The Big Idea
The Bahamas | Status quo
This material is a Marketing Communication and does not constitute Independent Investment Research.
The elections came and went in The Bahamas without much notice from bondholders. The Progressive Liberal Party held onto its legislative majority without a proper campaign cycle. The timing was opportune after a rigorous fiscal adjustment and full recovery back to ‘BB’ with Moody’s the last to join the pack at the end of April. Perhaps this upgrade helped anchor spreads against recent external volatility. The Bahamas has been an outperformer with its illiquidity lowering the correlation to external risk and allowing relative month-to-date outperformance.
The election reaffirmed the status quo by reelecting the PLP incumbent Prime Minister Davis while sustaining the legislative majority of 33 out of 41 seats. The election cycle didn’t have much fallout on the fiscal accounts because of the abbreviated April 1 to May 12 campaign. The Pre-Election Economic and Fiscal Update references some marginal stimulus on extending “VAT relief to unprepared food items…with the estimated $15.0 million in foregone revenue assessed as manageable within the overall fiscal envelope.”
The latest data through February 2026 for the FY2025/26 budget shows a cumulative deficit of $293 million against the $75 million surplus. However, this shows still an improvement compared to the same period last year. There is also upside bias for higher revenues under the receipts of the Qualified Domestic Minimum Top-Up Tax. This alone could shift the 12-month rolling fiscal deficit of -0.3% of GDP to the 0.5%-of-GDP budgeted surplus. The pre-election report also cites the potential for higher fees and property taxes throughout the remainder of the fiscal year.
Even if the fiscal deficit stabilizes at 0.5% of GDP this would conform with IMF and Moody’s estimates. The upgrade from Moody’s from ‘B1’ to ‘Ba3’ places The Bahamas firmly back in the ‘BB’ rating category and says good-bye to the last of the pandemic ‘B’ ratings. This was possible after a consistent track record of fiscal discipline and achieving a high 4%-of-GDP primary fiscal surplus to tackle the pandemic debt accumulation. This successful fiscal adjustment since 2020 wasn’t a surprise considering the history of policy conservatism that supported decades of an investment grade rating with the fiscal crisis coming solely on the severity of the back-to-back external shocks through 2020. Moody’s recognizes a marked reduction in liquidity risks and the trajectory for lower debt ratios below 70% of GDP in FY2026/27 and below 60% at the end of the decade.
The rating upgrade occurred during the brief election cycle with a vote of confidence on policy continuity as well as resiliency to external shocks. The Bahamas was the only country to hedge against the oil shock—$70/bpd for a year of two million barrels—with some stability on electricity tariffs from the Bahamas Power and Light Company to minimize the inflationary shock. The Bahamas has been the only credit across Central America and the Caribbean to benefit from positive rating through the latest external uncertainty. This may explain the relative resiliency of The Bahamas relative to ‘BB’ peers with stability against the widening yields across Honduras, Colombia, and El Salvador. The illiquidity discourages active trading. And supportive external demand prioritizes higher yield and lower market sensitivity. These supportive technicals reflect the small gross financing needs that source local and multilateral funding against broader investor demand from the ‘BB’ credit ratings. Eurobonds should remain resilient under a scenario of a temporary shock, though a protracted oil shock would expose the economy to weaker tourism demand from a slowdown in global demand, higher import prices, and slower improvement on the fiscal consolidation.
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