Bahamas: Economic Outline

Economic Indicators

The Bahamas is the wealthiest Caribbean nation in terms of GDP per capita. The country has a history of positive GDP growth. GDP grew by 14.4% in 2022, supported by a broad-based recovery, especially in tourism activity, returning to its pre-pandemic level. In 2023, the GDP of the Bahamas expanded at a solid 4.3% as tourism showed a particularly robust performance. The medium-term economic outlook appears promising, with a projected real GDP growth of 1.8% in 2024 (IMF). Growth is anticipated to slow down to a range of 1.5% to 2% in the medium term, primarily due to capacity constraints in the tourism sector. Nevertheless, the government foresees long-term growth stimulated by investments aimed at expanding hotel capacity, with numerous FDI projects already in progress.

Improved revenue due to a robust cyclical recovery and reduced pandemic-related expenditures have strengthened the fiscal balance. The fiscal deficit decreased to 3.9% of GDP in 2022/23, with central government debt declining to 84% of GDP. IMF projections indicate a deficit of 2.6% of GDP in 2023/24 and debt reduction to 78% of GDP by 2027/28 under current policies. The financial sector remains strong, characterized by ample liquidity and declining non-performing loans (NPLs). However, private credit growth is subdued and lags behind output expansion. Inflation, reaching its peak in July 2022 at 7.1% year-on-year, was mainly driven by escalating energy and food costs. However, it started to decline thereafter. The inflationary surge was largely influenced by global factors, but a downturn in global energy prices hastened the reduction in inflation, with the rate decreasing to 3.4% by the end of 2023. Inflation is projected to decrease to 3.2% by the end of 2024 and stabilize at around 2.5% over the medium term. The government aims to achieve a fiscal surplus by 2026 through enhanced cost recovery from public corporations and increased spending efficiency, allowing for spending reductions. Tax reforms are anticipated to further bolster the primary surplus in the long run, while additional expenditure on climate resilience is expected to contribute to this surplus. The trade deficit is forecasted to narrow, and international reserves are projected to remain above 4 months of imports. However, the economic outlook faces various downside risks, including potential U.S. slowdown due to monetary tightening, global uncertainty, reduced tourism demand from key markets, global price shocks, and the growing threat of climate-induced natural disasters.

The country's high levels of human development and GDP per capita mask important structural, economic, and social challenges: significant income inequality, high unemployment, a weak skills base, an inefficient public sector, and inadequate infrastructure. The labor market in The Bahamas continues to grapple with challenges, such as the need to restore labor force participation to pre-pandemic levels and tackle the high unemployment rate among young adults. As of May 2023, labor force participation stood at 75.9%, still below the pre-pandemic level of 81%. Moreover, the unemployment rate for individuals aged 25-35 was at 25%, nearly triple the national average. The positive economic performance registered in recent years contributed to a reduction of unemployment, which stood at 8.8% in 2023, the lowest since 2008. Over four fifths of the population is concentrated on the islands of New Providence and Grand Bahama, which creates challenges for transportation, public administration, and employment. Furthermore, although the Bahamas’ poverty rate is among the lowest in the region, it has been growing in the context of inadequate social safety nets.

Monetary Indicators	2016	2017	2018	2019	2020
Bahamian Dollar (BSD) - Average Annual Exchange Rate For 1 GBP	1.35	1.29	1.33	1.25	1.28

Source: World Bank - Latest available data.

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Latest Update: May 2024