The Tribune

By NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

THE BAHAMAS’ growing reliance on the cruise industry is reducing tourism’s economic impact and benefits for its citizens, a credit rating agency warned yesterday, as it joined others in predicting the Government will miss its Budget surplus targets.

Fitch, unveiling its latest assessment on the Bahamian economy and fiscal position, also signalled it is aware of the ongoing National Investment Fund (NIF) saga and other controversies by asserting that “governance and transparency” have become “potent concerns” since the May 12 general election.

It is forecasting that, rather than a $32.7m surplus for the 2025-2026 fiscal year, which the Government revised downwards from the original $75.5m, there will instead be a deficit equal to 0.5 percent of gross domestic product (GDP). Based on the Government’s own data, that would translate into a deficit of around $75m, measuring by how much its spending has exceeded revenue and tax income.

Fitch nevertheless hailed this as “the lowest deficit in 25 years”, while also projecting a “marginal decline” in the external reserves that support The Bahamas’ US currency peg come year-end 2026 compared to the same point last year. It also pointed to increasing inflation, but forecast that gross general government debt will continue to decline and hit 66 percent of GDP, or economic output, by 2028.

And Fitch also asserted that, at this time in 2025, the Bahamian economy was shrinking rather than growing as it pointed to a 1.4 percent contraction in the 2025 fourth quarter. The economy still expanded for the 2025 full year, and growth soon resumed, with Fitch providing no evidence or details to support the contraction assertion.

However, the international rating agency’s comments on cruise tourism’s increasingly dominant share of visitor arrivals is likely to catch attention. “Tourism arrivals expanded by 14.8 percent year-on-year in the first seven months of 2026, after going up by 11.4 percent in 2025 to 12.5m arrivals – the highest level ever,” Fitch said.

“Cruise arrivals dominate, expanding 16.9 percent year on year in the first seven months of 2026 to 7.1m, or 84 percent of arrivals. While tourism will remain the main driver of the economy, The Bahamas’ reliance on the less lucrative cruise arrivals lessens the economic and fiscal benefits. The industry is working to expand monetisation of the cruise product….

“The Commonwealth of The Bahamas faces slowing growth as the post-pandemic rebound fades, despite still-strong tourism activity. Fiscal deficits and debt ratios are improving gradually, but external vulnerabilities and reliance on cruise tourism constrain credit strength.”

The cruise dominance may be even more than Fitch suggests. The Central Bank earlier this week reported that sea visitors, including cruise passengers, again drove the expansion in arrivals to The Bahamas for the first seven months of 2026 by increasing 16.4 percent to 7.2m, while air traffic rose 5.8 percent to 1.2m. This meant cruise passengers accounted for 85.7 percent of all visitors to The Bahamas, although the growth in air arrivals suggests stopover tourism is far from done.

However, there have been signs of unease in the Bahamian tourism industry over the competitive threat posed by the explosive growth of the cruise lines, with multiple vessels that resemble floating hotels containing many of the same attractions and amenities as an Atlantis and Baha Mar, and more ships in the construction pipeline. And they are able to offer multiple experiences at much lower costs than Bahamas-based resorts and land-based attractions.

Stopover vacation spending is generally considered to be 28 times’ higher than that of cruise passengers, with many observers believing that the economic impact from the latter is increasingly being dulled by the lines’ growing use of their private island destinations.

Standard & Poor’s (S&P), Fitch’s fellow rating agency, in its annual report on The Bahamas earlier this week echoed the latter’s findings that tourism growth has become increasingly dependent on the cruise ships although it took a much gentler view of the consequences.

“We expect that the Bahamian economy will grow 2.5 percent in 2026, with support from strong activity in the cruise segment and across the Family Islands,” S&P said. “The past two years in The Bahamas have been marked by robust economic performance, with 4.2 percent GDP growth in 2024 and 3.8 percent GDP growth in 2025.

