The Tribune

The Prime Minister yesterday conceded his three-year timeline for restoring The Bahamas to ‘investment grade’ status is “ambitious” but asserted that achieving this is more important than how long it takes.

Philip Davis KC, leading off the 2025-2026 Budget debate in the House of Assembly, subtly signalled that escaping ‘junk’ status’ may take longer than the 2028-2029 fiscal year target he set last week but pledged that the Government “will not flinch” from the four key indicators it is focusing on to attain it.

Responding to suggestions that a “massive debt reduction” will be required for The Bahamas to move upwards through the four ratings separating it from a return to ‘investment grade’ status with Moody’s and Standard & Poor’s (S&P), he said: “I’ve taken note of commentary suggesting that this objective may not be achievable within the three-year timeframe I proposed, or even at all.

“Yes, the targets are ambitious, but ambition is necessary if great things are to be achieved. Four years ago there were many who scoffed at the idea that we could achieve a balanced Budget. And yet here we are. These are our goals and we have set out our road map as to how we will achieve them.

“Yes, it will require strong, continued fiscal discipline and wise stewardship of the economy, but we do not flinch from either responsibility. This administration believes in setting high standards and working relentlessly to meet them. Whether we reach investment grade in three years or slightly beyond, the important thing is that we are moving decisively in the right direction, with discipline and with purpose.”

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business earlier this week that the Davis administration’s strategy and road map for achieving its ambition to cut the Government’s debt servicing costs as a percentage of gross domestic product (GDP) by 50 percent come 2028-2029 has yet to be fully laid out or “articulated”.

Reducing interest expense from 20 percent of GDP in 2023-2024 to 10 percent in three years time is one of the goals for The Bahamas to achieve if it is to escape rid itself of ‘junk’ status, but Mr Bowe warned that a cut of such magnitude will not be easy to achieve and requires a “contraction” in the $11.7bn national debt.

The 2025-2026 Budget’s breakdown shows the Government’s interest, or debt servicing costs, are projected at $689.546m for the upcoming fiscal year that ends on June 30, 2026, representing a more than $13m year-over-year jump.

This remains a greater expense than any of the spending allocations granted to the Government’s ministries, departments and agencies for the upcoming fiscal year. As a comparison, it exceeds the combined $477.5m allocated to the Ministry of Health and Wellness, Department of Public Health and Department of Environmental Health Services by more than $200m.

And it is also far greater than the total $353.4m allocation to the Ministry of Education and Technical and Vocational Training, and Department of Public Education, standing at some $336m greater or almost double. The $198m allocated to the two main law enforcement agencies, the Royal Bahamas Defence Force and Royal Bahamas Police Force, almost pales in comparison.

The Government, though, is forecasting a near-$103m reduction in its debt servicing (interest) bill over the next two years through to 2027-2028 in line with the Prime Minister’s pledge to slash these expenses to just 10 percent of economic output and thus free-up spending resources to boost critical public services such as health, education, social services and the security services.

Interest payments on The Bahamas’ national debt are forecast to fall to $624.175m in 2026-2027, before falling further to $586.552m in the 2027-2028 fiscal year - the latter representing a 15 percent decline compared to this year. However, besides refinancing existing debt at cheaper rates, the Government has yet to set out how it will achieve such a major reduction.

Mr Davis last week set out several economic indicators that the Government is targeting to achieve its ambition of returning The Bahamas to ‘investment grade’ status by the 2028-2029 fiscal year.

These include a 13.1 percent, or $5,100, increase in Bahamian per capita gross domestic product (GDP) to $44,000 by 2029, plus a more than 50 percent reduction - in percentage terms - in the Government’s debt interest expense as a percentage of GDP within the same timeframe.

Mr Davis, adding that the Government also expects to be “near” its 50 percent debt-to-GDP target by the 2028-2029 fiscal year, some two years ahead of its 2030-2031 goal, said: “This administration remains resolute in its commitment to securing an investment grade credit rating within the next three years, starting in the upcoming fiscal year, 2025-2026.

“Achieving this milestone by fiscal year 2028-2029 is not merely symbolic; it is a strategic imperative that will unlock greater economic opportunity, reduce borrowing costs and enhance investor confidence in our nation’s future....

“With our GDP projections expected to fully capture economic activity within the next three years, we have confidently set the following targets to reach ‘investment grade’ status. GDP per capita has risen by 27.7 percent, increasing from $30,400 in 2021 to $38,900 in 2024. On a year-over-year basis, it grew by 2.7 percent, up from $37,900 in 2023,” he added.

“Based on regional benchmarks, long-term growth prospects and the current economic environment, we are targeting an annual GDP per capita of approximately $44,000 by 2029.” The Bahamas is presently some four notches below ‘investment grade’ status with the rating agencies, having been marooned in ‘junk’ status for some years.

Mr Davis, identifying the Government’s revenue-to-GDP ratio, or its percentage of economic output, as another targeted indicator, said: “Revenue-to-GDP has also improved significantly, rising from 17 percent in fiscal year 2020-2021 to 19.7 percent in fiscal year 2023-2024. For the current fiscal year, as previously planned, we had set a target of 22.1 percent.

“To meet the requirements of an investment grade rating we must continue to enhance our revenue mobilisation efforts. Accordingly, we project that total revenue will reach 23.5 percent of GDP in fiscal year 2025-2026 and increase to 25 percent thereafter.”

The Prime Minister added that “international best practices” showed a country’s debt should not exceed half its economic output or GDP. The Bahamas’ debt-to-GDP ratio stood at 72.4 percent at end-June 2024, and Mr Davis added: “The Fiscal Strategy Report 2025 outlines our commitment to reducing the central government debt-to-GDP ratio to 50 percent by fiscal year 2030-2031.

“Based on internal estimates and expected policy changes, we expect to be near this target by fiscal year 2028-2029. In addition to reducing the size of our debt, we are also focusing on reducing the cost of carrying it.

“In fiscal year 2020-2021, interest expense accounted for approximately 22.1 percent of total government revenue, decreasing to 20 percent in fiscal year 2023-2024. Our objective is to further reduce this ratio to 10 percent by fiscal year 2028-2029.”