## 1bhsea2020001

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### EXECUTIVE SUMMARY — Context and crisis impact
- Two consecutive large shocks: Hurricane Dorian (fall 2019) and the COVID-19 pandemic.
- Hurricane Dorian caused severe damage exceeding 25 percent of GDP.
- COVID-19 produced a sudden stop in tourism, creating large fiscal and external financing needs.
- Authorities’ policy response to the pandemic has been timely, but limited fiscal space constrains the ability to pursue a deeper emergency response.

### Crisis response and fiscal measures
- Government actions:
  - Declared a state of emergency.
  - Established an Economic Recovery Committee to guide the COVID-19 response.
- Targeted fiscal measures introduced amount to about 4 percent of GDP to support the healthcare system, employment, and the most vulnerable.
- Central bank measures:
  - Focus on protecting the peg to the U.S. dollar.
  - Encouraged banks to consider loan moratoria.
- Selected fiscal measures (FY2019/20–FY2020/21 summary):
  - Tax Credit & Tax Deferral Programme to support business payroll: B$180 (1.5% of GDP).
  - Business Continuity Loan Program for Small Businesses And Payroll Grants: B$80 (0.7% of GDP).
  - Subvention to key SOEs ($3M per month for BPL; $4M per month for WSC): B$63 (0.5% of GDP).
  - Health Care (purchase of medical and surgical supplies, ventilators, oxygen tanks, vehicles, and bio waste bins, emergency flights, sanitation, quarantine site expenses): B$4.5 (0.4% of GDP).
  - Income Support to Self-Employed ($200 per week; valid business license): B$43.2 (0.4% of GDP).
  - Social Assistance-Food Vouchers (B$100 every second week targeted primarily to persons within the hospitality industry): B$24 (0.2% of GDP).
  - Family Island Emergency Order Execution (COVID-19 related expenditure): B$1.8 (0.0% of GDP).
  - Total fiscal stimulus listed: B$437.2 (3.7% of GDP).
- FY2020/21 Draft Budget additional measures (IMF projection):
  - Excise taxes (Sin tax): B$30.
  - Current spending (cuts): B$300 (IMF projection B$195).
  - Of which: SOE spending (cuts): B$21 (IMF projection B$11).
  - Capital expenditure increase: B$122 (IMF projection B$50).
  - Staff estimates: additional measures could yield total savings of about B$175 million in FY2020/21.
  - Staff projects the overall deficit at 6.7 and 9.5 percent of GDP in FY2019/20 and FY2020/21, respectively.

### Request for Fund support and external financing needs
- Authorities requested emergency financial support under the Rapid Financing Instrument (RFI) of 100 percent of quota (SDR 182.4 million or about $252 million).
- Rationale for RFI: urgent balance of payments and fiscal financing needs, temporary difficulty accessing international capital markets, and high uncertainty regarding the duration and scale of the COVID-19 pandemic.
- External financing needs are estimated at about 9 percent of GDP in 2020.
- To address urgent fiscal needs, the central bank will on-lend the disbursement to the Ministry of Finance.
- Staff assessment: The Bahamas is assessed to have sustainable debt and adequate capacity to repay the Fund.

### Recent developments and outlook (health, macro, reserves)
- Health and containment (as of late-May):
  - Confirmed COVID-19 cases: 100
  - Fatalities: 11
  - National state of emergency declared on March 17; air and sea borders closed to incoming passengers.
  - Curfews on weekdays and full weekend lockdowns at least through the end of June.
- Economic projections and key macro indicators:
  - 2020 real GDP growth: expected contraction of 12.5 percent.
  - Unemployment: expected to climb from 10.7 percent in 2019 to over 20 percent in 2020.
  - Non-performing loans (NPLs): stood at 7 percent at end-2019; expected to increase with the recession.
  - Consumer price inflation: expected to decline to 2.1 percent in 2020 from 2.5 percent in 2019.
  - 2021 recovery: rebound in real GDP growth of about 8 percent in 2021, with the economy reaching its pre-pandemic level only by end-2023.
  - Inflation expected to increase to 2.5 percent in 2021 and converge towards 2 percent in the long run.
- Balance of payments and reserves:
  - Current account balance expected to deteriorate to a deficit of 17 percent in 2020, from a surplus of 0.7 percent in 2019.
  - FDI inflows expected to halve in 2020.
  - Gross international reserves boosted by hurricane insurance payouts of about 8 percent of GDP in 2019 and 2020.
  - External financing need of about US$1 billion in 2020.
  - Financial support from the Fund and other IFIs (IDB, CDB) expected to bridge about 60 percent of this financing gap.
  - Reserves expected to decline to about US$1.3 billion in 2020 and to remain at similar levels thereafter.

### Risks and vulnerabilities
- Main risks:
  - A more severe and long-lasting COVID-19 pandemic.
  - Continued vulnerability to future hurricanes.
- Sources of risk:
  - Pandemic propagation and duration, containment success, and policy effectiveness.
  - Disruptions to international supply chains, tourism, and travel.
  - Limited healthcare system capacity.
  - Fiscal and financial buffers have been used to respond to Hurricane Dorian and COVID-19.

