Middle East conflict could significantly erode Bahamas economic outlook

The Central Bank of The Bahamas says that while the country’s economic outlook remains positive, it could be “significantly” eroded if the ongoing Middle East conflict becomes prolonged.

“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 warning comes as the United States and Israel launched military strikes against Iran, pushing global oil prices above the US$100 mark.

The CBB said that while the fuel price hedge should stabilise electricity costs in most of The Bahamas, in the near term the country’s tourism sector — which still has a net positive growth outlook for 2026 — could face reduced demand, particularly if consumer confidence in the United States weakens.

“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.

Despite these risks, the central bank expects the domestic economy to expand at a steady pace in 2026 compared to 2025, as economic indicators gradually align with long-term growth potential.

“Strong performance in the real sector will be a key contributor to growth.”

On the labour front, the CBB said employment conditions could improve further in 2026, with job growth expected primarily 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.”

Budgetary financing is also projected to continue through a blend of domestic and external borrowing, with a greater share expected to come from domestic markets.

The CBB also noted that banking system liquidity is expected to remain elevated, although increased lending to the private sector could result in a slight reduction.

External reserves are projected to fluctuate within levels comparable to or slightly higher than 2025, remaining well above international benchmarks and sufficient to sustain the Bahamian dollar currency peg.

However, the central bank warned that risks to the outlook — including inflation — have increased, as easing trade policy uncertainties have been replaced by escalating geopolitical tensions in the Middle East and rising global oil prices.

Despite this, the CBB noted that The Bahamas maintains healthy external reserves that provide a buffer against 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.”