Bahamas, Commonwealth of the

Normalising growth, still largely dependent on tourism

For the third consecutive year, growth is expected to slow in 2027 as the economy converges toward its long-term potential following the post-pandemic rebound period. Tourism, the main pillar of economic activity that accounts for around 85% of exports, 40% of GDP and 50% of employment is expected to enter a normalisation phase while continuing to be supported by the expansion of the luxury stay and cruise segments. Moreover, the sector will remain highly dependent on US economic conditions as more than 80% of visitors to the archipelago come from the US. Offshore financial services, the economy’s second pillar representing between 15% and 20% of GDP, should also continue to support activity despite a more demanding international regulatory environment.

Foreign private investment, concentrated in the construction sector, is also expected to stay a key driver of activity. Investments in tourism infrastructure (hotels, airports, ports, etc.) aim to ease capacity constraints that have been hindering the sector’s development, while investments in the energy sector are part of an ambitious modernisation programme designed to reduce the high cost of electricity and support the economy’s growth potential. Flagship projects include the Clifton Pier LNG regasification terminal (USD 370 million) and the upgrade of the New Providence electricity grid (USD 130 million), both of which are expected to be completed by 2027-2028.

Stronger tourism-related income should partly offset the effects of inflation, imported notably by fuel, transport and food prices. Inflation is expected to weigh on household purchasing power in 2027. Conversely, the introduction of the Sand Dollar, the digital currency introduced by the Central Bank of The Bahamas (CBB) in 2020, promotes financial inclusion and should support private consumption. At the same time, public spending should continue to be restricted due to fiscal consolidation requirements.

Continued improvement of public finances despite fragile external position

Fiscal consolidation is expected to keep the public deficit close to balance during FY2026-2027 (1 July 2026 to 30 June 2027). Revenue (22% of GDP in FY2025-2026) should remain broadly stable as stronger tourism-related tax receipts and proceeds from the new 15% global minimum tax on large multinational enterprises (around 0.8% of GDP) are likely to largely offset the removal of VAT on unprepared food items and the property tax relief measures introduced in April 2026. At the same time, the government is expected to prioritise investment in the energy and healthcare sectors, while overall expenditure (20.8% of GDP) should see little change.

The government's financing strategy continues to rely primarily on the domestic market, notably commercial banks and institutional investors, through local-currency issuance in order to limit exchange rates and refinancing risks. The approach appears justified given the still significant share of external debt, which accounted for around 45% of total public debt outstanding in mid-2026, as well as a high interest burden equivalent to nearly 20% of government revenue. Nevertheless, the continuation of fiscal consolidation, supported by an ongoing primary surplus (around 3.5% of GDP in 2025), should help reduce the public debt-to-GDP ratio in 2027.

Despite having improved slightly, the current account balance is expected to remain in deep deficit in 2027, reflecting the country's structural dependence on merchandise imports (fuel, food products and capital goods), which tourism and financial services receipts only partially offset. In addition, the sizeable primary income deficit is expected not to budge owing to dividend repatriation by foreign-owned companies operating in the Bahamas, particularly in the tourism and financial sectors. Overall, risks remain tilted to the downside. A slowdown in global tourism or a sustained increase in energy prices could further weaken the island nation’s external position. That said, the Central Bank is expected to continue defending the peg of the Bahamian dollar to the US dollar while striving to maintain an adequate level of foreign exchange reserves, which were equivalent to five months of imports as at June 2026.

More political stability, but continued dependence on the US

The Progressive Liberal Party (PLP, centre-left) emerged as the clear winner of the snap legislative elections held in May 2026, securing an absolute majority in Parliament (33 out of 41 seats) and consolidating its hold on power until 2031. Re-elected for a second consecutive five-year term, a first since 1997, Prime Minister Philip Davis is riding on the results of a successful economic policy centred on tourism development, electricity sector reform and enhanced transparency of the financial system to attract increased foreign investment. In this regard, the Bahamas is one of the region’s pioneers in combating money laundering and terrorist financing. Crime related to international drug trafficking and the rising cost of living are the two main risk factors that could undermine the country’s political stability.

On the international front, the Bahamas maintains a privileged relationship with Washington, its leading trading partner, principal investor and primary source of tourists, despite Nassau’s refusal in 2024 of the ‘Trump administration’s proposal to receive migrants deported from the US. At the same time, the government is expected to continue diversifying its partnerships, as illustrated by the agreement signed with the United Arab Emirates in 2022 to promote tourism between the two countries, as well as the partnership signed with Botswana in 2023 to strengthen cooperation in tourism and financial services. However, such initiatives are on a modest scale and do not question the country’s strong economic dependence on the US.

Last updated:August 2026