NASSAU, BAHAMAS — Rating agency Standard & Poor’s (S&P) has affirmed The Bahamas’ B+ long-term ratings with a stable outlook. It notes that it expects the economy to slow to 1.8 percent in 2024 before returning to trend growth.
According to S&P, The Bahamas’ robust recovery over the past two years has helped reduce the fiscal deficit and contain the sovereign’s debt burden. “We expect growth to slow this year as the US, its primary market, heads for a soft landing, though successful execution of its new energy policy reforms could support medium-term growth. We affirmed our ‘B+’ long-term foreign and local currency sovereign credit ratings on The Bahamas. The stable outlook indicates that a stable economy will support positive fiscal results and slow the growth in debt,” S&P stated.
S&P has also affirmed its ‘B’ short-term sovereign credit ratings for The Bahamas. The agency noted that the stable outlook reflects its view that over the next 12 months, a stable economy, combined with fiscal consolidation efforts, will limit the government’s debt burden.
However, S&P indicated it could lower the ratings in the next 12 months if income per capita deteriorates significantly or the government reverses fiscal performance progress, leading to persistently large fiscal deficits. Ratings could also be lowered if the sovereign’s access to external liquidity declines unexpectedly.
S&P noted it could raise the ratings if the government enacts public finance reform faster than expected, resulting in sustained near-balanced financial results and improved economic prospects. This could stem from stronger revenues supported by the successful implementation of a corporate income tax and improved state-owned enterprise (SOE) finances following effective energy sector reforms.
“We expect the economy to slow to 1.8 percent in 2024, then return to trend growth. We don’t expect public finance reforms to the existing tax structure in the next one to two years, though introducing a minimum corporate income tax could support fiscal results. The government’s energy reform plans could translate into efficiencies and savings over the medium term,” S&P noted.
The ratings agency pointed out that The Bahamas’ economy grew at a more subdued pace in 2023, with GDP growth at 2.6 percent, attributed to the dissipation of pent-up demand following the pandemic. The tourism sector continued to perform well, driven mainly by a new cruise terminal in Nassau that opened in May 2023. Total arrivals in 2023 reached 9.6 million, compared to 7.0 million the previous year, approximately 132 percent of 2019 levels.
S&P noted that tourism remains the main driver of The Bahamas’ economy, while the financial sector comprises an estimated 10-15 percent of GDP. Opportunities exist to foster the local fintech sector and explore the digital asset space, although these are viewed as longer-term goals. It also noted that the recent bankruptcy of FTX, a digital asset exchange headquartered in The Bahamas, is not seen as negatively impacting the broader financial sector.
In July 2024, the Ministry of Energy introduced comprehensive energy reforms involving upgrades to the country’s transmission and distribution infrastructure and diversifying energy sources towards solar power and natural gas. This, according to S&P, could create significant savings and alleviate high business costs in The Bahamas over the long term.
S&P further highlighted The Bahamas’ unique position to capitalize on its blue economy, particularly through carbon sinks from its large mangroves and seagrass beds, which could become important revenue sources in the medium term.
“We expect declining deficits and a growing economy will lead to a slow decline in The Bahamas’ financing needs as a share of GDP, with the increase in general government net debt averaging 0.9 percent of GDP during 2024-2027. However, the country remains vulnerable to refinancing risks due to significant short-term debt, with nearly 25.9 percent of debt maturing in the next year. The government expects this debt will largely be rolled over in the domestic market, which we believe can absorb it, given the liquidity overhang and limited private-sector lending opportunities,” S&P noted.
Additionally, the agency anticipates the government’s net debt will decrease to about 70.3 percent of GDP by the end of 2024, down from 80.9 percent in 2020, while interest payments will remain above 15 percent of government revenues for the next three or more years.
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