The government released its Pre‑Election Economic and Fiscal Update (PEFU) yesterday, with its contents continuing to tout an overall fiscal surplus of 0.5 percent of the country’s gross domestic product (GDP) at the end of the current fiscal year (2025/2026), growing to 1.7 percent of GDP by fiscal year 2028/2029 despite downside risks to growth by the ongoing war in the Middle East, and doubts from international credit rating agency Fitch Ratings that the surplus is achievable.
“Public debt is projected to decline to 57.5 percent of GDP by FY2028/29, consistent with the government’s objective of reducing debt to 50 percent of GDP by FY2030/31, while maintaining vigilance against macroeconomic and environmental risks. Any changes to these forecasts will be reflected in the 2026 Fiscal Strategy Report or the FY2026/27 annual budget,” the PEFU states.
The government’s statement on the release of the PEFU explains that the document was published in accordance with section 24 of the Public Finance Management Act, 2023 and “provides an objective snapshot of economic conditions, fiscal performance, and the medium‑term outlook at the time of issuance”.
The PEFU statement explains that the country’s domestic conditions remain stable, though uncertainty over the country’s fiscal future remains hinged on the effects of the war in the Middle East. The statement said that war has already caused increases in crude oil prices, and has generated broad-based risks to inflation and growth.
“Looking ahead to 2026–2028, the IMF [International Monetary Fund] projects a moderation in real GDP growth to 2.2 percent in 2026, stabilizing near 1.9 percent in 2027, although downside risks from the Middle East conflict could weigh on these projections through tourism demand erosion, higher domestic fuel and electricity costs, and inflationary pressure on imported goods,” the document states.
The government states in the document that it is hopeful that the country’s proximity to the US will mitigate some of the effects the Middle East war could have on tourism gains experienced over the past several years.
“In a sustained scenario, elevated energy costs could compress US households’ disposable income and, together with weakened consumer confidence, adversely impact travel and dampen the level of domestic activity,” the document states.
“However, this critical vulnerability is expected to be partially mitigated by The Bahamas’ proximity to key source markets, which provides a relative comparative advantage, as past experience shows that travelers tend to opt for shorter, close-to-home destinations.”
The PEFU adds: “Compression in tourism demand could dampen domestic demand and overall economic activity, with knock-on implications for the pace of fiscal improvement relative to the baseline path.”
The government warns that the Middle East conflict will put direct pressure on domestic fuel prices, with gasoline prices already nearing $7 per gallon.
The PEFU explains, though, that government will keep electricity price hikes at bay for the moment through an existing oil price hedge put in place by Bahamas Power and Light.
It adds that higher fuel costs will affect the production of water, given the electricity demand of desalination by reverse osmosis.
“Higher fuel and electricity costs will also place upward pressure on water production costs, given the Water and Sewerage Corporation’s reliance on energy‑intensive desalination,” the PEFU document said.
“This could weaken WSC’s operating position, complicate cost recovery, and increase risks around debt servicing and existing loan obligations unless offset by tariff adjustments or government support.”
It adds: “Apart from the impact on electricity tariffs, higher energy costs will have direct adverse consequences for transportation costs, feeding through to prices across supply chains for goods and services.”
