WASHINGTON, CMC – The International Monetary Fund (IMF) says the Bahamian economy has staged a remarkable recovery since the COVID-19 pandemic, fueled by a strong rebound in tourism.
It is said that with economic activity back to pre-Hurricane Dorian levels, growth is slowing, expanding by 1.8 percent in the first half of 2024, constrained partly by limited hotel capacity. Inflation is now modestly negative, but the cost of living remains high.
However, the Washington-based financial institution said that the fiscal position improved in the 2024 financial year, driven by strong revenue performance and expenditure cuts. It said the fiscal deficit narrowed to 1.3 percent of gross domestic product (GDP) from 3.8 percent of GDP in the 2023 financial year, while government debt fell to 78.8 percent of GDP.
Financing costs have declined, driven by global factors, but gross financing needs remain high.
The IMF said that growth is expected to converge to its long-run potential of 1.5 percent over the medium term, and risks to the outlook are balanced.
Capacity constraints in the tourism sector are expected to become more binding. Still, there are upside risks from potential new hotel construction or a faster-than-anticipated expansion in the short-term rental market.
The IMF said fiscal vulnerabilities remain constant threats mainly due to high gross budgetary financing needs and the ever-present risk from natural disasters.
The IMF’s executive directors said they agreed with the thrust of the staff appraisal, welcoming the “remarkable” recovery in tourism and economic activity following Hurricane Dorian in 2019 and the Covid-19 pandemic.
However, the directors observed that elevated public debt, structural bottlenecks to growth, and high exposure to natural disasters continue to pose significant challenges and called for sustained efforts to address these challenges.
They welcomed the Bahamian authorities’ commitment to reduce government debt to 50 percent of GDP by the financial year 2031 and recent steps to increase revenues. However, they concurred that more measures will be needed to achieve that target, including introducing taxes on corporate and personal income.
The directors said that these measures would also create space for priority spending on infrastructure, education, and targeted social programs. In addition, pension and state-owned enterprises (SOE) reforms would be essential to contain expenditure pressures.
The IMF directors also welcomed efforts to improve fiscal accountability, transparency, and effectiveness of debt management operations. They recommended that the reconstituted Fiscal Responsibility Council and the Public Sector Audit Committee be independently selected.
They emphasized the need to limit central bank financing to the government to help reduce systemic liquidity and strengthen the credibility of the currency peg. They concurred that the financial sector is resilient with ample liquidity and capital buffers.
The IMF directors welcomed the progress in implementing the 2019 Financial Sector Assessment Programme (FSAP) recommendations. They encouraged continued efforts to strengthen the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework. They also recommended further steps to expand financial access, such as improving data availability, investing in financial literacy, and fostering financial technology innovation.
They also emphasized that efforts to boost long-term growth should center on structural reforms to improve human capital, close digitalization and data gaps, relieve capacity constraints in tourism, reduce labor market informality, and fight crime.
The IMF directors welcomed the planned reforms to the electricity sector, given the expected positive medium-term effects on growth and other macroeconomic indicators. However, they stressed that a clear delineation of risk sharing between the private and public sectors is necessary to support these efforts.
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