Based on the latest available indicators, the Bahamian economy maintained its growth momentum during the first quarter of 2026 when compared to the same period in 2025. This was led by strengthened tourism output in both the stopover and cruise segments alongside continued foreign investment activities which benefited the construction sector. In the meantime, stimulus from private sector credit growth increased relative to the same period last year. Developments continue to support a healthier fiscal performance and projected employment growth. However, inflation firmed in the latest indicators due to higher imported cost in fuel and other goods and services from geopolitical tensions experienced in 2025.
Moreover, heading into 2026, downside economic risk further increased as the war in the Middle East caused a new spike in oil prices. As to tourism, estimated inflows grew at a healthy pace during the first quarter with a stronger stopover earnings boost than in the first quarter of 2025.
Alongside a rebound in visitor volumes, indications are that room rate pricing appreciated for both hotels and vacation rentals. A dominant factor was significantly accelerated non-US stopover visitor growth compared to 2025, benefiting from airlift boost particularly from Canada. Nevertheless, limited room capacity remained a constraint on hotels and continued weakness in the US source market underscored emerging risk given the importance of such demand to sustaining airlift capacity.
In the cruise market, overall expansion also remained robust amid ongoing investments in the expansion of private destination facilities throughout the Bahamas.
Progressing beyond the first quarter, the central bank's assessment of online booking trends estimates further stopover earnings boost over the next few months based on anticipated higher prices. Albeit the volume of stopover traffic could be slightly lower in line with softening prospects in the US segment and greater negative strain on US consumer confidence from ongoing wars and trade policy developments.
Turning to banking sector indicators, the economy's first quarter performance supported stronger foreign currency inflows closely matched by expanded demand for foreign exchange. In particular, the volume of foreign currency purchased by commercial banks from the private sector increased by 12.6% relative to the same period last year to an estimated $2.3 billion during the first quarter of 2026.
While sales of foreign exchange mainly for imported goods and services expanded at a healthy 14.2% to $2.0 billion.
Given the strength of demand, commercial banks incrementally reduced their net sale of foreign exchange to the central bank in comparison to 2025. However, as the central bank also accommodated a significantly reduced net flow of foreign exchange via the public sector, the seasonal buildup of external reserves was almost 60% stronger during the first quarter of 2026 at approximately $270 million.
As at the beginning of May, seasonal gains continued with the external reserve balances reaching an estimated $3.2 billion compared to about $2.8 billion at the same point in 2025.
These balances are therefore comparatively healthy to absorb sustained private sector credit growth over the remainder of 2026 as well as to accommodate increased usage from higher oil prices.
As to private sector credit, the rate of expansion during the first quarter was more accelerated than in 2025 and this reflected stronger consumer lending growth and an almost steady pace of growth in commercial lending. However, outstanding mortgages were unchanged over the quarter.
These sectoral trends reflect a continuation of patterns observed in the latest lending condition survey through the second half of 2025 in which the pickup in private sector credit corresponded to an increased volume of application for consumer credit and business loans and an elevated rate at which banks approved such applications.
Conversely, both the volume of mortgage applications and the ease at which households qualify for mortgages was reduced comparatively.
Overall, lending risks also continued to subside. In particular, the fraction of private sector loan balances on which borrowers were three or more months behind in payments, that is the non-performing loans rate, decreased further to less than 5% at the end of March 2026 compared to nearly 6% one year ago.
Now, as to the economic outlook, the central bank still projects growth in the economy over the remainder of 2026, but at a somewhat slower rate than forecasted for the first half of the year as more of the impacts of geopolitical risk materialize.
This includes continued credit expansion, even if more tempered by caution as lenders monitor the external environment. Bank liquidity is expected to remain elevated to slightly contracted depending on the vigor of lending over the remainder of the year and external reserves are expected to close out the year at a stable to marginally improved level. Hence the central bank will maintain an accommodating stance for private sector credit.
Nevertheless, geopolitical risks as they exist impact the economy through varied channels. In particular, higher energy costs from the war in Iran are expected to cause increased inflation directly in imported fuel and in goods and services impacted by higher fuel such as airline ticket pricing for tourists. Higher freight and other transportation costs being absorbed by local businesses and costly imported goods and services impacted generally by energy inputs. In all cases, these pass-throughs are expected to become more noticeable and imposing as the crisis drags on. Moreover, potential disruption to European jet fuel supply chains, if prolonged, could significantly disrupt travel patterns.
In addition, there are downside risks contained in the inflationary impacts of the war and these relate to the financing hurdles for foreign investments and delayed savings on public sector foreign currency debt servicing as foreign central banks are persuaded to maintain interest rates higher for longer than was anticipated.
There are some upside potential, however, in travel. Proximate destinations like the Bahamas could offer more affordable substitute for North American visitors confronted with disproportionately costlier travel to more distant destinations. Further, the high-end residential investments and the local construction sector could receive a boost over the medium-term as the Bahamian market capitalizes on a safety premium relative to the Middle East.
While on balance, risks to the global economy still preclude a potential recession. The central bank remains vigilant in its monetary policy posture against even more adverse outcomes that a deepening or protracted crisis could impose.
However, even under worse scenarios than currently anticipated, the external reserves cover is robustly adequate to protect the currency and domestic banks' balance sheets remain strong and highly capitalized to absorb any setback.
Otherwise, our monetary policy therefore remains accommodating for the Bahamas, again supportive of sustained to strengthened credit growth but poised if necessary to protect the credibility of the fixed exchange rate.
Okay. So, we'll pause and take questions that you might have.
