The Tribune

By NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

STANDARD & Poor’s (S&P) appeared to quietly signal that the Government will miss its revised $32.7m Budget surplus target for the 2025-2026 fiscal year by coming in with a deficit equal to 1.5 percent of economic output.

The credit rating agency, in its annual assessment of The Bahamas released late on Monday night, appeared to signal in the “selected indicators” - although it made no mention of this in the report’s text - that the Davis administration will achieve a fiscal deficit of around $230.73m for the Budget year to end-June 2026 based on the Government’s own gross domestic product (GDP) projection of $15.382bn.

Such an outcome would contrast markedly with the Government’s own fiscal forecasts, especially since it had pegged the deficit for the first 11 months to end-May at $91.4m - almost $140m below S&P’s own forecast in numerical terms. However, fiscal observers, speaking on condition of anonymity, suggested the gap between the Government and rating agency’s positions could be because the latter is factoring in “off balance sheet spending” by the Davis administration into its figures.

The Opposition has regularly challenged with the National Investment Fund, as well as multiple private-public partnerships (PPPs), have been used to keep government spending off its balance sheet and prevent it from blowing the fiscal surplus forecast and adding to the $13bn-plus national debt. “Their perception of where the deficit will end up is markedly different from the Government’s,” one source said.

“They have a substantial difference from the Government on the year-end deficit, and reference off balance sheet spending. The Government needs to start paying attention to that with all the PPPs and National Investment Fund. If the Government does not become more cautious and transparent with that it will start to weigh.”

Despite forecasting that The Bahamas will enjoy above-average economic growth of 2.5 percent in 2026, S&P is also forecasting that Budget surpluses ranging from $291.4m in the current 2026-2027 fiscal year to as high as $870.2m in 2028-2029 will not be hit. It is instead predicting annual deficits of between 0.9 percent to 1.4 percent over that three-year period.

“The Bahamas' growing economy has helped reduce fiscal deficits to levels more consistent with those seen before the pandemic,” S&P conceded. “The reported fiscal deficit for the fiscal year ended June 30, 2025, was 0.5 percent of GDP (the Government's reported figures may differ from our fiscal indicators as we include The Bahamas' social security balances as well as GDP calendar year).

“The deficit for the first three quarters of fiscal year 2026 was 0.9 percent of GDP, and the Government expects to end the fiscal year with a small surplus. Better fiscal outcomes are owed to, in part, improved tax collection and compliance through a dedicated revenue enhancement unit, among other initiatives.

“We think the Government can maintain low fiscal deficits. But, in our view, it'll be tough for it to achieve fiscal surpluses, which is what it's forecasting, absent meaningful fiscal reform.”

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that S&P’s affirmation of this nation’s existing ‘BB-’ credit rating, together with a ‘stable’ outlook, was positive in one sense because the rating agency believes there is unlikely to be a negative downgrade within the next 12-18 months barring a major change in circumstance.

But, equally, S&P believes there is unlikely to be any upgrade in that time period, which leaves The Bahamas three notches away from escaping so-called ‘junk’ status and returning to investment grade. The Davis administration had targeted 2028 for achieving this goal, but Mr Bowe suggested this timeline may now have to be adjusted.

“The rating agencies have indicated we have stability, but no upward trajectory in creditworthiness for the next 12-18 months,” he said. “They indicated we have some positive developments but still have a lot to be done with tax reform. You see them reminding us we will only achieve a fiscal surplus with modernisation and reform of the tax system, and improvements to state-owned enterprises (SOEs) and off balance sheet management.”

S&P, in its report, asserted: “The continued resilience of The Bahamas' economy, underpinned by strong cruise tourism and large-scale investment projects across the Family Islands, is supporting growth, which in turn facilitates the Government's fiscal consolidation efforts….

“The stable outlook reflects our expectation that The Bahamas' GDP growth prospects will remain solid and that its long-term growth will align with that of peers at the same level of development. We assume the government will remain committed to conservative fiscal management, and we assume it'll contain the debt burden.

“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…. We also estimate GDP per capita of $43,000 this year. 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,” the rating agency added.

“The Bahamas' continued advancements in energy may eventually lead to important savings and ease the high costs of doing business in the country, but we expect execution delays and do not incorporate those benefits into our forecast. The country in 2024 had set in motion comprehensive reforms to support improvements to the transmission and distribution infrastructure, and diversify energy sources in favour of solar power and natural gas.”

However, Kwasi Thompson, the Opposition’s finance spokesman, last night charged that the S&P report further confirms the Bahamian people are “not being given the full picture of the Government’s fiscal position”. 

He added: “S&P specifically warns that ‘off-balance-sheet financing and contingent risks could keep the debt burden elevated’, and further states that government debt could increase for reasons other than the reported Budget balance, including off-balance sheet financing and contingent liabilities. 

“This reinforces a concern the Opposition has consistently raised, particularly in relation to the Government’s PPP arrangements. The headline fiscal numbers do not tell the whole story. Significant financial obligations can exist outside the reported Budget balance.

“The Government must stop presenting a projected surplus as though that figure alone represents the true state of the public finances. A surplus does not tell the full fiscal story if substantial PPP obligations, guarantees, contingent liabilities and other financing arrangements are not fully reflected in that number,” Mr Thompson continued.

“The Bahamian people deserve to know the true fiscal position of their Government. They deserve a complete accounting of public debt and all other financial obligations, including PPP commitments, guarantees and contingent liabilities, and a clear reconciliation of those obligations with the Government’s reported fiscal balance.

“Until that full picture is disclosed, the public cannot rely on the Government’s surplus as representing the true fiscal position of the country. The people deserve the full facts. They deserve to know what the Government owes, what obligations have been entered into on their behalf, and the true state of the nation’s finances.”