### Detailed authorities’ response — institutions, contingency planning, governance, central bank actions
- Institutional arrangements:
  - Economic Recovery, Tourism Response, and National Food Committees established.
  - Committees to guide COVID-19 response, job creation, small business development (especially tourism), and food distribution.
- Financing and market access:
  - Increased fiscal needs to be financed by a mix of domestic and external debt issuance, and support from the Fund and other IFIs.
  - S&P downgraded The Bahamas by one notch to “BB”.
  - Authorities plan a long-term external bond issuance in FY2020/21.
  - Seeking two MIGA guarantees for COVID-19 healthcare expenses and capital spending; associated guaranteed commercial loans with maturities exceeding 5 years.
  - Discussions with IDB for new credit facilities amounting to $320 million in FY2020/2021, with maturities exceeding 20 years.
- Contingency planning and expenditure controls:
  - Contingency plans to protect priority spending via current expenditure cuts and proposed excise tax increases.
  - Review of public expenditure (including SOEs) to reprioritize spending flexibly if downside risks materialize.
  - Proposed temporary tightening of expenditure controls across ministries and agencies; freezing wages and payroll increments could provide substantial savings.
- Governance and procurement:
  - Re-established Audit Committee to strengthen implementation of audit recommendations.
  - Intend to finalize the Public Procurement Bill by end-June.
  - PFM Bill and Public Debt Management Bill under internal review; to be submitted to Parliament by end-December.
- Central Bank of The Bahamas (CBOB) actions:
  - Maintained policy rate at 4 percent.
  - Measures to ensure foreign exchange liquidity include suspending dividend payments by financial institutions; providing more latitude to commercial banks to supply foreign exchange to the public before approaching the CBOB to replenish such funds; suspending access to foreign exchange for international capital market and real estate investments; requesting the National Insurance Board (NIB) to repatriate about $60 million of external assets.
  - Loan forbearance guidance: CBOB encouraged a 3-month deferral on repayments for affected credit facilities; loans in good standing before the pandemic will not be reclassified due to deferral; banks must reclassify if loans are not performing after the forbearance period; banks asked to report monthly on their loan portfolio to the CBOB.

### Debt sustainability — baseline, targets, and assessment
- Baseline debt path:
  - Public debt-to-GDP ratio: 61.8 percent in FY2018/19 rising to 82.6 percent by FY2020/21, then gradually declining to 79.2 percent over the medium term.
- Authorities’ FRA targets and adjustments:
  - Original targets: fiscal deficit of 0.5 percent of GDP by FY2020/21 and a public debt-to-GDP ratio of 50 percent by FY2024/25.
  - Escape clause activated after Hurricane Dorian allows postponement of targets by four years.
  - Authorities commit to reach a fiscal deficit of 0.5 percent of GDP by FY2026/27 and a debt ratio of 50 percent of GDP by FY2030/31.
- Assessment:
  - Public debt remains sustainable but projected debt path is vulnerable to substantial downside risks.
  - Extended maturities through IFI financing limit gross financing needs but significantly increase external debt.

### Policy recommendations — short-term and medium-term priorities
- Short-term priorities:
  - Continue timely policies to alleviate the pandemic’s impact while preserving limited fiscal space.
  - Use IMF and IFI support to meet urgent balance-of-payments and fiscal needs.
- Monetary and FX guidance:
  - Some room for monetary easing exists but must account for foreign exchange market developments.
  - CFMs appropriate under the IV but need close monitoring and removal as crisis conditions abate.
  - Repatriation of NIB assets should be controlled to avoid fire-sale dynamics.
- Financial sector policies:
  - Loan moratoria should be targeted, promote transparency and sound risk management, and avoid moral hazard.
  - CBOB to guide robust expected credit loss estimates and require regular loan portfolio reviews.
  - Conduct stress tests of the banking sector; ensure timely monitoring and resolution of NPLs.
  - Reduce credit market asymmetries via an asset registry and real estate price index; enhance banking supervision, resolution frameworks, and governance of asset management companies.
  - Continue improving the AML/CFT regime and monitor correspondent banking pressures.
- Medium-term fiscal adjustment and resilience:
  - To achieve FRA debt target by FY2030/31, staff calculations suggest an average primary surplus of 4 percent of GDP would be needed starting in FY2024/2025, with significantly faster consolidation beginning in FY2022/23.
  - Composition: rationalize the wage bill, advance pension reform, accelerate SOE reforms, increase revenue collection via revenue administration reforms and streamlining tax expenditures, consider increasing revenues from departure taxes, business license fees, and property taxes.
  - Resilience measures: introduce mandatory hurricane insurance, improve data collection and social safety net management.
  - FX and monetary framework: adopt the new Central Bank Law, reduce central bank lending to the government, and develop domestic debt markets.
  - Complete legislative reforms of crisis management and resolution; pursue SOE reform to generate savings.

### Modalities of IMF support (RFI and access)
- RFI suitability and access:
  - RFI is the appropriate instrument.
  - The Bahamas meets RFI qualification requirements, including an urgent balance of payments need and assessment of sustainable debt and adequate capacity to repay.
  - Staff recommends access of 100 percent of quota (SDR 182.4 million or about US$252 million).
  - The purchase will be channeled to the Ministry of Finance for budget support; a Memorandum of Understanding between the CBOB and Ministry of Finance related to repayment will be signed before the purchase.
  - Authorities commit to undertake a safeguards assessment before any subsequent arrangement to which the safeguards policy applies and to provide central bank audit reports and auditor authorization to discuss with Fund staff.
- Assessment of capacity to repay (selected Fund credit outstanding path):
  - Fund credit outstanding (in millions of SDRs): 182.4 (2020), 182.4 (2021), 182.4 (2022), 136.8 (2023), 45.6 (2024), 0.0 (2025).
  - Fund credit outstanding (in millions of U.S. dollars): 252.6 (2020), 253.5 (2021), 254.3 (2022), 191.2 (2023), 63.9 (2024), 0.0 (2025).
  - Net use of Fund credit (Total, in millions of SDRs): 182.4 (2020), 0.0 (2021), 0.0 (2022), -45.6 (2023), -91.2 (2024), -45.6 (2025).

