Middle East conflict could “erode” Bahamas economy

The Cen­tral Bank of The Ba­hamas (CBB) says while the eco­nom­ic out­look for the coun­try re­mains pos­i­tive, it could al­so be “sig­nif­i­cant­ly” erod­ed if the Mid­dle East con­flict be­comes pro­tract­ed.

“The econ­o­my is ex­posed through sev­er­al well-de­fined ex­ter­nal chan­nels. These in­clude in­creased en­er­gy price pres­sures and high­er trans­porta­tion and freight cost, which would in­crease the cost of im­port­ed goods and ser­vices, in­clud­ing mo­tor ve­hi­cle fu­el,” the CBB said in its “Month­ly Eco­nom­ic and Fi­nan­cial De­vel­op­ments (MEFD) Feb­ru­ary 2026”.

The Unit­ed States and Is­rael have launched mil­i­tary strikes against Iran forc­ing the glob­al price of oil above the US$100 mark.

The CBB said that while the fu­el price hedge should sta­bilise elec­tric­i­ty cost in most of The Ba­hamas, in the near-team, he coun­try’s tourism prod­uct, which still has a net pos­i­tive growth out­look for 2026, al­so faces po­ten­tial­ly erod­ed de­mand, par­tic­u­lar­ly from weak­ened US con­sumer con­fi­dence.

“Con­verse­ly, the in­dus­try could en­counter up­side ben­e­fits as ge­o­graph­ic prox­im­i­ty to the US cush­ions the rel­a­tive cost of trav­el to The Ba­hamas, vis-à-vis more dis­tant des­ti­na­tions. Oth­er­wise, the fi­nanc­ing con­di­tions for for­eign in­vest­ments and pub­lic sec­tor for­eign cur­ren­cy debt op­er­a­tions could be­come more chal­lenged, if the ma­jor cen­tral banks are prompt­ed to raise in­ter­est rates to calm glob­al in­fla­tion con­cerns,” the CBB said.

In its out­look for the coun­try, the CBB said that ex­pec­ta­tions are that the do­mes­tic econ­o­my will ex­pand at a steady pace in 2026, rel­a­tive to 2025, as eco­nom­ic in­di­ca­tors grad­u­al­ly align with their long-term growth po­ten­tial. Strong per­for­mance in the re­al sec­tor will be a key con­trib­u­tor to growth.”

It said on the labour front, em­ploy­ment con­di­tions could im­prove fur­ther in 2026, with job growth oc­cur­ring most­ly in the tourism and con­struc­tion sec­tors.

“Like­wise, the fis­cal out­look is ex­pect­ed to fea­ture fur­ther nar­row­ing in the gov­ern­ment’s net fi­nanc­ing gap, from rev­enue growth as­so­ci­at­ed with tourism and re­ceipts from the do­mes­tic min­i­mum cor­po­rate tax.”

Mean­while, bud­getary fi­nanc­ing is pro­ject­ed to in­clude a con­tin­ued blend of do­mes­tic and ex­ter­nal bor­row­ing, with a greater pro­por­tion sourced from do­mes­tic mar­kets.

The CBB said in mon­e­tary sec­tor de­vel­op­ments, bank­ing sys­tem liq­uid­i­ty is pre­dict­ed to re­main el­e­vat­ed, al­though the up­ward trend in com­mer­cial bank lend­ing to the pri­vate sec­tor could in­duce a slight re­duc­tion.

In ad­di­tion, ex­ter­nal re­serves could fluc­tu­ate with­in com­pa­ra­ble to slight­ly im­proved lev­els rel­a­tive to 2025; re­main­ing well above in­ter­na­tion­al bench­marks, and more than ad­e­quate to sus­tain the Ba­hami­an dol­lar cur­ren­cy peg

How­ev­er, risks to the out­look, in­clud­ing for in­fla­tion, have in­creased, as sub­sid­ing trade pol­i­cy un­cer­tain­ties have been dis­placed by es­ca­lat­ed geopo­lit­i­cal ten­sions in the Mid­dle East, and as­so­ci­at­ed high­er glob­al oil prices.

But the CBB notes that The Ba­hamas main­tains healthy ex­ter­nal re­serves, which pro­vide a mean­ing­ful cush­ion for in­creased oil im­port costs.

“This pre­serves the sta­ble out­look for the cur­ren­cy. In ad­di­tion, the do­mes­tic bank­ing sys­tem re­mains well-cap­i­talised against any new cred­it risk, should these emerge— hence the fi­nan­cial sta­bil­i­ty as­sess­ments re­main sound.”

NAS­SAU, Ba­hamas, Apr 1, CMC