The Tribune

BY NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

NET foreign direct investment (FDI) inflows into the Bahamian economy are forecast to increase by 62.2 percent over the next two years, the Inter-American Development Bank (IDB) has revealed, although it voiced warnings over a “structural shift” favouring cruise tourism.

The multilateral lender, unveiling its second quarter Caribbean economic bulletin, said International Monetary Fund (IMF) estimates show net FDI inflows will increase by $130m in 2028 compared to forecasts for this year as developments come out of the construction pipeline and start to generate full-time employment, earnings and economic impact that is felt more widely.

It cited multiple cruise line investments, such as Carnival’s $600m Celebration Key project that opened in July 2025, plus Royal Caribbean’s $200m Paradise Island Beach Club and forthcoming $1.5bn Mediterranean Shipping Company (MSC) Cruises developments in Grand Bahama, as key drivers of these increased inflows and economic benefits.

However, while FDI remains a critical factor in growing the Bahamian economy and jobs, the IDB report questioned whether 2025’s “under-performance of air arrivals”, who typically spend up to 28 times’ more than their cruise counterparts in-country, represents a lasting shift towards the latter form of tourism. It added that the present 2026 second half will provide important answers as it will determine whether the year’s earlier stopover visitor rebound is likely to sustain.

Describing hotel and airport infrastructure investments as “a key upside risk to the growth outlook”, the IDB report said of the IMF’s Bahamas’ projections: “The assessment expects $209m (1.2 percent of GDP) in net foreign direct investment inflows this year; $263m (1.5 percent of GDP) next year, and $339m (1.9 percent of GDP) on average from 2028 to 2030.”

But, while acknowledging that tourism continues to attract strong FDI flows, the IDB analysis challenged whether this is being driven by cruise tourism at the expense of higher-spending stopover arrivals. It cited “stopover demand sustainability”, along with the Bahamas Power & Light (BPL) fuel hedge’s expiry at year-end and “debt constraints” still burdening the country’s fiscal position, as “three risks [that] warrant monitoring” in the upcoming months.

“The Bahamian tourism sector posted a strong performance in 2025 and into 2026. The period saw record visitor arrivals and major new and ongoing foreign and local investment projects across the archipelago,” the multilateral lender said, acknowledging the positives. “In 2025, visitor arrivals reached a record 12.5m, surpassing the 2024 figure of 11.2m (11.4 percent growth) and the pre-COVID 2019 peak of 7.2m (72 percent growth).

“Grand Bahama arrivals nearly doubled to 1.09m, driven by new cruise infrastructure, while Family Islands’ arrivals grew 9.9 percent, reflecting the expansion of cruise itineraries across the outer island network.” However, the IDB conceded that this was almost entirely driven by cruise tourism, while 2025’s hotel-based, stopover visitor numbers suffered their second annual year-over-year decline since the world emerged from the COVID-19 pandemic.

“Most of the growth of tourism visits comes from cruise arrivals, which account for 85 percent of total arrivals. This mode of tourism tends to generate lower average per-visitor economic value than stopover visitors [via] hotel occupancy, food and beverage spending, and VAT contributions,” the IDB said.

“However, the Government is reassessing the impact of cruise tourism activity in the Bahamian economy. Stopover arrivals declined 2.6 percent to 1.82m, the second annual decline since the rebound in 2021. The softening was concentrated in the third quarter of 2025, when stopover visits fell 6 percent year-over-year, the sharpest quarterly decline in the post-COVID recovery period.

“Despite the under-performance of 2025 air arrivals, the first five months of 2026 showed a meaningful recovery. Total air arrivals grew 4.8 percent year-over-year, with all five months registering positive growth. Air arrivals from March to May grew a healthy 4.9 percent year-over-year despite the Iran conflict starting in late February,” the IDB added.