### Key macroeconomic projections (selected series)
- Real GDP (annual percent change): 2019: 1.8; 2020: -12.5; 2021: 8.0; 2022: 3.4; 2023: 2.6; 2024: 1.4; 2025: 1.5
- Nominal GDP (annual percent change): 2019: 3.2; 2020: -11.4; 2021: 9.8; 2022: 5.3; 2023: 4.6; 2024: 3.4; 2025: 3.4
- Consumer price index (annual average): 2019: 2.5; 2020: 2.3; 2021: 2.3; 2022: 2.4; 2023: 2.3; 2024: 2.3; 2025: 2.2
- Unemployment rate (percent): 2019: 10.7; 2020: 22.5; 2021: 17.0; 2022: 15.2; 2023: 14.6; 2024: 14.4; 2025: 14.4
- Current account balance (percent of GDP): 2019: 0.7; 2020: -17.2; 2021: -14.2; 2022: -12.5; 2023: -11.5; 2024: -10.4; 2025: -9.7
- Overall balance (percent of GDP): 2019: -1.7; 2020: -6.7; 2021: -9.5; 2022: -4.8; 2023: -3.5; 2024: -1.9; 2025: -1.6
- Central government debt (percent of GDP): 2019: 61.8; 2020: 72.3; 2021: 82.6; 2022: 80.1; 2023: 80.9; 2024: 80.0; 2025: 79.2

### External financing and reserves (selected)
- Financing needs (2020): 2,536 (millions of US dollars)
- Prospective financing composition (millions of US dollars): IMF - RFI 252; IDB 180; CDB 50; MIGA guaranteed commercial loans 88
- Gross international reserves (end of period; millions of U.S. dollars): 2019: 1,760; 2020: 1,343; 2021: 1,233; 2022: 1,217; 2023: 1,234; 2024: 1,266; 2025: 1,343
- Gross international reserves (In months of next year's G&S imports): 2019: 6.3; 2020: 4.0; 2021: 3.3; 2022: 3.0; 2023: 3.0; 2024: 3.0; 2025: 3.0

### Selected social and level indicators (latest available)
- GDP (US$ millions), 2019: 12,827
- GDP per capita (US$), 2019: 33,689
- Population (thousands), 2019: 381
- Poverty rate (percent), 2013: 12.8
- Unemployment rate (percent), May 2019: 9.5
- Infant mortality rate (per 1,000 live births), 2018: 8.3
- Life expectancy at birth (years), 2019: 73.6
- Human development index (rank), 2019: 60
- Adult literacy rate, 15 & up (percent), 2007: 96

### Annex I — Debt Sustainability Analysis (summary)
- Central government debt projected to increase from 61.8 percent of GDP in FY2018/19 to 82.6 percent of GDP by FY2020/21, then gradually decline to 79.2 percent over the medium term.
- External debt expected to increase from 20 to 32.0 percent of GDP from FY2018/19 to FY2020/21.
- The risk to the debt level is assessed as “red” in the heatmap.
- DSA covers only central government debt; includes promissory note to the Bank of The Bahamas and arrears to domestic sectors accumulated by past administrations (total 4.5 percent of GDP).
- Stress tests and scenarios:
  - Public gross financing needs (percent of GDP, series presented): 5.9, 14.0, 8.0, 10.9, 14.0, 9.9, 11.6, 11.1, 9.1.
  - Real GDP growth (percent, series presented): -0.2, 0.8, 2.7, -7.4, -2.9, 7.8, 2.0, 2.0, 1.5.
  - Effective interest rate (percent, series presented): 5.2, 4.8, 4.2, 4.8, 4.9, 4.3, 4.0, 4.0, 3.8.
  - Stress tests identify a major hurricane (combined macro-fiscal shock II) as most adverse; such a scenario could push central government debt-to-GDP to slightly above 100 percent in FY2020/21.
- Policy commitments from the Letter of Intent:
  - Emergency financing request of SDR 182.4 million (about US$252 million) under the RFI.
  - Temporary targeted fiscal measures of about 4 percent of GDP.
  - Commit to FRA, embed sunset clauses for temporary measures, resume pre-Dorian reform measures once COVID-19 abates.
  - Publish procurement contracts of crisis mitigation spending, report quarterly on COVID-19 mitigation spending, audits by the Auditor General within 9 months of fiscal year end.
  - Finalize Public Procurement Law by end-June; submit Public Financial Management Bill and Public Debt Management Bill to Parliament by end-2020; approve new Central Bank Law to limit lending to government.
  - Commit to safeguards assessment and provide external audit reports of CBOB.

### Authorities’ views and projections (selected)
- Authorities foresee a deep recession in 2020 with real GDP contracting between 9 and 15 percent, depending on reopening timing and tourism demand.
- Unemployment could climb to as high as 35 percent.
- Authorities hope to lift domestic lockdown measures and reopen air and sea borders by July 1.
- April revenues were 50 percent lower than last year.
- Authorities are targeting a deficit of B$1326 million for FY2020/21.
- Authorities confirm COVID-19 measures will be audited within 9 months of the end of the fiscal year and results published on the government’s website.
- CBOB view: repatriation of some of the NIB’s external assets and allowing domestic banks greater latitude in open positions should contribute to foreign exchange liquidity; emphasized temporary nature of measures and adequacy of monitoring systems.

### Staff appraisal (summary)
- Context: COVID-19 follows Hurricane Dorian; tourism and related sectors account for about 40 percent of GDP.
- Assessment:
  - Authorities’ response is appropriate: fiscal measures support public health, protect the vulnerable and cushion employment impacts; measures build on Hurricane Dorian recovery efforts.
  - Staff supports CBOB measures to mitigate banking sector impact but underscores the need to safeguard financial stability.
  - Temporary relaxation of prudential regulations should be paired with close monitoring of NPL classification and prudent risk management.
- Post-crisis priorities:
  - Rebuild buffers and strengthen resilience through significant fiscal effort to bring debt on a downward path and achieve FRA targets.
  - Potential actions include increasing revenue collection (especially property taxation), streamlining tax expenditures, containing the wage bill, and reducing transfers to SOEs.
  - Enhance resilience to natural disasters (mandatory hurricane insurance, stronger social safety net).
  - Timely resolution of NPLs and completion of legislative reforms for crisis management and resolution.

*Source: IMF staff report excerpt (1bhsea2020001).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The Bahamas faces an unprecedented crisis from two consecutive large shocks: Hurricane Dorian (fall 2019) and the COVID-19 pandemic.
- Hurricane Dorian caused severe damage exceeding 25 percent of GDP.
- COVID-19 produced a sudden stop in tourism, creating large fiscal and external financing needs.
- Authorities’ policy response to the pandemic has been timely, but limited fiscal space constrains the ability to pursue a deeper emergency response.

