Press Release No. 11/302

Press Release No. 11/302
August 2, 2011

An International Monetary Fund (IMF) team visited The Bahamas during July 13–26 to conduct the 2011 Article IV consultation discussion and assess the medium term outlook for the economy. The team met with the Minister of State for Finance Hon. Zhivargo Laing, Central Bank of the Bahamas Governor Wendy Craigg, senior government officials, and representatives of the private sector and civil society. Mr. Gene Leon, head of the IMF mission to The Bahamas, issued the following statement at the end of the visit:

“Economic recovery in The Bahamas is gaining strength. Real output grew by about one percent in 2010 and is expected to grow by 2 percent in 2011; inflation is expected to rise temporarily on account of higher world prices for food and oil.

“The fiscal deficit in FY2010/11 widened to about 4¾ percent of Gross Domestic Product (GDP). Total revenues increased, aided by higher-than-average stamp duties, but expenditures increased more, owing to higher spending on goods and services. Although the sale of 51 percent of the shares of the Bahamas Telecommunications Company eased financing pressures, central government debt rose to almost 49 percent of GDP. The severe economic contraction during 2008-09 and high unemployment resulted in an increase in the ratio of non-performing loans, but stress tests have shown banks remained adequately capitalized.

“Higher spending on new government initiatives are expected to widen the central government deficit to about 5.25 percent of GDP and raise central government debt to over 50 percent of GDP in FY2011/12. Additional risks to the fiscal outlook arise from the continued weak performance of the non-financial public enterprises. Despite these prospects, the banking system is expected to remain sound.

“Going forward, the authorities intend to take fiscal measures to stabilize and reduce the debt-to-GDP ratio and support the economic recovery, while maintaining price and exchange rate stability. They also plan to reform and enhance tax administration, increase fiscal responsibility, and improve transparency for public enterprises. Global developments, including high oil prices, pose risks to the outlook, but upside potential could offset these if projects under consideration materialize. The mission is confident that the determined pursuit of fiscal consolidation and an enabling investment climate will improve the macroeconomic environment and support sustained economic growth.”