Bahamas Economy

Bahamas Economy

Subchapters:

  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax System

Basic data

The Bahamas is the only country in the Western Hemisphere that is not a member of the World Trade Organization, but merely an observer. The Bahamas’ GDP grew slightly in 2018 and 2019, but the coronavirus pandemic contributed to a 19.5% drop in GDP in 2020. The recovery of the economy, affected by the pandemic, began in 2021, when tourism resumed and million tourists visited the country, i.e. 300,000 more than in 2020. The Bahamas is trying to reach investors precisely in the field of tourism, which is for its economy key. Currently, the number of visitors is at a third of the pre-pandemic level, with the central bank predicting a leveling off as early as 2023. In 2021, the Bahamas recorded the highest GDP growth since 1984 at 5%. In 2022, GDP is expected to grow by 7% and inflation at the level of 2.5%. Currently, the Bahamas is worried about the impact of rising oil prices caused by the situation in Ukraine. A higher fuel price can significantly affect yachting tourism.┬áCheck ebizdir for economical facts of Bahamas.

The Bahamas imports more goods than it imports. The balance of the trade balance has therefore been negative for a long time. The economy of the Bahamas is dependent on tourism and the provision of financial services. Tourism accounts for more than half of the GDP and provides work for more than two thirds of the working population. Financial services are the second most important sector of the Bahamian economy, accounting for approximately 15% of GDP. The country is home to a number of banks and financial institutions that take advantage of the country’s favorable tax system. Manufacturing and agriculture together contribute less than 7% to GDP, despite government incentives aimed at these sectors. The Bahamas has a large merchant fleet. Salt and wood are mined in the country. There are also oil refineries. The cultivation of sugar cane and fruits such as pineapples and bananas is significant.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 0.4 -19.5 5 7 7,8
GDP/population (USD/PPP) 20,260.00 17,210.00 18,500.00 20,150.00 22,090.0
Inflation (%) 2.5 0.3 1.7 2.5 2.2
Unemployment (%) 10.1 13.3 ON ON ON
Export of goods (billion USD) ON ON ON ON ON
Import of goods (billion USD) ON ON ON ON ON
Trade Balance (Billion USD) -2.3 -1.8 -2.2 -2.5 -2.5
Industrial production (% change) ON ON ON ON ON
Population (millions) 0.4 0.4 0.4 0.4 0.4
Competitiveness ON ON ON ON ON
OECD export risk 03.VII 03.VII 03.VII ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -5
Public debt (% of GDP) ON
Current account balance (billion USD) -2.2
Taxes 2022
AFTER ON
F.O ON
VAT ON

The government led by Prime Minister Davis is trying to address the fiscal imbalance and high public debt, which reached 69% of GDP ($8.493 billion) in 2020. According to the Prime Minister, the deficit was reduced to 33.3% of the budgeted amount in the middle of the fiscal year (July-December 2021) and the country has already overcome the fiscal slump.

In order to ensure long-term fiscal sustainability, it is necessary to ensure the self-sufficiency of state-owned enterprises and to carry out a public reform of the pension system. At the annual economic forum in January 2022, Prime Minister Davis presented his “recovery to growth” plan, which is particularly focused on the involvement of the private sector. The government has created a debt management committee, set up a revenue raising group and is particularly trying to motivate the private sector for economic growth.

Banking system

The Central Bank of the Bahamas was established in 1974 and is the governing banking institution in the country. The capital Nassau ranks among the top 10 global offshore destinations and is the most important in the Western Hemisphere. Most banks focus on private banking. A prerequisite for the development of this sector is existing political stability and the absence of taxes. Offshore banking is the second largest source of financial inflows to the Bahamas, next to tourism.

There are over 250 institutions with banking licenses operating in the Bahamas. Their operation is governed by “The Banks and Trust Companies Regulation Act”. The Bahamian onshore financial system is stable with no apparent threats in the foreseeable future, is well capitalized, liquid and profitable. The offshore financial sector is extremely large, exceeding 75 times the Bahamian GDP. In most cases of offshore transactions, it involves the mediation of an operation between foreign entities. The domestic system is sufficiently protected (IMF Country Report No. 13/101).

Banking institutions in the Bahamas include Barclays Bank, Royal Bank of Canada, Bank of The Bahamas, Citibank, Commonwealth Bank, Fidelity Bank, Finance Corp of Bahamas, First Caribbean Intl Bank, Scotiabank, Ansbacher, Bank of Nova Scotia Trust Co, Bank of the Bahamas Trust, Butterfield Bank, CIBC Trust, Cititrust, Fidelity Merchant Bank, Latin American Investment Bank Bahamas, Pictet Overseas Trust Corp, Royal Bank of Canada, SG Hambros Bank, UBS Trustees, etc.

Tax system

The Bahamas is a tax haven and there are many opportunities of this kind for European companies and individuals within the limits given by the laws of the country of origin. The Bahamas has no income tax, corporate tax, capital gains tax or wealth tax. With effect from 01/01/2015, a VAT of 7.5% was introduced into the Bahamian economy, which was increased to 12% from 07/01/2018.

Among the most important investment instruments are offshore holdings, which are used for tax and non-tax purposes. The most common is profit protection from taxation. While a holding company based in the Bahamas cannot benefit from double taxation agreements as the Bahamas is not a signatory to any such agreement, the centralization of shareholdings brings administrative simplification and potential savings. On the other hand, it is necessary to take into account the legislation in force within the EU preventing the abuse of these tax havens.

Bahamas Economy