By NEILL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

A major credit rating agency yesterday voiced renewed doubt that the Government will hit its forecast Budget surplus for 2026-2027 by instead projecting it will incur a “small deficit” of $64m - an outcome that would be $287.1m off the Davis administration’s forecast.

Fitch Ratings, in a statement on the Government’s just-released annual borrowing plan for the 12 months to end-July 2027, warned that The Bahamas’ gross borrowing needs over this period “may ultimately be marginally higher” than the predicted $1.024bn based on its own forecast of a deficit rather than the Davis administration’s projected $223.1m surplus.

While Fitch effectively hedged its bets by conceding that The Bahamas has “outperformed” international expectations over its fiscal consolidation progress, and forecasting that a first Budget surplus will instead be achieved in the 2027-2028 fiscal year, its forecast for the current period - if it comes true - would leave a major $287.1m hole in the Government’s finances.

For the Davis administration’s predicted $223.1m surplus, equal to 1.2 percent of Bahamian gross domestic product (GDP) or economic output, is forecasting that the Government’s tax and total revenue income will exceed its spending during the 2026-2027 fiscal year. But, if Fitch’s projection turns out to be accurate, this will represent a negative swing equal to 1.6 percent of GDP, as a $64m deficit would represent by how much expenditure will exceed the Government’s income.

Should the rating agency prove correct, the Government will not have a surplus to increase its cash balances by the forecast $223.1m and provide a further “buffer” to debt repayments. It would likely force the Davis administration to borrow beyond the $1.024bn targeted to finance debt rollovers and refinancing in the 2026-2027 fiscal year.

“The new annual borrowing plan, covering the fiscal year ending June 2027, is based on the current Budget,” Fitch said. “Borrowing needs may ultimately be marginally higher than outlined in the plan, as Fitch forecasts The Bahamas will run a small deficit of $64m, or 0.4 percent of GDP, in fiscal 2026-2027 before achieving its first fiscal surplus of 0.3 percent in fiscal 2027-2028.”

However, despite its concerning forecast, Fitch gave a balanced report by highlighting the positive while conceding that the final figures for the recently-closed 2025-2026 fiscal year have yet to be released. The Davis administration, when it presented the 2026-2027 Budget at end-May, stuck to its original projection that it will run a $75.5m surplus for the prior fiscal year - the first ever in Bahamian history, and two years ahead of Fitch’s forecast.

“Fiscal consolidation will continue, supported by strong governance, despite pressure from global economic shocks. The Bahamas’s recent record of fiscal out-performance presents upside risks to Fitch’s slightly more conservative projections, although full-year outturns for fiscal 2025-2026 are not yet available,” the rating agency conceded.

“The Bahamas’s recently published annual borrowing plan (ABP) highlights ongoing consolidation efforts and an improving fiscal outlook. Gross financing needs of $1.024bn (5.5 percent of GDP) will be exclusively used for debt repayment, while the Government aims to use the budgeted surplus of $223.1m (1.2 percent of GDP) to increase cash balances…

“Accordingly, our baseline expectations see gross general government debt continuing to decline to 65.9 percent of GDP in fiscal 2027-2028 from an estimated 70.5 percent in 2025-2026, and a peak of 89.5 percent in 2019-2020. While this steady decline signifies significant progress in consolidation, debt levels are still high compared to the pre-Hurricane Dorian 59.8 percent of GDP in 2018 and the ‘BB’ category median of 52 percent.”

And, in a further boost for the Davis administration, Fitch cited “strong governance” as “underpinning recent progress on structural fiscal consolidation” and supporting the current ‘BB-’ sovereign credit rating it has assigned to The Bahamas together with a ‘stable’ outlook. “High interest and debt burdens relative to peers are rating constraints but are improving with ongoing fiscal consolidation efforts,” the rating agency said.

“The bulk of The Bahamas planned borrowing in the annual borrowing plan will come from domestic sources, with $387m (37.8 percent of the total) in Bahamian dollar bonds and $256m (25 percent) from the rollover of a note held by the Central Bank of the Bahamas.

“The remainder will come from external sources, mainly bank loans of $200m (19.5 percent) and direct support from multilaterals of $181m (17.6 percent), which includes $100m (9.8 percent) of new policy-based loans. The Government has no plans for international bond issuance, although it has said it will take advantage of opportunities for liability management if they arise.”