### Crisis response and fiscal measures
- Government actions:
  - Declared a state of emergency.
  - Established an Economic Recovery Committee to guide the COVID-19 response.
- Targeted fiscal measures introduced amount to about 4 percent of GDP to support:
  - The healthcare system.
  - Employment.
  - The most vulnerable segments of the population.
- Central bank measures:
  - Focus on protecting the peg to the U.S. dollar.
  - Encouraged banks to consider loan moratoria.

### Request for Fund support and external financing needs
- Authorities requested emergency financial support under the Rapid Financing Instrument (RFI) of 100 percent of quota (SDR 182.4 million or about $252 million).
- Rationale for RFI: urgent balance of payments and fiscal financing needs, temporary difficulty accessing international capital markets, and high uncertainty regarding the duration and scale of the COVID-19 pandemic.
- External financing needs are estimated at about 9 percent of GDP in 2020.
- To address urgent fiscal needs, the central bank will on-lend the disbursement to the Ministry of Finance.
- Staff assessment: The Bahamas is assessed to have sustainable debt and adequate capacity to repay the Fund.

### Recent developments and outlook
- Health and containment:
  - As of late-May, confirmed COVID-19 cases reached 100, with 11 fatalities.
  - National state of emergency declared on March 17; air and sea borders closed to incoming passengers.
  - Curfews on weekdays and full weekend lockdowns at least through the end of June.
- Economic projections:
  - 2020 real GDP growth: expected contraction of 12.5 percent.
  - Unemployment: expected to climb from 10.7 percent in 2019 to over 20 percent in 2020.
  - Non-performing loans (NPLs): stood at 7 percent at end-2019; expected to increase with the recession.
  - Consumer price inflation: expected to decline to 2.1 percent in 2020 from 2.5 percent in 2019.
  - 2021 recovery: rebound in real GDP growth of about 8 percent in 2021, with the economy reaching its pre-pandemic level only by end-2023.
  - Inflation expected to increase to 2.5 percent in 2021 and converge towards 2 percent in the long run.
- Balance of payments and reserves:
  - Current account balance expected to deteriorate to a deficit of 17 percent in 2020, from a surplus of 0.7 percent in 2019.
  - FDI inflows expected to halve in 2020.
  - Gross international reserves boosted by hurricane insurance payouts of about 8 percent of GDP in 2019 and 2020.
  - External financing need of about US$1 billion in 2020.
  - Financial support from the Fund and other IFIs (IDB, CDB) expected to bridge about 60 percent of this financing gap.
  - Reserves expected to decline to about US$1.3 billion in 2020 and to remain at similar levels thereafter.

### Risks
- Main risks:
  - A more severe and long-lasting COVID-19 pandemic.
  - Continued vulnerability to future hurricanes.
- Sources of risk and vulnerability:
  - Pandemic impact depends on propagation and duration, success of containment measures, and effectiveness of policy responses.
  - Disruptions to international supply chains, tourism, and travel could have deeper effects than currently expected.
  - Limited healthcare system capacity could amplify human and economic costs.
  - Fiscal and financial buffers have been used to respond to Hurricane Dorian and COVID-19, increasing vulnerability.

### Authorities’ response to the crisis — detailed measures and contingency plans
- Institutional arrangements:
  - Economic Recovery, Tourism Response, and National Food Committees established.
  - Committees to guide COVID-19 response, job creation, small business development (especially tourism), and food distribution.
- Fiscal measures in FY2019/20–FY2020/21 (summarized):
  - Tax Credit & Tax Deferral Programme to support business payroll: B$180 (1.5% of GDP).
  - Business Continuity Loan Program for Small Businesses And Payroll Grants: B$80 (0.7% of GDP).
  - Subvention to key SOEs ($3M per month for BPL; $4M per month for WSC): B$63 (0.5% of GDP).
  - Health Care (purchase of medical and surgical supplies, ventilators, oxygen tanks, vehicles, and bio waste bins, emergency flights, sanitation, quarantine site expenses): B$4.5 (0.4% of GDP).
  - Income Support to Self-Employed ($200 per week; valid business license): B$43.2 (0.4% of GDP).
  - Social Assistance-Food Vouchers (B$100 every second week targeted primarily to persons within the hospitality industry): B$24 (0.2% of GDP).
  - Family Island Emergency Order Execution (COVID-19 related expenditure): B$1.8 (0.0% of GDP).
  - Total fiscal stimulus listed: B$437.2 (3.7% of GDP).
- FY2020/21 Draft Budget additional measures (IMF projection):
  - Excise taxes (Sin tax): B$30.
  - Current spending (cuts): B$300 (IMF projection B$195).
  - Of which: SOE spending (cuts): B$21 (IMF projection B$11).
  - Capital expenditure increase: B$122 (IMF projection B$50).
  - Staff estimates: additional measures could yield total savings of about B$175 million in FY2020/21.
  - Staff projects the overall deficit at 6.7 and 9.5 percent of GDP in FY2019/20 and FY2020/21, respectively.
- Financing and market access:
  - Increased fiscal needs to be financed by a mix of domestic and external debt issuance, and support from the Fund and other IFIs.
  - S&P downgraded The Bahamas by one notch to “BB”; access to international bond markets expected to continue but at significantly higher rates.
  - Authorities plan a long-term external bond issuance in FY2020/21.
  - Seeking two MIGA guarantees for COVID-19 healthcare expenses and capital spending; associated guaranteed commercial loans with maturities exceeding 5 years.
  - Discussions with IDB for new credit facilities amounting to $320 million in FY2020/2021, with maturities exceeding 20 years.
- Contingency planning and expenditure controls:
  - Contingency plans to protect priority spending via current expenditure cuts and proposed excise tax increases.
  - Review of public expenditure (including SOEs) to reprioritize spending flexibly if downside risks materialize.
  - Proposed temporary tightening of expenditure controls across ministries and agencies; freezing wages and payroll increments could provide substantial savings.
- Governance and procurement:
  - Re-established Audit Committee to strengthen implementation of audit recommendations.
  - Intend to finalize the Public Procurement Bill by end-June (this year).
  - PFM Bill and Public Debt Management Bill under internal review; to be submitted to Parliament by end-December.
- Central Bank actions:
  - Maintained policy rate at 4 percent.
  - Measures to ensure foreign exchange liquidity include:
    - Suspending dividend payments by domestic and foreign-owned financial institutions.
    - Providing more latitude to commercial banks to supply foreign exchange to the public before approaching the CBOB to replenish such funds (easing of a CFM on inflows).
    - Suspending access to foreign exchange for international capital market and real estate investments (tightening of CFMs on outflows).
    - Requesting the National Insurance Board (NIB) to repatriate some of its external assets (about $60 million) (tightening of CFMs on outflows).
  - Loan forbearance guidance:
    - Encouraged banks and credit unions to consider a 3-month deferral on repayments for credit facilities negatively impacted by COVID-19, with accrued interest to resume when borrowers’ circumstances improve.
    - Loans in good standing before the pandemic will not be reclassified due to deferral; banks must reclassify if loans are not performing after the forbearance period.
    - Banks asked to report monthly on their loan portfolio to the CBOB.

