IMF Executive Board Concludes 2011 Article IV Consultation with The Bahamas

Public Information Notice (PIN) No. 11/135
November 4, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On November 2, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with The Bahamas.1


The Bahamian economy began a tepid recovery in 2010, following a sharp recession in 2008 and 2009 in the wake of the global financial crisis. Real Gross Domestic Product (GDP) grew by about 1 percent. The rebound was driven by the trade, hospitality, transport, and government services sectors, while the construction and offshore financial services sectors continued to contract. Inflation remained subdued at 1.5 percent, despite higher fuel and transportation prices, reflecting their relatively low share in the Consumer Price Index (CPI) basket. The external current account deficit remained broadly stable at 11.5 percent of GDP. Exports rebounded, and growth of non-oil imports remained subdued in line with economic activity. At the same time, rising foreign direct investment and other private capital inflows boosted international reserves to US$860 million at end-2010 (about 2.5 months of next year’s imports of goods and services).

Staff estimates that the deficit of the central government deteriorated in Fiscal Year 2010/11 (July to June). Total revenues increased, owing to large one-off transactions, but expenditure—especially current spending—increased more than proportionately. As a result, the central government deficit rose to 4.7 percent of GDP (from 4.4 percent in 2010). The sale of 51 percent of the shares of the Bahamas Telecommunications Company (about 2.5 percent of GDP) eased financing pressures. The ratio of government debt to GDP continued rising and exceeded 48 percent of GDP by mid-2011. The bulk of the debt is held domestically by commercial banks, public corporations, and pension funds.

Financial soundness indicators remained strong. Banks have maintained high overall capital-adequacy ratios (well above the minimum requirement) and prudent levels of provisioning. Banks’ loan portfolio, however, continued to show signs of weakness, as the severe economic downturn pushed up the ratio of non-performing loans to total loans above 10 percent.

The outlook is for stronger growth, but weaker fiscal and debt positions. Real GDP growth is expected to hover around 2.5-3 percent per year, but the central government deficit is projected to remain at about 4.5 percent of GDP over the medium term under current policies. Increased economic activity and ongoing improvements to the regulatory and supervisory frameworks are expected to contain financial sector risks. The risks to the outlook, however, are tilted to the downside, given the uncertainties about the pace of the global recovery and world commodity prices.

Executive Board Assessment

Executive Directors welcomed the gradual recovery of The Bahamas economy, but noted that unemployment remains high. While large investment projects will support growth, downside risks arise from a slower-than-expected U.S. recovery, elevated international food and fuel prices, and the vulnerability to natural disasters. Directors called for steadfast implementation of reforms to place public debt on a sustainable path, build fiscal buffers, and enhance medium-term growth prospects.

Directors underscored that the key policy challenge is to ensure sustainable public finances. They encouraged the authorities to strengthen revenue mobilization by improving tax administration and reducing tax expenditures. Directors noted that revenue reforms, such as a broad-based consumption tax, would improve debt dynamics. They also advised the authorities to exercise expenditure restraint, strengthen the financial position of public enterprises, and enhance fiscal transparency.

Directors viewed the authorities’ growth strategy as broadly appropriate. They agreed that measures to enhance the business environment, improve infrastructure, and develop high value-added downstream tourism products are key to achieving higher growth.

Directors agreed that the fixed exchange rate regime serves the country well. They noted the staff’s assessment that the level of the exchange rate remains broadly in line with medium-term fundamentals. Directors called for close monitoring of the current account position. They welcomed the authorities’ commitment to strengthen the country’s external position by continuing to build up foreign exchange reserves.

Directors commended the authorities’ measures to strengthen financial sector supervision, including the adoption of macro-prudential policies and steps to enhance supervision across sectors and at the regional level. They also welcomed the strengthening of the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework. Directors looked forward to timely implementation of plans to establish a credit bureau and bring credit unions under the supervisory oversight of the central bank. Noting the high level of non-performing loans and limited provisioning, Directors called on the authorities to further intensify the monitoring of financial institutions. They supported the authorities’ request for a Financial Sector Assessment Program (FSAP).

The Bahamas: Selected Economic Indicators  


    Prel.  Proj.  


2008 2009 2010 2011  
(Annual percentage changes, unless otherwise indicated)  

Real sector 1/


Real GDP

-1.3 -5.4 1.0 2.0  

Nominal GDP

-1.0 -5.3 -1.3 4.8  

Consumer price index (annual average)

4.4 2.1 1.0 2.5  

Consumer price index (end of period)

4.5 1.3 1.6 4.0  

Unemployment rate (in percent) 2/

8.7 14.2 13.7  

Financial sector


Credit to the nonfinancial public sector

16.1 9.3 39.2 15.3  

Credit to the private sector

5.1 0.9 -0.4 6.2  

Liabilities to the private sector

5.1 1.8 2.6 9.1  

External sector


Exports of goods and services

2.5 -14.7 4.4 7.3  

Of which: Travel receipts (gross)

-2.2 -10.0 6.7 4.5  

Imports of goods and services

1.5 -18.9 1.1 19.7  
(In percent of GDP, unless otherwise indicated, on a calendar year basis)  

Central government (on fiscal year basis) 3/


Revenue and grants

16.5 16.8 17.8 17.5  

Current expenditure

17.7 18.0 19.4 19.5  

Capital expenditure and net lending

3.3 3.2 3.0 2.9  

Primary balance

-2.6 -2.1 -2.2 -2.6  

Overall balance

-4.5 -4.4 -4.7 -5.0  

Central government debt

37.9 45.4 48.6 49.9  

External sector


Current account balance

-14.9 -11.4 -11.7 -17.1  

Change in net international reserves


(increase -)

-1.4 -3.2 -0.6 -1.2  

External public debt (end of period)

5.4 9.8 11.9 11.9  

Memorandum items:


Gross international reserves


(end of period; millions of U.S. dollars)

563 816 860 955  

In months of next year's G&S imports

1.8 2.6 2.3 2.3  

In percent of reserve money

87 117 104 106  

External debt-service ratio 4/

6.6 25.4 11.5 5.7  

GDP (in millions of Bahamian dollars)

8,239 7,806 7,700 8,074  

Sources: Central Bank of The Bahamas; Department of Statistics; Ministry of Finance; UNDP Human

Development Report; CIA World Fact book; and IMF staff projections.

1/ Revised national accounts data.

2/ 2009 figure based on May survey.

3/ Data for FY 2008/09 through FY 2011/12.

4/ In percent of exports of goods and services. The increase in 2009 reflects repayment of an internal foreign exchange loan of US$185 million to domestic banks.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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