“New Providence air arrivals were up 5.8 percent year-over-year in the same period. This resilience during peak season is consistent with the structural advantages of the Bahamian tourism market. The majority of stopover visitors originate from the US, especially the east coast, where short flight times to Nassau mean that fuel represents a smaller share of total airfare costs compared to long-haul Caribbean competitors.”

Still, the IDB warned that The Bahamas must now monitor whether its stopover tourism recovery is sustainable. “The recovery of air arrivals in the first quarter of 2026 is encouraging but concentrated during the peak season,” it said.

“Performance of the sector in the latter part of 2026 will demonstrate whether the 2025 stopover decline is transitory, reflecting the shorter-flight advantage of The Bahamas for many North American tourists, or reflects a structural shift towards the cruise visitor market. Nevertheless, a sustained decline in stopover visitors would directly compress VAT and tourism-related fiscal revenue, with implications for the upcoming and medium-term fiscal outturns.”

However, the IDB conceded that “The Bahamas has so far managed to weather the geopolitical uncertainty over the last year from a position of improved macroeconomic and institutional strength” with the $78.9m fiscal deficit recorded for 2024-2025, equal to 0.5 percent of this nation’s gross domestic product (GDP), branded “the smallest in 2025 years”.

The Government’s primary surplus, which measures by how much total tax and non-tax revenues exceed all spending bar debt interest payments, had risen to 3.7 percent of GDP in 2024-2025 compared to 0.1 percent just two years earlier, the multilateral lender added. And the Bahamian economy’s 3.8 percent GDP growth in 2025 marked the “fourth consecutive year of above-trend expansion”, beating the IMF’s late-year 2.8 percent prediction by a full percentage point.

“The medium-term growth prospects of The Bahamas are significantly higher than the 10-year pre-pandemic growth rate of 1 percent,” the IDB said. “Moreover, even if not accounting for higher growth in 2025, the IMF did not revise the growth projections in the medium term, which implies that the outlook for The Bahamas is against the trend of downward revisions across many regional peers.

“Fiscal performance has been a defining strength of the Bahamian macro landscape. Total government revenue grew 0.2 percentage points to reach 21 percent of GDP in fiscal year 2024-2025. The main drivers were VAT revenue (0.12 percentage points) and taxes on international trade (0.68 percentage points, the latter reflecting higher import volumes consistent with strong domestic activity.

“On the expenditure side, total outlays reached 21.5 percent of GDP, producing an overall deficit of 0.5 percent of GDP, the smallest in 25 years. The primary surplus reached 3.7 percent of GDP, positioning The Bahamas as the second-strongest primary fiscal performer among the Caribbean, behind only Barbados (4.1 percent), and well ahead of the Latin American and Caribbean average of -0.3 percent.”

Recent credit rating upgrades by Standard & Poor’s (S&P) and Moody’s suggest “fiscal policy credibility has improved”, the IDB argued. It added that The Bahamas’ debt is also on “a downward path”, at least in ratio and relative terms, having “declined from a peak of 91 percent of GDP in fiscal year 2020-2021 to 74 percent in fiscal year 2024-2025.

“The IMF expects it to fall to 72 percent this fiscal year (2025-2026) and reach 62 percent in 2030-2031, assuming that GDP growth converges toward 1.5 percent through 2027–2030. While the trajectory is firmly downward, debt remains slightly above the Latin American and Caribbean average of 73 percent of GDP and above pre-COVID levels, limiting the fiscal space to absorb a severe and prolonged external shock ,” the IDB added.

“Interest payments reached 4.1 percent of GDP in 2024-2025, but are estimated to decrease to 3.9 percent of GDP by 2027/-2028 as deficit reduction, concessional financing and improved market access, signalled by sovereign credit upgrades, translate into more favourable refinancing conditions.

“Government debt of 73.2 percent of GDP as of March 2026, while on a declining path, limits the hard-won fiscal space to absorb a severe and prolonged external shock. Maintaining the primary surplus trajectory, while maintaining and increasing access to concessional financing and mobilising private sector funds, are essential to protecting the credit trajectory.”