Bahamas Economy Caught in a Low-Growth Trap

With tourist arrivals increasing across the Caribbean and oil prices remaining at a record low, Bahamas has all options to reverse its economic fortune.

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The Bahamas’ economy has been better than stagnant in recent years, but not by much. The country’s average annual GDP expansion of 1.5% in recent years has under-performed other nations in the Caribbean. In its latest report on Latin America and the Caribbean sovereigns, U.S. rating agency Moody’s has warned that the Bahamas could be in a low-growth trap.

Among the countries ranked in this low-growth category include the Cayman Islands, Bermuda, Barbados, and Jamaica. The message from the Moody’s report is especially blunt for the Bahamas, as its growth has never been enough to generate necessary jobs.

Analysts blame the Bahamas’ low growth on lack of fiscal reforms. It feeds into the ongoing narrative about the Bahamas’ economic competitiveness versus regional and global rivals.

For decades, the Bahamian economy has been heavily dependent on tourism and offshore banking. Its regulatory system is not uncooperative, but protectionism and lethargic bureaucracy seem to have done enough to hold back the private sector.

Tourism accounts for more than 60% of GDP, but does not seem to have created enough employment. Today high unemployment and household debt have subdued consumer demand, leaving little room for domestic firms to excel and expand.

In addition, the Caribbean island has been accused of being a major drug transit country and allowing money laundering for international firms.

With tourist arrivals increasing across the Caribbean and oil prices remaining at a record low, Bahamas has the opportunity to reverse its economic fortune. However, foreign direct investment (FDI) is not increasing as much.

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Thanks to low oil prices, Bahamas has managed to slash its current account deficit and stabilize its debt growth in relation to the economy’s size, but the country is still a long way away from capitalizing on the increased tourist arrivals.

Unless the Bahamas achieves an average annual GDP growth rate of between 5%-7%, it will be hard for it to reduce 14% unemployment rate, according to the International Monitory Fund.

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