Based on available indicators, the Bahamian economy maintained a healthy growth rate during the first half of 2026, closely keeping pace with the estimated gains recorded in the first half of 2025. Tourism expansion strengthened in comparison to last year with accelerated inflows from stopover activity occurring alongside continued robust expansion in cruise visitors. Foreign investment indicators also steadied stimulating healthy construction output and alongside tourism contributed to further estimated growth in employment. Meanwhile, moderately paced private sector credit expansion helped stimulate domestic spending with lending risks further reduced in the banking sector. Likewise, the economy continued to support improvement in public finances. However, given external geopolitical pressures, average consumer price inflation increased in the most recent estimate, driven by escalated fuel cost and rising prices for other imported goods and services. As to the outlook, global economic uncertainties from wars in Eastern Europe and the Middle East, alongside persistent tariff policy tensions, continue to underline the increased headwinds facing the economy. For 2026, forecasted growth is on pace to come in just moderately below the estimated 3.8% recorded in 2025. For tourism, this includes an expansionary year-to-date contribution from stopover earnings, benefiting from slightly recovered visitor volumes and further appreciated average pricing. But with constrained hotel room inventory still limiting overall performance. Although rebounded against 2025 comparatively, the monthly seasonal volumes for air arrivals have not shifted significantly since recovering to the peak baseline headcount recorded just before the COVID-19 pandemic.
So if you were to look at the trends on a graph, you would see that the recovery took place up through about 2022 and then we've been hovering fairly level since then. Looking at the month-over-month seasonal comparisons. Otherwise, tourism performance also reflects a fairly robust uptake on vacation rentals in place of constrained resort accommodations. In addition, vigorous demand growth from the Canadian market for the second consecutive year has been supplemented in 2026 by a more stabilized and incrementally improved outcome for the US market. In the meantime, cruise visitor inflows have remained strong. With regard to foreign investments, inflows remain concentrated in residential activity, resort developments, and further development of private cruise destinations. These are generating both construction jobs and anticipated permanent positions once the developments transition into operation.
The foreign exchange markets underscore also significantly accelerated private sector inflows during the first half of 2026 compared to last year. In particular, commercial banks total purchases of foreign currency from the private sector rose at a robust pace of 17.8% to $4.6 billion in the first half of this year, far exceeding the 1.3% pace of expansion in 2025. Also, in line with increased demand for payments, mainly for imports of goods and services, total sales of foreign exchange to the private sector through the banking sector increased by 13.7% to $4.1 billion in the first half of 2026. And the resulting seasonal net inflow resulting from these transactions was correspondingly two-thirds stronger than in 2025. And this contributed to a significantly expanded amount of net sales of foreign currency by the banking sector to the central bank. With the central bank's net sales of foreign exchange to the public sector only marginally offsetting these net receipts from commercial banks, the external reserves growth through the first half of 2026 was boosted to $480 million from an otherwise healthy but more moderate $355 million recorded in the same period of 2025. Near the end of July, the external balances were estimated near $3.2 billion compared to a value of about $2.97 billion at the end of July 2025. Given current balances, external reserves are expected to end the year at stable to possibly improved levels in comparison to December 2025. And this maintains favorable support for the Bahamian dollar fixed exchange rates and it leaves continued room for the central bank to accommodate strengthened private sector credit growth over the medium term.
Turning to lending, the pace of bank lending over the first half of 2026 was firmed in comparison to 2025 and this reflected stronger net flows to the private sector and a recovery in net lending to the public sector. After adjusting for transactions which reclassified some commercial credit into public enterprise liabilities, the data revealed that the private sector continued to experience moderately firmer lending growth compared to the same period last year and that included accelerated consumer credit increases and a nearly doubled net advance for commercial credit. Mortgages were mildly increased but mainly denominated in changes in foreign currency balances. Compared to the same point a year earlier, lending risk also continued to subside in the banking sector. A benefit of both the healthy economic environment and effective ongoing management of delinquencies by banks. In particular, the share of loans more than three months behind in payments, the non-performing loans ratio moderated by approximately a full percentage point since June 2025 to an estimated 4.4% in June of this year.
Now turning to inflation briefly. As noted, there was recent firming owing to higher prices for imported fuels and this impacted transportation costs as well as a range of other goods and services in terms of the pass through. And so we have seen that the estimated inflation rate has firmed year. For the time being though, some domestic energy costs have remained sheltered given the electricity fuel hedge. It's important to note, however, that the adjustments in the fuel hedge are expected to occur before oil prices fall back to their pre-war levels and this could pass higher cost through to electricity generation after 2026.
In the outlook, the pace of growth, as mentioned earlier, is expected to stay elevated above the state's medium-term potential, but moderately tempered below 2025. For tourism, stopover momentum could strengthen moderately, particularly on the basis of what we are seeing in the outlook in terms of appreciated pricing and some seasonally improved forecast of average occupancy over the traditionally slower months in the second half of 2026. The foreign investment climate is also expected to remain relatively vibrant. The outlook also remains consequently improved for employment. In addition, the pace of domestic credit growth is expected to be maintained at a stable to strengthened level in line with the central bank's policy to encourage firmer lending trends and within these trends still a continued very healthy outlook for the external reserves. Ample capacity continues to exist in this credit and liquidity environment to accommodate increased government reliance on local currency financing relative to foreign currency sources in its overall debt management operations. And that's another way of saying that even in this environment there's also favorable space for the government to borrow more in local currency without creating any pressures.
Nevertheless, there are downside risks and headwinds facing the economy which remain elevated given the spillovers from wars in Ukraine and the Middle East and from persistent tariff policy uncertainties. Tourism in particular faces some demand restraint from fuel cost pass through into transportation and electricity costs as well as the weighing down particularly of US consumer confidence given the varied channels through which inflation has become accelerated in the US. In addition, higher inflation in the near term continues to slow the pace at which international interest rates are likely to return to lower levels. And this is being forecasted to maintain public sector foreign currency borrowing costs more elevated for longer than would have otherwise been expected. And on a protracted basis, it makes it more challenging for foreign investment activities in the aggregate to secure funding. So it means that in terms of the observed level of economic activities, one can anticipate that those results would be even more robust and vibrant in the absence of these sort of headwinds. In this environment, the central bank will remain balanced in its approach to policies which seek to support to strengthen credit trends while staying vigilant to ensure that the outlook for external reserves maintain adequate support for the Bahamian dollar fixed exchange rate and in continuing to ensure that domestic financial stability risks are kept in check. So we will stop here and take any questions you have.
