Statement at the Conclusion of an IMF Staff Visit to the BahamasPress Release No. 14/354
July 18, 2014
An International Monetary Fund (IMF) team, headed by Mbuyamu Matungulu, visited the Bahamas during July 14-18 as part of the regular consultation process with member countries on their economies. The team met with senior government officials and representatives of the private sector. At the end of the discussions, Mr. Matungulu made the following statement:
“Economic activity continues to recover, but momentum remains weak, with growth estimated at 0.7 percent in 2013, and expected to be limited to 1.2 percent this year. The fiscal consolidation process has begun, although its pace could be frustrated by delays in the introduction of the value-added tax (VAT). Preliminary data suggest that the fiscal deficit declined to 4.5 percent of GDP from 5.4 percent in the previous fiscal year. The deficit is projected to narrow further to just under 4 percent of GDP in the 2014/2015 fiscal year, provided that the VAT is introduced in the coming months.
“The economy’s external position is also expected to improve, with the current account deficit declining to 16.6 percent of GDP in 2014, compared to 19.4 percent in 2013, amid a modest strengthening of the external reserves position. The financial sector remains well capitalized and highly liquid, although it continues to deal with a sizable and aging stock of non-performing loans (NPLs).
“The staff team engaged in preliminary policy discussions with the Bahamian authorities in preparation for the annual Article IV Consultation discussions, tentatively scheduled for early November. It supported the authorities’ fiscal consolidation efforts in order to place the government debt on a declining path. This is essential to boosting investor confidence, further improving the growth outlook, and strengthening employment prospects. The mission emphasized the key role to be played by the VAT in that context. In this regard, the team encouraged the authorities to finalize the agreed VAT legislation to ensure the successful introduction of this key reform.
“The staff team welcomed the anticipated improvement to the external balance from the soon-to-be opened Baha Mar project, which would boost tourism earnings and contain official external borrowing to shore up reserves. The team counseled efforts to strengthen and diversify growth, in light of continuing high unemployment levels. In this context, the team urged accelerated implementation of planned reform of the energy sector. Finally, the mission welcomed the continued strength of the financial system, in the face of both high level of NPLs and a rapidly changing supervisory framework. In this respect, it urged continued close monitoring of credit risks, and supported government efforts at implementing appropriate domestic and international supervisory policies, including as recommended by the IMF’s recent Financial Sector Assessment Program (FSAP).”