### Debt sustainability
- Baseline debt path:
  - Public debt-to-GDP ratio: 61.8 percent in FY2018/19 rising to 82.6 percent by FY2020/21, then gradually declining to 79.2 percent over the medium term.
- Authorities’ fiscal targets under the Fiscal Responsibility Act (FRA):
  - Original targets: fiscal deficit of 0.5 percent of GDP by FY2020/21 and a public debt-to-GDP ratio of 50 percent by FY2024/25.
  - Escape clause activated after Hurricane Dorian allows postponement of targets by four years.
  - Authorities commit to reach a fiscal deficit of 0.5 percent of GDP by FY2026/27 and a debt ratio of 50 percent of GDP by FY2030/31.
- Assessment:
  - Public debt remains sustainable but the projected debt path is vulnerable to substantial downside risks, including a more severe COVID-19 pandemic and future hurricanes.
  - Extended maturities through IFI financing limit gross financing needs over the medium term but significantly increase external debt.

### Policy recommendations
- Short-term priorities:
  - Continue timely policies to alleviate the pandemic’s impact while preserving limited fiscal space.
  - Use IMF and IFI support to meet urgent balance-of-payments and fiscal needs.
- Medium-term and structural priorities once crisis wanes:
  - Rebuild buffers and strengthen resilience.
  - Commit to medium-term targets under the Fiscal Responsibility Act to anchor fiscal policy.
  - Put in place mandatory hurricane insurance.
  - Strengthen the social safety net.
  - Develop domestic debt markets to improve monetary transmission.
  - Timely resolution of legacy debt in the financial sector.
  - Complete legislative reforms of the crisis management frameworks.
  - Continue improving the effectiveness of the AML/CFT framework.

*Prepared by IMF staff; discussions held remotely during May 12–15, 2020. Approved by Aasim M. Husain (WHD) and Chris Lane (SPR).*

### 16.      Staff supports the fiscal measures taken by the authorities to address the fallout from

### 1bhsea2020001 - 16.      Staff supports the fiscal measures taken by the authorities to address the fallout from

### Fiscal response to the pandemic
- Staff supports fiscal measures that focus on:
  - supporting the health care system,
  - ensuring adequate food supply,
  - protecting employment.
- Transfers in-kind could be considered to protect undocumented workers.
- Transparency measures recommended:
  - provide a separate reporting mechanism for COVID-19 expenditures,
  - commission and publish an independent, third-party audit,
  - publish all public contracts and beneficial ownership information on companies receiving pandemic-related procurement contracts.
- Implementation requirements:
  - effective implementation of the Public Procurement Bill, Public Financial Management and Public Debt Management Bills will require appropriate staffing of the macro-fiscal and debt management units at the Ministry of Finance.
  - strengthen expenditure monitoring and reporting through more frequent communication between Ministry of Finance, line ministries and agencies to prevent arrears.

### Monetary and foreign exchange policy
- Staff sees some room for monetary easing but advises policy should account for foreign exchange market developments.
  - Rationale: collapse in economic activity and limited inflation pressures indicate some room to lower interest rates, but benefits must be weighed against potential erosion of international reserves and structural bottlenecks in the monetary transmission mechanism.
- Recent measures and guidance:
  - recent CBOB interventions could help ensure an adequate level of international reserves.
  - repatriation of NIB assets should be done in a controlled manner to avoid fire-sale dynamics and preserve the NIB’s financial position.
  - CFMs are appropriate under the IV but need close monitoring and removal as crisis conditions abate.
- CBOB view:
  - CBOB does not consider expansionary monetary policies appropriate at the current juncture.
  - CBOB argues it has adequate systems to monitor the effects of interventions and that measures are temporary and will not jeopardize recent progress in exchange control liberalization.
  - CBOB sees an urgent need to maintain an adequate level of international reserves.

### Financial sector policies and stability
- Balance required between supporting activity and safeguarding financial stability:
  - Loan moratoria can help household and firm liquidity but should not relax credit risk standards.
  - Moratoria should be targeted to borrowers affected by the pandemic, promote transparency and sound risk management, and prevent buildup of financial risks and moral hazard.
  - CBOB should provide guidance so banks’ estimates of expected credit losses are robust and timely, and require regular loan portfolio reviews and risk assessments by banks.
- Additional recommendations:
  - ensure timely monitoring and resolution of NPLs, especially in vulnerable institutions,
  - reduce credit market asymmetries via an asset registry and real estate price index,
  - enhance banking supervision, resolution frameworks, and governance of asset management companies,
  - continue improving the AML/CFT regime as agreed with the FATF, including measures to enhance entity transparency and building upon the Register of Beneficial Ownership Act,
  - monitor pressures on correspondent banking relationships.
- CBOB actions:
  - conduct stress tests of the banking sector to assess strategies, processes and risk resilience of institutions.
  - temporary relaxation of prudential regulations should be accompanied by close monitoring of NPL classification and prudent risk management.

