The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Standard & Poor’s (S&P) yesterday forecast Bahamian economic growth for 2024 will fall back to historical trends at 1.8 percent as it warned that such levels, together with “structural vulnerabilities”, weigh on improved credit ratings.

The credit rating agency, in an analysis that did not impact this nation’s creditworthiness, acknowledged that The Bahamas has enjoyed a “robust” tourism-driven recovery from the COVID-19 pandemic with total visitor arrivals for the 2023 first half some 67 percent ahead of the prior year at five million.

But, while gross domestic product (GDP) per capita is expected to return to pre-COVID levels by year-end 2023, S&P voiced concern that despite expectations of strong economic growth for “the next two to three years” this country’s efforts to improve its creditworthiness and escape ‘junk’ territory are impaired by its “below average” long-term performance in comparison to similarly-rated countries.

“The Bahamian economy has shown strong growth through 2023, supported by continued recovery in tourism, although we expect medium-term growth prospects will return to historical levels,” S&P said. “The Bahamas’ economy has significantly improved since the contraction in 2020, spurred by the important tourism sector, and we expect that GDP per capita will recover to close to 2019 levels by year-end 2023.

“The strong recovery has been supported by its key US source market, where recessionary headwinds did not weigh on growth over the past year. We continue to see a steady flow of tourism-related investments, combined with prospects to expand airline capacity and flights into the country.”

Turning to a more detailed analysis, S&P added: “The Bahamas’ economic recovery during 2022 was robust, with GDP growth estimated at 14.4 percent. The country benefited from its proximity to the US, its largest tourism market. Total arrivals into the country in 2022 were seven million compared to 2.1m the year before, which is about 96 percent of 2019 levels....

“We expect the growth momentum to continue through 2023, backed by continued recovery from the pandemic. The number of inbound arrivals reached five million in the first half of the year, compared to three million during the same period in 2022. Furthermore, there are new flights that will be launched from the US to The Bahamas, as well as a continued pipeline of tourism-related projects planned and underway over the next few years.”

The Bahamas’ credit rating from S&P thus remains at ‘B+’ with a ‘stable’ outlook, meaning that another credit rating downgrade is not expected within the next 12 months unless there is a material change in circumstances. 

However, the rating agency voiced concern about The Bahamas’ lack of diversification and over-reliance on tourism. “Although these projects will continue to support growth, they also reinforce dependence on the volatile tourism sector. The economy remains concentrated in tourism, which typically contributes at least 40 percent of GDP,” S&P said.

“We expect real GDP growth next year to return to historical levels of 1.8 percent. GDP per capita will be $36,456 in 2024. The pandemic, low historical growth and repeated natural disasters have weighed on the country’s economy in the past. Despite good growth expected for the next two to three years, our assessment of the sovereign’s creditworthiness reflects its below-average long-term growth performance and structural vulnerabilities compared with countries at similar development levels.”

The Government, in a statement responding to the S&P report, said: “S&P’s analysis is broadly in line with the Government’s assessment of macroeconomic conditions, which continue to be underpinned by strong tourism gains alongside steady foreign investment inflows.”

The credit rating agency, further explaining its current stance on The Bahamas, added: “The ‘stable’ outlook reflects our view that economic growth will support government revenues and help contain government expenditures, leading to smaller fiscal deficits over the next 12 months. We expect the domestic market and multilateral lenders will meet the country’s relatively large financing needs.

“We could lower the ratings in the next 12 months should economic performance lag, pointing to GDP per capita remaining below our expectations. We could also lower the ratings if the sovereign’s access to external liquidity were to deteriorate unexpectedly.

“We could raise the ratings in the next 12 months if the Government advances faster than we expect to enact meaningful public finance reform, demonstrating an ability to raise revenues and leading to sustained near-balanced financial results and improved economic prospects.”