NASSAU, BAHAMAS- The International Monetary Fund says that The Bahamas’ economy is expected to finish 2025 with 2.8 percent growth supported by construction activity and strong cruise tourism, even as growth is expected to slow over the medium term and public debt remains elevated at about 74 percent of GDP, according to the Fund’s latest Article IV consultation.
An IMF mission visited Nassau from December 2 to 12 to conduct the 2025 Article IV review, assessing recent economic performance, fiscal developments, financial sector conditions, and structural reforms. The Fund reported that real GDP growth was robust during the first half of 2025 and is expected to decelerate modestly next year, before easing toward the economy’s estimated potential growth rate of about 1.5 percent over the medium term.
The IMF said economic activity continues to be driven primarily by construction and buoyant cruise tourism, while growth in stayover tourism has remained relatively flat. Labour market conditions improved during the year, with the unemployment rate declining to 9.3 percent in the second quarter of 2025 alongside an increase in labour force participation. Inflation remains subdued, reflecting lower global energy prices, and is projected to remain below 1 percent in 2025.
Macroeconomic risks were assessed as broadly balanced. The IMF identified downside risks stemming from a potential global economic slowdown that could weigh on tourism demand, tighter global financial conditions, and The Bahamas’ vulnerability to natural disasters. Upside risks include stronger-than-expected results from efforts to diversify tourism source markets and increased economic activity linked to public and private infrastructure investments, particularly in tourism and energy.
On fiscal policy, the IMF reported continued strengthening of public finances in recent years, supported by tourism-related revenue inflows and sustained fiscal consolidation. The government achieved a primary surplus in fiscal year 2024/25 for the third consecutive year. In June 2025, the authorities issued a US$1.1 billion Eurobond, which facilitated the buyback of nearly US$0.8 billion in higher-cost external debt.
Despite these improvements, the IMF said central government debt remains high at approximately 74 percent of GDP. The Fund noted that the FY2025/26 budget targets an overall fiscal surplus, supported in part by the introduction of the Domestic Minimum Top-Up Tax on large multinational corporations. However, it said additional measures will be required to meet the government’s objective of reducing central government debt to 50 percent of GDP by fiscal year 2030/31.
The IMF outlined several policy options that could support further fiscal consolidation. These include replacing the business licence fee with a corporate income tax, introducing a progressive personal income tax, reducing tax expenditures such as VAT and customs duty exemptions, eliminating the ceiling on property tax, and increasing the standard VAT rate to around 15 percent. The Fund also emphasized the importance of improving the efficiency of state-owned enterprises and reducing fiscal transfers, particularly to the health and water sectors.
Upgrading fiscal institutions was identified as critical to mitigating fiscal risks. The IMF said efforts should continue to reduce debt rollover risks, including by mobilizing longer-maturity domestic financing. It also highlighted the need to strengthen oversight of state-owned enterprises through enhanced monitoring and the regular publication of audited financial statements. Reforms to the civil service pension system were cited as necessary to address actuarial imbalances, while the adoption of accrual-based accounting was identified as a step toward improving fiscal transparency and budgetary decision-making.
In its assessment of the financial sector, the IMF said domestic banks remain in good health and systemic financial stability risks are moderate. Credit to the private sector continues to expand at a steady pace, with corporate lending increasing more rapidly, albeit from a low base. While lending standards were assessed as generally prudent and risks to asset quality remain low, the IMF said supervisory authorities should upgrade stress-testing tools and continue monitoring banks’ exposure to sovereign risk.
The IMF said additional work is needed to improve oversight of non-bank financial institutions and address data gaps, particularly related to climate risks and real estate market developments. It welcomed progress in strengthening credit union governance and ongoing efforts to implement recommendations from the 2019 Financial Sector Assessment Program, including planned legal reforms to enhance crisis resolution frameworks and deposit insurance arrangements.
The Fund also noted continued progress in expanding financial inclusion through agency banking, digital payments and the Sand Dollar, as well as initiatives to implement fast payment systems. It said these efforts should be supported by continued investment in financial literacy and improvements to telecommunications and electricity infrastructure.
On structural reforms, the IMF said policies should focus on boosting labour productivity and addressing skills shortages. It highlighted ongoing airport upgrades, hotel expansions and new cruise infrastructure projects aimed at easing capacity constraints in the tourism sector. The IMF also reported that energy sector reform is advancing, with projects targeting 30 percent renewable electricity generation by 2030 and modernization of the transmission and distribution grid.
If successful, the IMF said these reforms could improve electricity reliability, reduce costs and strengthen the financial position of Bahamas Power and Light.
