The Big Idea
The Bahamas | Near fiscal balance
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
S&P’s September upgrade of the Bahamas from ‘B+’ to ‘BB-‘ looks validated after the country has closed the latest fiscal year with revenue and spending nearly balanced. The country has come a long way from early 2021 deficits of 12% of GDP. The Bahamas remains the only country in the western hemisphere on track for a fiscal surplus and the only one that has adopted tax reform. Still the Bahamas still trades as the region’s widest ‘BB’ credit. This spread premium persists after spread compression has forced convergence among peers. This is why the Bahamas remains my top pick across the region.
The Bahamas fiscal consolidation has been nothing short of impressive. It is closing in on a FY2025 nominal fiscal deficit of 0.5% of GDP. This reflects a combination of spending restraint since early 2021, full cyclical recovery on tax revenues and more efficient tax collection across several categories. There was no other option to defend the country’s strong track record of debt repayment while it faced high debt ratios and lowish 1.7% trend GDP growth. S&P and Fitch have since shifted the Bahamas from the ‘B’ to the ‘BB’ rating category at ‘BB-‘ with Moody’s probably following through on their positive outlook to an upgrade to ‘Ba3’ next year,
There is a good case for further fiscal consolidation with help from the corporate income tax and with the FY2026 budget projecting a surplus of 0.5% of GDP. The country count net around 1% of GDP in revenues from the 15% qualified domestic minimum top-up tax (QDMTT) on large multinational corporations. The financing program assumes continued progress on revenue collection from VAT (from private destinations), property taxes (more aggressive tax collection tactics) and higher income from taxes on international trade and transactions. This would finally push total revenues near 25% of GDP in FY2027 (Bahamas long-term objective). This is not unrealistic considering that targeted total revenues could reach 23.5% of GDP this fiscal year against the lows of 18.5% of GDP in FY2020 and a break to the upside after some stagnancy into 2024.
The targeted upside is for a trend nominal surplus of 1.7% of GDP and a whopping primary surplus of 4.5% to 5% of GDP. This would allow for a faster consolidation on the debt ratios far below 70% of GDP and closer to other ‘BB’ credits. The IMF estimates that a primary surplus of 5.5% of GDP by FY2026 and to 7% of GDP by FY2029 would bring the debt to 50% of GDP by FY2031 (Bahamas long-term objective). There may be some concerns about the sensitivity to climatic shocks; however, there has been efforts to source contingency funds from multilaterals (IDB for $100 million) as well as build domestic contingency funds (above $67 million). The higher credit ratings would also suggest broader financing flexibility to counter any future adverse shocks. The sooner that the Bahamas reduces its gross financing needs, then the sooner the country broadens the policy optionality to manage shocks or safeguard against them with higher contingency funds. It’s also not unrealistic that higher than expected revenues and a nominal fiscal surplus could be used for debt buybacks and a faster decline of debt ratios.
This underpins my bullish view on the country. This could suggest additional upside closer to ‘BB’ peers while also offering the optionality of lower beta diversification against a relapse in broader market risk. The small $2.5 billion stock of bonds outstanding discourages active trading with a subsequent lower correlation to global markets. This offers defensive characteristics at an advanced stage of a risk-on rally and tight historical valuations across emerging markets. Initial outperformance on the rating upgrades and target compliance has recently stalled with ‘B’ credits rallying and reconverging (ELSAL’32-BAHAM’32). The Eurobond curve seems quite flat to other ‘BB’ credits with best value on the BAHAM’32 relative to the BAHAM’36.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
