Bahamas: Economic Outline

Economic Indicators

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The Bahamas is the wealthiest Caribbean country in terms of GDP per capita. The country has a history of positive GDP growth and, even though GDP decreased in 2020 due to the COVID-19 outbreak, the economy of the Bahamas recovered in 2021, with a growth rate reaching an estimated 2% (IMF). In 2022, GDP is expected to continue on its upward trajectory, reaching 8%, mainly due to a significant growth in export and household consumption driven by the rebound in tourism - the country's largest economic sector. With few natural resources and a limited industrial sector, the economy depends heavily on tourism and, to a lesser degree, on financial services. Tourism together with tourism-driven construction and manufacturing accounts for approximately 60% of GDP and directly or indirectly employs half of the country's labour force. Financial services constitute the second sector in terms of size, accounting for about 15% of GDP.

The public budget has been structurally in deficit. According to the IMF, the country's current account deficit increased to an estimated 20.9% in 2021, mainly due to the COVID-19 pandemic and the long-lasting effects of Hurricane Dorian, which hit the Bahamas in 2019 and caused an estimated damage of USD 3.4 billion - about a quarter of the country’s GDP. However, the Government established a disaster relief fund as part of a broader strategy for risk reduction policies, which should slightly reduce the impact of Hurricane Dorian on the country's economy. The Government is committed to further fiscal consolidation, targeting an overall deficit of 1.8%. In the 2020/2021 budget, the government decided not to increase taxes, given the negative impact that both Hurricane Dorian and COVID-19 had on many households. As such, government debt is reached an estimated 102.5% in 2021. However, that rate is expected to gradually decrease in the coming years, reaching 94.2% in 2022 and 92.3% in 2023. Furthermore, inflation rate was 3% in 2021, and it is projected to slightly increase to 4.2% in 2022 before decreasing to 3.2% in 2023. Fiscal measures have been implemented to rectify the situation and strengthen the financial system. They aim to control public spending and increase public revenues to create fiscal space for necessary expenditures. The government recently implemented the Fiscal Responsibility Law, which supports the efforts to secure fiscal sustainability and put debt on a downward path, and should increase transparency and enhance policy credibility. The government also implemented measures in response to the economic crisis resulting from the COVID-19 pandemic throughout 2020 and 2021, which included increased spending in health care and food programmes, temporary income support for job loss workers and self-employed, and tax deferrals for companies that met certain criteria. Overall, although the pandemic had a significant impact on the Bahamian economy, the measures implemented by the government in light of the crisis have been effective in boosting economic activity, which has been gradually recovering.

The country's high levels of human development and GDP per capita mask important structural, economic, and social challenges: significant income inequality, high unemployment, a weak skills base, an inefficient public sector, and inadequate infrastructure. According to IMF estimates, the Bahamas suffers from a relatively high rate of unemployment and, although that number more than doubled due to the COVID-19 pandemic, peaking at 25.4% in 2020, unemployment decreased to 21.5% in 2021 and it should continue on a downward trend in 2022, when the rate is expected to reach 15.2%. Over four fifths of the population is concentrated on the islands of New Providence and Grand Bahama, which creates challenges for transportation, public administration, and employment. Furthermore, although the Bahamas’ poverty rate is among the lowest in the region, it has been growing in the context of inadequate social safety nets. Also, the crime rate in the country is very high, with one of the highest homicide rates in the region.

Monetary Indicators	2016	2017	2018	2019	2020
Bahamian Dollar (BSD) - Average Annual Exchange Rate For 1 GBP	1.35	1.29	1.33	1.25	1.28

Source: World Bank - Latest available data.

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Latest Update: April 2023