### Medium-term fiscal adjustment and resilience (post-crisis priorities)
- Size and speed of fiscal adjustment:
  - To achieve the FRA debt target by 2030/31, staff calculations suggest that an average primary surplus of 4 percent would be needed starting in FY2024/2025, with significantly faster consolidation than in the current baseline already beginning in FY2022/23.
  - The exact speed of adjustment should be calibrated to the economic outlook and subject to scrutiny by the Fiscal Council and parliamentary approval.
- Composition of fiscal measures:
  - contain expenditure growth by further rationalizing the wage bill,
  - advance pension reform,
  - accelerate SOE reforms,
  - increase revenue collection by accelerating planned revenue administration reforms and streamlining tax expenditures,
  - consider increasing revenues from departure taxes, business license fees, and property taxes,
  - adopt a well-crafted communication strategy to foster credibility of the medium-term fiscal framework.
- Resilience measures:
  - introduce mandatory hurricane insurance to strengthen private sector resilience,
  - improve data collection, sharing, and management among agencies to enhance resilience of the social safety net.
- FX and monetary framework:
  - adopt the new Central Bank Law to strengthen the CBOB’s governance framework,
  - reduce central bank lending to the government and develop domestic debt markets to strengthen the transmission mechanism over the medium term.
- Additional structural and fiscal governance recommendations:
  - complete legislative reforms of crisis management and resolution,
  - improve effectiveness of the AML/CFT regime and entity transparency,
  - pursue SOE reform to generate medium-term savings.

### Modalities of IMF support (RFI and access)
- RFI is the appropriate instrument for The Bahamas at this juncture.
  - The Bahamas meets RFI qualification requirements:
    - it has an urgent balance of payments need that, if not addressed promptly, would result in immediate and severe economic disruption,
    - an upper-credit-tranche arrangement is not feasible given urgent needs and high uncertainty about the pandemic’s duration and scale,
    - The Bahamas is assessed as having sustainable debt (see Annex I) and capacity to repay the Fund remains adequate,
    - obligations to the Fund will peak in 2021 and decline steadily to below 1 percent of GDP over the medium term.
  - Downside risks to capacity to repay include a more severe and longer-lasting COVID-19 pandemic and future hurricanes.
  - Staff is confident authorities will cooperate with the Fund and pursue appropriate policies.
- Access recommendation:
  - staff considers access of 100 percent of quota under the RFI appropriate.
  - The access of 100 percent of quota (SDR 182.4 million or about US$252 million), together with financial assistance from other IFIs, would provide relief to BOP and fiscal needs.
  - Remaining external financing needs expected to be filled through other official and private sources and a significant drawdown of international reserves.
  - Overall, gross reserves are expected to remain slightly above both the Fund’s reserve adequacy metric and CBOB’s statutory minimum of 3 months’ imports coverage in 2020.
  - The purchase will be channeled to the Ministry of Finance for budget support; authorities confirm a Memorandum of Understanding between the CBOB and Ministry of Finance related to repayment will be signed before the purchase.
  - Authorities commit to undertake a safeguards assessment before any subsequent arrangement to which the safeguards policy applies and to provide central bank audit reports and auditor authorization to discuss with Fund staff.

### Authorities’ views and projections
- Economic outlook (authorities):
  - foresee a deep recession in 2020 with real GDP contracting between 9 and 15 percent, depending on reopening timing and tourism demand.
  - unemployment could climb to as high as 35 percent.
  - hope to lift domestic lockdown measures and reopen air and sea borders by July 1.
  - post-Hurricane Dorian reconstruction efforts should gain pace in the second half of 2020 as containment measures are relaxed.
  - expect real GDP to reach pre-crisis levels in 2023 in line with staff projections, but project significantly lower growth in 2021 and higher growth in 2022/2023.
  - expect lingering effects of global travel restrictions and consumer hesitancy to temper tourism recovery through first half of 2021.
- Fiscal impact and targets:
  - April revenues were 50 percent lower than last year.
  - authorities are targeting a deficit of B$1326 million for FY2020/21, somewhat higher than staff’s projection.
  - authorities confirm COVID-19 measures will be audited within 9 months of the end of the fiscal year and results published on the government’s website.
  - government will continue to finalize new PFM-related laws; together with the Fiscal Council, these will enhance fiscal management and discipline.
  - authorities committed to medium-term debt sustainability targets and view SOE reform as promising for generating savings.
- CBOB stance:
  - repatriating some of the NIB’s external assets (a small portion of its portfolio) and allowing domestic banks greater latitude in open positions to purchase funds in the interbank market should contribute to foreign exchange liquidity.
  - CBOB highlighted temporary nature of measures and adequacy of systems to monitor banking effects.
  - new central bank law should be adopted without delay.

### Staff appraisal (summary)
- Context:
  - COVID-19 follows Hurricane Dorian, which caused significant economic damage in fall 2019.
  - tourism and related sectors account for about 40 percent of GDP and are major sources of income and employment.
  - collapse in tourism plus containment measures will cause a deep recession and an urgent BOP need; outlook is highly uncertain.
- Assessment:
  - authorities’ response is appropriate: fiscal measures support public health, protect the vulnerable and cushion employment impacts; measures build on Hurricane Dorian recovery efforts.
  - staff supports CBOB measures to mitigate banking sector impact but underscores the need to safeguard financial stability.
  - temporary relaxation of prudential regulations should be paired with close monitoring of NPL classification and prudent risk management.
- Post-crisis priorities:
  - rebuild buffers and strengthen resilience through significant fiscal effort to bring debt on a clear downward path and achieve FRA targets.
  - potential actions include increasing revenue collection (especially property taxation), streamlining tax expenditures, containing the wage bill, and reducing transfers to SOEs.
  - enhance resilience to natural disasters (mandatory hurricane insurance, stronger social safety net).
  - timely resolution of NPLs and completion of legislative reforms for crisis management and resolution are key objectives.