Looking further out, Fitch said the Government is making “gradual progress” towards achieving its medium-term debt management targets by reducing the amount of foreign currency debt it owes as a percentage of the total.

“As part of the medium-term debt management strategy, the Government has broad goals for its portfolio composition by fiscal 2028-2029. It is making gradual progress toward those goals, including extending the average time to maturity and decreasing exposure to foreign currency and floating-rate debt,” Fitch added.

“The share of foreign currency debt in total debt fell to an estimated 45.3 percent, compared with a target of 55.4 percent. However, the portfolio still includes more short-term and floating rate debt than targeted.”

Tribune Business previously reported how a “cash buffer framework” has been developed to ease the Government’s cash flow and liquidity pressures during the weaker first half of its fiscal year as part of plans to refinance near-$3.4bn in total public debt during the 2026-2027 Budget period.

The Davis administration, in unveiling its annual borrowing plan for the new fiscal year, disclosed that the Government has worked jointly with the Central Bank to develop a mechanism to relieve any pressures that may result from the traditionally-lower revenue inflows during the six months to end-December plus investors’ aversion to 10 and 20-year bonds.

“Given the concentration of revenue receipts in the second half of the fiscal year, along with investor concentration at the short end of the yield curve, the Central Bank and the Ministry of Finance have jointly developed a cash buffer framework to manage in-year gross financing needs,” the Plan reveals.

“This arrangement helps reduce liquidity risks associated with government securities auctions, provides greater scope to manage borrowing costs and, together with the active use of Treasury Bills, strengthens co-ordination between cash and debt management.”

No other details were provided on “the buffer”, especially what it involves and how it will work. However, financial sources consulted by Tribune Business suggested the likeliest explanation is that the Government will rely heavily on Central Bank advances to plug any revenue gaps, and make up funding shortfalls, during the fiscal year’s first-half and then pay these down during the tax and fee-rich six months to end-June.

The Government’s borrowing plan, released in the 2026-2027 Budget’s aftermath to ensure compliance with the Public Debt Management Act’s legal requirements, asserts that the proceeds generated by the year’s forecast $223.1m surplus will provide a further “buffer” for its cash and financing needs.

Given the surplus projection, the Davis administration is predicting it will not need to undertake any new borrowings that will add to the Government’s $12.466bn direct debt as at end-June 30. Instead, it is forecasting that it will only borrow to refinance $1.024bn in existing debts, while plans to also rollover a “combined $2.372bn” in outstanding Treasury Bills are excluded from these calculations.

While the report signals that the Government should have no difficulty in meeting its 2026-2027 gross financing needs, a slightly deeper look reveals some ongoing challenges with managing The Bahamas’ public finances - especially the continued heavy reliance on short-term debt, much of which matures and comes due for repayment in one year.

The annual borrowing plans acknowledges the “refinancing risk” this presents should one major institutional investor, such as a commercial bank, decline to rollover and, instead of refinancing by accepting new securities, instead demands its money back. “Rollover pressure from the large pool of Treasury Bill holdings requires ongoing monitoring,” the report concedes.

And, while no update was given on whether the Government met its 2025-2026 fiscal year goals, the annual borrowing plan admits that many target indicators were missed and there is work to be done to hit the Ministry of Finance’s medium-term debt management strategy targets, too. The report also concedes that Bahamian investors have little appetite for, and are shying away from, the Government’s 10 and 20-year bonds - hurting efforts to extend and smooth out its debt maturities.

As for key 2025-2026 indicators, the annual borrowing plan reveals that more than half of the Government’s debt - some 52.6 percent - must be “refixed within one year”. This means that this portion will be subject to a new interest rate, or debt servicing cost, and the percentage is much higher than the 29.4 percent and 37.4 percent, respectively, that were targeted by the Government for both 2025-2026 and over the medium-term.

Similarly, more than one-quarter of the Government’s outstanding debt - some 27.4 percent - is still due to mature, and repay investor principal, within one year. This. too, remains higher than the 23.1 percent medium-term target. The weighted average interest rate on the Government’s total debt, plus average time to maturity and refixing, were all below their medium-term targets at year-end, while fixed rate debt - a 69.4 percent of the total - is still short of the 83.1 percent goal.