Bahamas, Commonwealth of the

Activity slowed by the US economic downturn

Economic activity slowed considerably in 2024, marking a return to normal for tourism after the exceptional post-pandemic rebound. Tourism remained the main driver of activity and growth, with 11.2 million arrivals (up 55% and 16% compared to 2019 and 2023, respectively) following the increase in cruise ship arrivals (up 20% compared to 2023).

Bahamian growth will slow again in 2025. First, tourism, which is heavily dependent on the US (84% of arrivals), will be impacted by the US slowdown, hurting private consumption. However, low inflation, which is well established, will give it some breathing room. Consumption will also benefit from the strength of the labour market on back of a fall in the unemployment rate to 8.7% in June 2024, compared with a peak of 25.6% in 2020. In addition, the Central Bank of the Bahamas’ (CBB) endorsement in 2020 of a digital currency, the Sand Dollar, which promotes financial inclusion, and compliance with the AML/CFT (anti-money laundering and counter-terrorist financing) regulations of the FATF (Financial Action Task Force), will stimulate the financial sector (15% of GDP in 2022). Investment, focused on construction, tourism and energy, will be supported by FDI projects. Investments notably aimed at modernising the electricity grid are expected to increase. In June 2024, the authorities announced a public-private partnership (PPP) aimed at improving electricity infrastructure and increasing the share of renewable energy. In addition, public consumption will be restricted by fiscal consolidation.

Last, the Bahamas appears to be relatively well protected from the new US tariffs. Services, including tourism, are not affected. Exports of goods to the US, mainly petroleum products sold to cruise ships and airlines, are exempt from duties. The only items remaining subject to tariffs are postage stamps, seafood products and recreational boats.

Structurally high current account deficit

The current account deficit remained stable in 2024, with the increase in tourism revenues (32% and 34% of GDP in 2023 and 2024, respectively) offsetting the widening trade deficit (22.5% and 23.6% of GDP in 2023 and 2024, respectively). Financed mainly by external borrowing, the current account deficit will remain stable.

Furthermore, the CBB will continue to support the pegging of the local currency to the US dollar, while maintaining sufficient foreign exchange reserves. The latter stood at USD 2.6 billion at the end of 2024, equivalent to 4.4 months of imports.

Improvement of public deficit and debt-for-nature swap for marine conservation

The public deficit narrowed in the 2023-24 fiscal year due to higher revenues (+7.7%) and lower spending (-3.8%). The primary surplus reached 2.9% of GDP, compared to 0.3% in 2022-23. This fiscal consolidation reflects the strength of revenues, which rose from 16.2% of GDP in 2017-18 to 23% in 2024-25 thanks to improved tax administration. The deficit was financed by a commercial loan of USD 300 million, backed by a guarantee from the Inter-American Development Bank. The deficit is expected to narrow further in fiscal year 2024-25. Revenue grew by 12.2% year-on-year between July 2024 and March 2025, driven by collection efforts and strong VAT and departure tax revenues which were boosted by the recovery in tourism. This has helped finance higher investment spending (roadworks, school infrastructure repairs, and hospital construction and refurbishment). Current spending has also increased. The budget assumptions for 2025-26 take into account the target of reducing current spending to 20.8% of GDP and raising revenues to 23.5%. Measures to increase revenue include a 15% global minimum tax on large multinational companies as part of an OECD initiative to reduce tax avoidance, which is expected to generate revenue of around 1% of GDP per year from 2025-26.

The reduction in the public deficit has accompanied the debt repayment trend in the in recent fiscal years. The government has set a target of reducing the public debt ratio to 50% of GDP by fiscal year 2030-31. However, the interest burden remains high (around 4% of GDP) and accounts for 21% of public expenditure in 2024-25. At the end of 2024, external and foreign currency debt (denominated mainly in USD) accounted for 45% of total public debt. Private creditors, mainly bondholders, hold 75% of total debt. In November 2024, after a USD 300 million loan from Standard Chartered, the authorities carried out a debt-for-nature swap that enabled them to buy back USD 300 million in external debt, including USD 218 million of Eurobonds and USD 82 million of commercial bank loans. The savings (USD 124 million) in interest and principal payments will be used to finance marine conservation projects.

Political stability and persistent crime

An island nation in the heart of the Caribbean, the Bahamas recognises King Charles III of the United Kingdom as head of state, while executive power has been held by Prime Minister Philip Davis of the Progressive Liberal Party (PLP, center-left) since the 2021 legislative elections. Political stability is expected to continue until the next general elections scheduled for September 2026, thanks to the comfortable majority held by the PLP, which controls 32 of the 39 seats in the Lower House and 12 of the 16 seats in the Senate. The opposition, led by the conservative Free National Movement (FNM), holds the remaining seats. This institutional setup gives the government some room for maneuver to carry out its reforms. Among the priorities are economic recovery, particularly through tourism and job creation. The government has also made progress in strengthening the country’s anti-money laundering and terrorist financing regulations. However, budgetary constraints limit the government's ability to fully address social demands, particularly regarding public sector wages. In addition, the archipelago, which is located at the crossroads of maritime drug trafficking routes, will continue to face crime associated with drug trafficking to the US and Europe.

Internationally, the Bahamas will maintain strong ties with the US, its largest trading partner and main source of tourists. However, the Trump administration's protectionist measures and strict immigration policy could affect bilateral relations. In December 2024, the Bahamian government rejected a proposal by the Trump administration to take in migrants deported from the US. At the same time, the government will continue to seek to diversify its partnerships, as evidenced by the agreement signed with the United Arab Emirates in 2022 to boost tourism cooperation, and the partnership concluded with Botswana in 2023 involving tourism and financial services.

Last updated:May 2025