“This reflects a dynamic and growing cruise segment, a robust pipeline of investments, and robust execution with respect to those investments, particularly across the Family Islands… Total tourist arrivals in 2025 were 12.5m compared with 11.2m the year before, with notable growth in cruise passengers.

“The number of inbound arrivals was 6.1m for January through May 2026, up 14.2 percent from the same period in 2025, reflecting continued growth in cruise passengers and a recovery in air arrival passengers, which represent the dominant share of earnings. The Government is interested in seeing the local economy get even more of a lift from the significant cruise investment activity across the various private islands.”

Meanwhile, Fitch and S&P were also of one accord in their belief that the Government will not achieve its much-touted fiscal surplus for the 2025-2026 Budget year that closed at end-June, let alone the revised $291.4m surplus forecast for the present 2026-2027 year. Fitch is predicting that the latter period’s deficit will come in at a slightly lower 0.4 percent of GDP before the Davis administration finally hits its long sought-after surplus in 2027-2028.

“General government finances improved marginally over the first 11 months of the fiscal year to end-June 2026, with the fiscal deficit shrinking to $91.43m from $141.5m the previous year,” Fitch said.

“Revenue growth of 3.3% percent year-on-year offset a 1.6 percent rise in expenditure on the back of higher wages and transfers. We expect an annual deficit of 0.5 percent of GDP, below the budgeted 0.5 percent surplus but the lowest deficit in 25 years.” That, if Fitch’s prediction is accurate, would represent a $150m negative swing from the original 2025-2026 forecast of a fiscal surplus, and a $107m downward move from the revised $32.7m goal.

As for the economy, Fitch’s outlook is more pessimistic than that of S&P. It is forecasting lower growth of 1.8 percent for the 2026 full year as opposed to its fellow rating agency’s 2.5 percent, placing The Bahamas closer to the International Monetary Fund’s (IMF) projected medium-term average of under 2 percent annual growth.

“The Bahamas’ economy has slowed, but has still been growing well above potential, reflecting a vibrant post-COVID 19 pandemic rebound,” Fitch said. “However, economic momentum turned in the 2025 fourth quarter, with the economy shrinking by 1.4 percent year-on-year, the first quarterly contraction since 2020. Fitch Ratings forecasts that growth will slow to 1.8 percent in 2026, given global headwinds. It will plateau at just under 2 percent over the coming years…..

“Inflation was manageable in the 2026 first quarter, but accelerated to 4.2 percent in the second quarter, given exposure to imported oil prices and domestic pressures. Fitch forecasts inflation to average 2.9 percent in 2026. The current account deficit is large, at a forecast 8.7 percent of GDP in 2026.

“We expect international reserves to marginally decline in 2026 to $2.7bn - 3.6 months of current external payments - from a nominal peak of $2.8bn (3.9 months) in 2025, before rebounding over the next few years as external pressures diminish.”

On a positive note for the Government’s fiscal consolidation drive, Fitch predicted that debt as a ratio or percentage of GDP will continue to decline. “Central government debt as a share of GDP was fairly stable last year, but we forecast an improvement in gross general government debt (GGGD) to 71 percent in fiscal year 2025-2026 from 73 percent last year,” it added.

“GGGD will fall further in fiscal year 2026-2027 to around 69 percent. While this is a considerable improvement from the peak of 90 percent in 2020, it is still well above the ‘BB’ median of 53 percent. Fitch forecasts further improvement in GGGD to 66 percent by 2028.”

However, Fitch signalled that it is also aware of the National Investment Fund questions as well as other concerns such as whether $1.5m of Bahamian taxpayer money was used to finance the governing Progressive Liberal Party’s (PLP) general election campaign through acquiring building materials vouchers that were then distributed in Grand Bahama and Abaco bearing the name of the party’s candidates.

“Parliamentary elections in May returned the incumbent Progressive Liberal Party (PLP) to power, supporting policy continuity. The PLP won 33 out of 41 seats, the first time an incumbent party won re-election in nearly 30 years,” Fitch said. “Although affordability was the main electoral issue, governance and transparency have since arisen as potent concerns.”