*Source: IMF staff report excerpt (1bhsea2020001).*

### 30.      Staff supports the authorities’ request for an RFI in the amount of SDR 182.4 million

### 30.      Staff supports the authorities’ request for an RFI in the amount of SDR 182.4 million

### Request and staff recommendation
- Staff supports the authorities’ request for an RFI in the amount of SDR 182.4 million (100 percent of quota).
- Rationale: "The unprecedented economic fallout from the COVID-19 pandemic and the urgent balance-of-payments needs justify the authorities’ request for emergency financial assistance from the Fund through an RFI."
- Authorities’ policy commitment: reiterated commitment to prudent policies through the Fiscal Responsibility Act, which is designed to ensure debt sustainability over the long term.

### Assessment of capacity to repay
- Staff assessed The Bahamas’ capacity to repay the Fund as adequate.
- Fund credit outstanding and net use of Fund credit (Table 7):
  - Fund credit outstanding (in millions of SDRs): 182.4 (2020), 182.4 (2021), 182.4 (2022), 136.8 (2023), 45.6 (2024), 0.0 (2025).
  - Fund credit outstanding (in millions of U.S. dollars): 252.6 (2020), 253.5 (2021), 254.3 (2022), 191.2 (2023), 63.9 (2024), 0.0 (2025).
  - In percent of quota: 100.0 (2020), 100.0 (2021), 100.0 (2022), 75.0 (2023), 25.0 (2024), 0.0 (2025).
  - Net use of Fund credit (Total, in millions of SDRs): 182.4 (2020), 0.0 (2021), 0.0 (2022), -45.6 (2023), -91.2 (2024), -45.6 (2025).
  - Net use of Fund credit (Total, in millions of U.S. dollars): 252.6 (2020), 0.0 (2021), 0.0 (2022), -63.7 (2023), -127.9 (2024), -64.2 (2025).

### Key macroeconomic impact and projections
- Real GDP (annual percent change):
  - 2019: 1.8
  - 2020: -12.5
  - 2021: 8.0
  - 2022: 3.4
  - 2023: 2.6
  - 2024: 1.4
  - 2025: 1.5
- Nominal GDP (annual percent change): 2019: 3.2; 2020: -11.4; 2021: 9.8; 2022: 5.3; 2023: 4.6; 2024: 3.4; 2025: 3.4
- Consumer price index (annual average): 2019: 2.5; 2020: 2.3; 2021: 2.3; 2022: 2.4; 2023: 2.3; 2024: 2.3; 2025: 2.2
- Unemployment rate (in percent): 2019: 10.7; 2020: 22.5; 2021: 17.0; 2022: 15.2; 2023: 14.6; 2024: 14.4; 2025: 14.4
- Current account balance (percent of GDP): 2019: 0.7; 2020: -17.2; 2021: -14.2; 2022: -12.5; 2023: -11.5; 2024: -10.4; 2025: -9.7

### Fiscal position highlights
- Overall balance (percent of GDP): 2019: -1.7; 2020: -6.7; 2021: -9.5; 2022: -4.8; 2023: -3.5; 2024: -1.9; 2025: -1.6
- Central government debt (percent of GDP): 2019: 61.8; 2020: 72.3; 2021: 82.6; 2022: 80.1; 2023: 80.9; 2024: 80.0; 2025: 79.2
- Revenue and grants (percent of GDP): 2019: 19.0; 2020: 17.1; 2021: 16.3; 2022: 18.7; 2023: 19.2; 2024: 19.8; 2025: 20.0
- Expenditure (percent of GDP): 2019: 20.0; 2020: 20.7; 2021: 23.8; 2022: 23.5; 2023: 22.6; 2024: 21.7; 2025: 21.6

### External financing and reserves
- Financing gap and prospective financing (Table 6):
  - Financing needs (2020): 2,536 (millions of US dollars)
  - Financing gap (2019): 0; (2020) prospective financing: 571
  - Prospective financing composition (millions of US dollars): IMF - RFI 252; IDB 180; CDB 50; MIGA guaranteed commercial loans 88
  - Residual financing gap: 0
- Gross international reserves (end of period; millions of U.S. dollars): 2019: 1,760; 2020: 1,343; 2021: 1,233; 2022: 1,217; 2023: 1,234; 2024: 1,266; 2025: 1,343
- Gross international reserves (In months of next year's G&S imports): 2019: 6.3; 2020: 4.0; 2021: 3.3; 2022: 3.0; 2023: 3.0; 2024: 3.0; 2025: 3.0

### Selected social and level indicators (latest available)
- GDP (US$ millions), 2019: 12,827
- GDP per capita (US$), 2019: 33,689
- Population (thousands), 2019: 381
- Poverty rate (percent), 2013: 12.8
- Unemployment rate (percent), May 2019: 9.5
- Infant mortality rate (per 1,000 live births), 2018: 8.3
- Life expectancy at birth (years), 2019: 73.6
- Human development index (rank), 2019: 60
- Adult literacy rate, 15 & up (percent), 2007: 96

*Source: IMF staff report and tables as provided in the content unit.*

### Annex I. Debt Sustainability Analysis

### Annex I. Debt Sustainability Analysis

### Summary findings and debt trajectory
- Central government debt projected to increase from 61.8 percent of GDP in FY2018/19 to 82.6 percent of GDP by FY2020/21, then gradually decline to 79.2 percent over the medium term.  
- External debt expected to increase from 20 to 32.0 percent of GDP from FY2018/19 to FY2020/21.  
- The risk to the debt level is assessed as “red” in the heatmap.  
- The DSA covers only central government debt; it includes the promissory note to the Bank of The Bahamas and arrears to domestic sectors accumulated by past administrations (total 4.5 percent of GDP).  
- Most government debt is medium- and long-term and denominated in domestic currency.

### Baseline macro-fiscal projections
- Real GDP: contract by 7.4 percent in FY2019/20 and 2.9 percent in FY2020/21; rebound in FY2021/22 and converge to 1.5 percent over the medium term.  
- Primary balance: surplus of 0.9 percent of GDP in FY2018/19 turns to deficits of 3.6 percent and 5.9 percent of GDP in the current and next fiscal years, respectively.  
- Government plans to finance the FY2020/21 deficit largely by external multilateral and commercial—including with WB MIGA guarantees—borrowing.  
- Over the medium term, the government is expected to resume fiscal consolidation to bring debt and deficit closer to Fiscal Responsibility Act (FRA) targets.  
- Illustrative staff calculation: an average primary surplus of 4 percent of GDP would be needed starting in FY2024/2025 to achieve the 50 percent debt target by FY2030/31, requiring significantly faster consolidation beginning in FY2022/23.

