The Tribune

By NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

MOODY’S yesterday asserted that “durable” revenue gains, rather than June’s one-off spikes, are vital to The Bahamas achieving sustained annual Budget surpluses together with greater corporate income tax collections and “spending restraint”.

The agency, unveiling its latest assessment of The Bahamas’ creditworthiness and economic performance, signalled that the Davis administration will need to turn June’s revenue spike - driven by the collection of VAT arrears and dividend payments from public corporations - into a consistent annual event rather than just a one-off improvement.

Describing the $39.3m surplus for the 2025-2026 fiscal year, recently unveiled by Prime Minister Philip Davis KC, as “a preliminary figure” driven largely by revenue growth outpacing increased spending, Moody’s noted that income generated by the 15 percent corporate income tax - known as the Domestic Minimum Top-Up Tax - was only just over 50 percent of the $131m target.

While the $62.4m undershoot may be a timing issue, meaning the Government may not have collected all that was due before the 2025-2026 fiscal year ended on June 30, the rating agency noted that achieving the near six-fold increase in corporate income tax revenues to $350m projected for the current fiscal year will be critical to the Government hitting its $291m surplus target.

Moody’s added that the other key factor driving its Bahamas fiscal forecasts for 2026-2027 is a fall in government spending as a proportion of economic output, with primary expenditure growth in particular needing to fall from last year’s 15.7 percent of gross domestic product (GDP) to 1.2 percent. And cutting interest, or debt servicing costs, by 0.7 percentage points of GDP is also vital.

The rating agency made no mention of the ongoing controversies surrounding the near-$311m spent from accounts in the National Investment Fund’s (NIF) name, or the $131.7m increase in “loans” to state-owned entities that have little to no chance of paying them back, despite fears this is disguising off-the-books spending that would blow a major hole in the $39.3m surplus.

“The Bahamas recorded a preliminary fiscal surplus of $39.3m, or 0.2 percent, of GDP in the fiscal year ended June 30, 2026, compared with a deficit of 0.5 percent in fiscal 2025,” Moody’s said. “Revenue increased by 16.6 percent to $3.96bn, outpacing expenditure growth of 12.6 percent.

“Stronger VAT collections and non-tax revenue supported the improvement, although the domestic minimum top-up tax (DMTT) generated only $68.6m, around half the supplementary Budget target.

“The full-year surplus also benefited from a strong June outturn, including VAT arrears collections and dividend receipts, much of which the Government applied to settling outstanding obligations. The durability of revenue gains, rather than the headline surplus alone, will therefore be important to assessing the underlying fiscal improvement.”

VAT collections more than doubled year-over-year for June 2026, growing by 119.6 percent from $113m to $248.3m on the back of enforcement to likely set a monthly record, even though the period only included payments from larger monthly filers. The June returns for quarterly VAT filers and payers are due to be submitted in July.

The Ministry of Finance’s report for June 2026, which also includes the full-year figures, shows that the $39.3m annual figure was ultimately achieved by a more than five-fold increase in the Budget surplus for that month - from $25.4m in 2025 to $130.7m this time around.

The increased June surplus was driven by major jumps in both revenues and spending. The Government’s total tax income more than doubled for the month, increasing by 116.7 percent or $307.2m year-over-year to hit $570.5m, while non-tax revenue more than quadrupled by $159.8m to hit $206.6m as opposed to just $46.8m in 2025.

Revenues, though, grew at a faster rate than the Government’s fixed-cost, or recurrent, spending on civil service wages, rents and debt servicing, which also more than doubled in June to increase by 103.8 percent or $279m to hit $547.6m. Capital expenditure also surged, expanding by $82.7m year-over-year to hit $98.7m for June 2026.

The final boost came from what the Ministry of Finance described as “significant gains in dividend income from several public entities” whose identities were not revealed. This produced a more than seven-fold jump in ‘other’ non-tax revenue from $23.3m in June 2025 to $172.8m.

On the spending side, the Government’s outlay on goods and services increased more than four-fold in June 2026, rising year-over-year from $61.8m to $255.1m due to increased spending on “utilities and communications”. This is likely due to the Government settling arrears it owes to public corporations, which then sent these payments back to it as dividends.

