorney. The views expressed are his own.
Copyright © 2026 Hubert Edwards
