NASSAU, BAHAMAS — The Bahamas’ government debt burden is expected to continue declining as economic growth and improved fiscal performance strengthen the country’s public finances, according to S&P Global Ratings, although the agency warned that high debt, costly interest payments and exposure to external shocks remain key credit constraints.
S&P maintained The Bahamas’ sovereign credit rating at ‘BB-’ with a stable outlook, pointing to the progress the country has made in repairing its finances following the severe economic and fiscal shocks caused by Hurricane Dorian and the COVID-19 pandemic.
The rating agency said stronger economic performance, supported by the tourism sector and investment, together with improved government revenue collection and fiscal consolidation, has helped narrow the deficit and contain the country’s debt burden.
The assessment signals continued improvement in the government’s finances but also underscores the distance The Bahamas still has to travel to rebuild fiscal buffers and return to investment-grade status.
S&P noted that the government’s debt position deteriorated substantially following Hurricane Dorian and the pandemic, when the collapse in tourism revenues and increased government spending forced the country to borrow heavily.
The subsequent rebound in economic activity has helped reverse some of that deterioration.
Tourism continues to underpin the recovery, with strong visitor activity supporting economic output, employment and government revenue. Major investment projects are also contributing to economic activity.
The improved fiscal position has allowed the government to reduce its deficits and slow the accumulation of debt, strengthening debt metrics relative to the levels reached during the pandemic.
However, S&P continues to identify the government’s debt and interest burden as important constraints on the country’s sovereign creditworthiness.
The agency also noted that a significant portion of government debt is denominated in foreign currency, leaving the sovereign exposed to external financing conditions.
The Bahamas’ heavy dependence on tourism also remains a vulnerability. A major downturn in travel from key source markets could quickly feed through to economic growth, government revenue and foreign exchange earnings.
S&P additionally pointed to the country’s exposure to hurricanes and other climate-related shocks, which have the potential to create substantial economic losses and force the government to undertake unexpected spending.
The agency’s stable outlook reflects its expectation that economic growth will remain solid and that the government will continue pursuing fiscal policies aimed at containing the debt burden.
S&P said a stronger rating could eventually follow if The Bahamas demonstrates sustained economic growth alongside near-balanced fiscal outcomes. Conversely, weaker economic growth, a reversal of fiscal consolidation resulting in large deficits or deterioration in access to external liquidity could place pressure on the rating.
The ‘BB-’ rating remains below investment grade, meaning that while The Bahamas’ fiscal and economic position has strengthened considerably from the immediate post-pandemic period, S&P continues to see vulnerabilities that constrain the country’s overall credit profile.
The latest assessment therefore places continued debt reduction and fiscal discipline at the centre of The Bahamas’ efforts to further strengthen its sovereign credit standing.