Moody’s, asserting that consistent Budget surpluses will not be able to rely on one-off revenue gains such as those enjoyed in June 2026, yesterday said: “Further consolidation will depend on higher DMTT receipts and restraint in primary spending. The fiscal 2027 budget projects DMTT revenue of $350m, a substantial increase from the first year of collections.

“Our baseline forecasts an overall surplus of 1.5 percent of GDP and a primary surplus of 4.6 percent, compared with 0.2 percent and 4.1 percent, respectively, in fiscal 2026. Unlike the revenue-led improvement in fiscal 2026, our forecast assumes expenditure declines relative to GDP, while the revenue ratio remains broadly stable.

“Primary expenditure growth slows to around 1.2 percent, from 15.7 percent in fiscal 2026, and interest payments fall to 3.1 percent of GDP from 3.8 percent. Achieving this spending path while establishing a reliable DMTT revenue stream will be important to sustaining larger surpluses,” Moody’s continued.

“We expect sustained primary surpluses to support a gradual decline in government debt from 70.7 percent of GDP at end-fiscal 2026 to 67 percent in fiscal 2027 and 65.9 percent in fiscal 2028.

“Lower interest costs should also improve debt affordability, with interest payments declining from 17 percent of revenue in fiscal 2026 to 13.9 percent in fiscal 2027. Revenue shortfalls or higher-than-projected primary spending would slow this improvement, limiting the rebuilding of fiscal space.”

Moody’s noted, in common with its fellow credit rating agencies, that cruise tourism arrivals growth continues to outpace stopovers despite the latter spending 28 times’ more in the destination and therefore driving the industry’s economic, job and fiscal benefits for The Bahamas.

”Tourism remains the principal driver of growth, foreign exchange earnings and government revenue in The Bahamas, but growth in arrivals is concentrated in the cruise segment,” Moody’s said. “Total foreign arrivals reached 9.5m in January to August 2026, up 14.9 percent from the same period in 2025.

“Cruise arrivals rose 16.6 percent to 8.2m, with the segment accounting for approximately 85 percent of total arrivals. Growth was mainly driven by visitors from Canada and Latin America, while arrivals from the US, the largest source market, were flat.

“Stay-over arrivals increased by a more moderate 5.6 percent over the same period, consistent with the room capacity and airlift constraints identified” earlier,” Moody’s added.

“This segment generates larger domestic spillovers through hotel occupancy, employment and VAT collection, making its performance particularly relevant to the economic and fiscal benefits of continued tourism growth.

“Tourism directly accounts for about 58 percent of jobs, linking labour market conditions closely to activity in the sector. Unemployment reached a 20-year high of 26 percent of the labour force at end-2021, before declining rapidly following the resumption of economic activity in 2022. It stabilised at 9.5 percent in 2025, in line with its historical potential rate.”

The unemployment rate has since fallen further to 8.1 percent in the 2026 first quarter, and Moody’s continues to place significant weight on the Government’s energy reforms delivering lower-cost, more reliable and cleaner electricity to reduce the burden on businesses and households and spur more job creation and economic growth.

“The reform seeks to modernise electricity generation and distribution, and diversify the energy mix toward around 30 percent solar and 50 percent LNG (liquefied natural gas) by 2030. Successful implementation could strengthen growth and the external accounts while reducing fiscal risks,”Moody’s said, adding that it could also cut foreign exchange outflows on fossil fuel imports.

“In August, the Government indicated that the first phase of LNG generation should come online during 2026, with gas-fired capacity reaching around 190 mega watts (MW) by late 2027,” the rating agency added. It also reported that 23 microgrid and solar projects, representing close to 200 MW, were under development and that rented generation was beginning to be phased out.

“More detailed project updates in September point to continued implementation. The Government reported that an Abaco facility comprising about 13 MW of solar, 30 MW of LNG generation and 15 MWh (mega watt hours) of battery storage was under construction, with the solar component expected to begin supplying the grid in November 2026.

“In New Providence, around 70 MW of solar and 35 MW of battery storage are being developed. These developments support the potential credit benefits identified [earlier], although their realisation depends on successful delivery,” Moody’s said.

“Greater efficiency and lower electricity costs could raise long-term real GDP growth by around 0.5 percentage points, supporting revenue generation and debt sustainability. Reduced fuel imports could narrow the current account deficit and lessen exposure to commodity-price shocks.

“Limited government guarantees and performance-based private sector participation could also help contain contingent liabilities from the electricity sector.”