By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must “make the most of the tailwinds” post-COVID and “generate a productivity boost” after the pandemic and $4.3bn in storm damage drove a 40 percentage point debt-to-GDP surge.

Simon Wilson, the Ministry of Finance’s financial secretary, in a July 4, 2025, letter to the Inter-American Development Bank’s (IDB) Bahamas representative asserted that this nation’s “above potential” economic growth since emerging from COVID-19 means it “is an advantageous position” to capitalise upon these trends and drive output to new heights via further policy reforms.

The letter to Shirley Gayle, sent as part of the Government’s request for a second $160m “policy-based loan” from the IDB to finance the overhaul of The Bahamas’ disaster recovery management and governance regime, asserted that Hurricane Dorian and the three storms that immediately preceded it - as well as COVID-19 - drive a near-40 percentage point debt-to-GDP rise in just six years.

Acknowledging that the post-COVID improvements have also coincided with “no major natural disasters” striking The Bahamas, thus helping the Government to rebuild some of the lost fiscal headroom that is vital to countering such events, Mr Wilson argued that this nation is now well-placed to improve upon its projected annual GDP growth average of just 1.5 percent over the long-term.

Noting that the latest $160m loan will finance implementation of the reforms laid out in the Disaster Recovery Management Act, which was enacted by Parliament in December 2022, Mr Wilson wrote: “Within Latin America and the Caribbean, The Bahamas is one of the most vulnerable countries to natural hazards, especially those related to climate change.

“The Bahamas has experienced 14 major disasters, mainly hurricanes, in the last 20 years which have claimed more than 400 lives, affected about 50,000 people and caused direct damages to public infrastructure and housing amounting to over $6.7bn. These include hurricanes Joaquin (2015), Matthew (2016) and Irma (2017) with total damages of $104.8m, $438.6m and $200m, respectively.”

These, Mr Wilson added, were followed in 2019 by Hurricane Dorian, the Category Five storm that devastated Abaco and Grand Bahama, and which he described as the most powerful to ever hit The Bahamas and the “second most powerful ever-recorded in the Atlantic”.

“This hurricane caused 67 deaths, 282 people missing and more than 2,000 people evacuated,” the top Ministry of Finance official said, adding that Dorian - in costing The Bahamas a combined $3.4bn in housing and infrastructure damage, and losses - nearly destroyed Marsh Harbour and the East End of Grand Bahama”.

Outlining the challenges this has caused the Government, Mr Wilson said hurricanes are the biggest threat to The Bahamas’ debt dynamics with Joaquin, Matthew, Irma and Dorian causing “a cumulative impact on the primary deficit of 1.5 percent of GDP”. Increased government spending to mitigate COVID and their impact, plus the provision of tax credits to firms and individuals, drove higher primary deficits.

“Overall, our primary fiscal balance went from -1.1 percent of GDP in fiscal year 2014-2015 to -8.1 percent in the fiscal year before the pandemic recovery, 2020-2021,” Mr Wilson added, “while the central government debt-to-GDP ratio increased from 49 percent to 88.7 percent.

“Another important driver of this rise was the increase in borrowing costs, increasing over 200 basis points (two full percentage points), on average over the period, as access to concessional financing and to capital markets in general was severely restricted for small island developing nations like The Bahamas.”

While some observers will argue that The Bahamas cannot blame all its fiscal ills and challenges on COVID and past hurricanes, and are likely to cite mismanagement, over-spending and poorly-judged forecasts as other factors, there is little doubt that the pandemic and prior storms have played a major part in the Government’s financial challenges.

Mr Wilson said the blows dealt by COVID-19 and the multiple hurricanes also impacted The Bahamas’ ability to comply with the so-called ‘fiscal rules’ in the Fiscal Responsibility Act which were designed to limit both the size of fiscal deficits, and how much the Government’s spending exceeded its tax revenues, plus growth of the debt-to-GDP ratio.

He pointed out that, while the first-year deficit was in line with these ‘rules’ for 2018-2019, Hurricane Dorian’s impact “activated the escape clause” that enabled the Government to temporarily deviate from these restrictions and it was not until the latest 2024-2025 Budget year that the 0.5 percent-of-GDP target was attained.

“The COVID-19 pandemic prompted continued use of the escape clause, and consequently delayed achievement of the overall deficit and debt-to-GDP targets until fiscal year 2024-2025 and fiscal year 2030-2031,” Mr Wilson added. “Notwithstanding, the economic and fiscal recovery after the pandemic has been remarkable...

“In this context, Bahamian GDP growth performed above its potential rate - 9.9 percent in 2023 versus 8 percent estimated potential... Fuelled by the tourism and construction sectors during 2024, the economy also showed strong positive growth of around 3.2 percent year-over-year.

“Since this means that economic growth is above potential (1.5 percent), The Bahamas is in an advantageous position to make the most of the tailwinds and advance in a series of interventions to try not only to keep the economy growing at potential but to generate a productivity boost to raise it.”

Explaining that the $160m financing for improved disaster governance is included in the Government’s medium-term fiscal and debt management strategies, which cover the period through the 2027-2028 fiscal year, Mr Wilson added: “Our debt strategy was developed in the context of expected Budget surpluses of 1.7 percent GDP on average to accomplish the strategic goal of reduce the debt-to-GDP ratio to 50 percent by 2030-2031.

“This implies that the borrowing operations of the country are intended to roll over the expiring debt on the basis of a reducing refinancing risk by leveraging multilateral sources of financing and minimising short-term domestic debt issuances, and lowering interest rate risk through increased use of semi-concessional financing.”

This, the financial secretary added, is key to “achieving the Government of The Bahamas’ objectives of lowering the debt burden at the lowest possible cost at a prudent level of risk. The amount [$160m] corresponds to 14 percent of the country’s preliminary borrowing needs for fiscal year 2025-2026 of $1.123bn”.

Pledging the Government’s commitment to implement the reforms mandated by the $160m IDB loan, Mr Wilson said the facility will help “smooth out fluctuations generated by natural disasters, which are the external shocks that have most affected the country’s macroeconomic stability since its Independence in 1973.

“This will contribute to a stable and resilient economic environment that serves as fertile ground to promote the prosperity of Bahamian society,” he added.