By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Two credit rating agencies have taken a more pessimistic view of The Bahamas’ 2025 growth prospects than the International Monetary Fund (IMF) with both forecasting economic expansion will slip below 2 percent.

Each of Moody’s and Fitch Ratings, in their latest updates on The Bahamas’ sovereign credit rating, predicted that gross domestic product (GDP) growth will hit 1.8 percent for 2025 in contrast to the IMF’s 40 basis point upward revision to 2.2 percent. However, Moody’s was quick to point out that its growth estimate is not a negative but, instead, a reflection of The Bahamas returning to its long-run average.

“Although we expect a moderation in growth to 1.8 percent in 2025, this reflects a return to trend rather than a deterioration in underlying fundamentals,” it added. Moody’s assessment aligns with that of Fitch, with 1.8 percent equating to a $271.8m GDP expansion based on the growth figures detailed in the 2025-2026 Budget.

“The Bahamas’ tourism-driven economy continues to grow, albeit at a more gradual pace as the post-pandemic rebound has tapered,” Fitch added. “Tourism arrivals increased by 10.6 percent year-on-year to 6.3m in the first half of 2025, driven by high and rapid growth in the cruise industry, although the more lucrative air arrivals fell by 1.3 percent. Fitch estimates real GDP growth will slow to 1.8 percent in 2025 from 2 percent in 2024.:”

The IMF, in contrast, raised The Bahamas’ GDP growth prospects for this year and next by 40 basis points - from 1.8 percent to 2.2 percent for the 2025 full-year, and from 1.7 percent to 2.1 percent in 2026. However, Fitch said the Government has exploited the strength of the post-COVID economic recovery to drive fiscal consolidation.

“The fiscal deficit shrunk in the fiscal year to end-June 2025 by 142 percent to an estimated $78.9m (0.5 percent of GDP), although this is still marginally higher than the budgeted annual deficit of $69.8m. The 2025-2026 Budget anticipates a surplus of $75.5m (0.5 percent of GDP), as revenue measures continue to outpace new expenditures,” it added.

“Overall revenue grew by 10.4 percent year-on-year, despite missing the budget target by 4 percent, largely driven by strong VAT performance of 6.3 percent year-on-year, below the target of 12 percent growth.

“The second largest revenue source – taxes on international trade and transactions – was 105 percent of budget. Expenditures, which grew 6.5 percent year-on-year, were also below budget by 4 percent, reflecting a large under-execution of capital expenditures (82.9 percent of budget) and lower social assistance, pensions and other payments (87.4 percent).

As for what this meant for The Bahamas’ debt metrics, Fitch said: “Gross general government debt fell to 80.5 percent of GDP in fiscal year 2024-2025, down from a peak of 99 percent in fiscal year 2020. The Bahamas has slowly decreased [debt] since the pandemic and we expect it to decline further to 79.6 percent of GDP in fiscal year 2025-2026. Nonetheless, this remains well above the ‘BB’ median of 54 percent and the Bahamas’ pre-pandemic average of around 42 percent.

“Inflation has been very low in The Bahamas, reaching 0.4 percent year-over-year in May 2025 after dipping into negative territory in prior months, driven predominantly by declines in electricity, fuel and transport. Inflation remains highly linked to global factors, and The Bahamas’ central bank’s monetary policy toolkit is limited. Fitch expects inflation to rise to an annual average of 0.9 percent in 2025 before rising to 1.3 percent in 2026.”

Fitch, noting that The Bahamas has “limited external buffers”, added: “International reserves remain low in the context of the pegged exchange rate and high current account deficit (7.2 percent of GDP). International reserves will reach an estimated $2.8bn or 3.9 months of current external payments in 2025. We expect a slight improvement in the current account deficit to 6.8 percent in 2027, but international reserves will largely stay flat.”