S&P has downgraded The Bahamas to BBB+ (stable) from A minus to reflect a weakened fiscal profile. "Its debt and deficits have increased, and the composition of its debt has weakened somewhat,” says S&P analyst Lisa Schineller. “In addition, following three years of economic contraction, The Bahamas' growth prospects beginning in 2011 are modest," she adds. Higher debt levels reflect the government's financing its rising fiscal deficits, a result of countercyclical fiscal spending against a drop in The Bahamas' already narrow revenue base. Compounding revenue vulnerability is The Bahamas' reliance on the taxes on international trade and transactions – more than 50% of tax revenue – and the government aims to minimize the decline by modernizing collection mechanisms, especially at customs. S&P notes that tourism accounts for more than 50% of GDP and employs over 50% of labor force, with US tourists accounting for more than 80% of the total. The Bahamian hotel industry does not expect a meaningful revival of tourism until 2011. The external financing gap, defined as current account payments plus short-term debt plus medium and long-term amortization, is high at 135% of current account receipts and useable reserves, says S&P. The agency notes improvement in 2009 amid lower current account deficit and higher international reserves. Importantly, the government's external amortization needs are low, and the bank's foreign depositor base remains stable. S&P expects financing needs to remain, on balance, little changed in 2010-2011.