### Shocks, stress tests, and vulnerabilities
- The Bahamas experienced two major shocks in FY2019/20: Hurricane Dorian and the COVID-19 pandemic, causing a sudden stop in tourism, lockdowns/curfews, sharp revenue declines, and significant spending pressures.  
- Stress tests identify a major hurricane (combined macro-fiscal shock II in DSA Figure 4) as the most adverse shock; such a scenario could push central government debt-to-GDP to slightly above 100 percent in FY2020/21.  
- A contingent liability shock and a combined macro-fiscal shock could raise public debt beyond 90 percent of GDP.  
- Additional downside risks: prolonged disruptions due to COVID-19 and tightening global and domestic financial market conditions as the government faces substantial financing needs in FY2020/21.  
- Heatmap and risk assessment highlight elevated market-perception and debt-profile vulnerabilities (debt level flagged red).

### Key indicators and model inputs (selected)
- Public gross financing needs: 5.9, 14.0, 8.0, 10.9, 14.0, 9.9, 11.6, 11.1, 9.1 (percent of GDP, by year as presented).  
- Real GDP growth (percent): -0.2, 0.8, 2.7, -7.4, -2.9, 7.8, 2.0, 2.0, 1.5 (by year as presented).  
- Inflation (GDP deflator, percent): 1.6, 1.2, 1.1, 1.3, 1.5, 1.8, 1.9, 2.0, 1.9 (by year as presented).  
- Effective interest rate (percent): 5.2, 4.8, 4.2, 4.8, 4.9, 4.3, 4.0, 4.0, 3.8 (by year as presented).  
- Change in gross public sector debt (cumulative): 3.3, 9.0, -1.5, 10.5, 10.3, -2.5, 0.8, -0.9, -0.8, -0.8, 17.4 (cumulative series as presented).  
- Primary (noninterest) revenue and grants (percent of GDP): 14.2, 16.6, 19.0, 17.1, 16.3, 18.7, 19.2, 19.8, 20.0, 11.1 (series as presented).  
- Primary (noninterest) expenditure (percent of GDP): 15.6, 17.4, 18.1, 20.6, 22.2, 20.3, 19.5, 18.6, 18.6, 11.9 (series as presented).

### Policy measures, commitments, and institutional actions (from Letter of Intent)
- Emergency financing request: Government requests emergency financing from the IMF in the equivalent of SDR 182.4 million (about US$252 million), a purchase of 100 percent of quota under the Rapid Financing Instrument (RFI) to respond to balance of payments needs.  
- Temporary targeted fiscal measures: about 4 percent of GDP in temporary measures for unemployment assistance, food and social support, tax deferrals, and business loans.  
- Commitment to Fiscal Responsibility Act (FRA): embed sunset clauses for temporary measures, resume pre-Dorian reform measures once COVID-19 abates (including review/reform of investment incentives, tax administration, SOE reforms).  
- Fiscal controls and PFM: develop contingency plans to protect priority spending; take steps to increase revenue collection, contain the wage bill, and reduce transfers to SOEs at a measured pace.  
- Procurement and transparency: publish procurement contracts of crisis mitigation spending, including beneficial ownership information; report quarterly on COVID-19 mitigation spending; audits by the Auditor General within 9 months of fiscal year end; Auditor General to quantify revenue losses directly associated with COVID-19.  
- Legislation and institutional upgrades: finalize Public Procurement Law by end-June; submit Public Financial Management Bill and Public Debt Management Bill to Parliament by end-2020; approve new Central Bank Law to limit lending to government.  
- Financial sector support: Central Bank of The Bahamas maintained short-term interest rates at historically low levels, ensured ample liquidity, encouraged banks and credit unions to consider loan moratoria without relaxing credit standards; require robust expected credit loss estimates and regular loan portfolio reviews.  
- Safeguards and IMF engagement: commit to undergoing a safeguards assessment in connection with the RFI; provide most recently completed external audit reports of CBOB and authorize auditors to discuss with IMF staff; establish a framework agreement between CBOB and Ministry of Finance for servicing IMF obligations.  
- Policy conditionality: Government authorizes IMF to publish the Letter of Intent and the staff report for the RFI request.

### Scenario and stress-test highlights (selected alternative assumptions)
- Historical scenario primary balance assumptions: -3.6, -1.1, -1.1, -1.1, -1.1, -1.1 (percent, years as presented).  
- Constant primary balance scenario: primary balance held at -3.6 percent from 2020 through 2025.  
- Stress test shocks include: Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock, Contingent Liability Shock, Combined Macro-Fiscal Shock II.  
- Combined Macro-Fiscal Shock II example projected path (selected variables): Real GDP growth -7.4, -2.9, 4.8, 0.0, 3.5, 2.5; Primary balance -3.6, -5.9, -11.0, -7.6, -3.4, -0.5 (by year as presented).

*Source: IMF staff and Government of The Bahamas, Annex I. Debt Sustainability Analysis, as provided in the content unit.*

### 182.4 million, equivalent to 100 percent of quota. This assistance will help meet the urgent

### 1bhsea2020001 - 182.4 million, equivalent to 100 percent of quota. This assistance will help meet the urgent

### The COVID-19 Pandemic and Policy Response
- Health and epidemiological status as of end-May:
  - Number of confirmed COVID-19 cases: 100
  - Reported deaths: 11
- Containment and mobility measures:
  - Social distancing measures and school closures.
  - Closure of all airports and seaports to incoming flights and vessels, including domestic inter-island travel.
  - Weekday curfews and weekend lockdown measures remain in place.
  - Preparations for phased and gradual reopening of various islands and some sectors depending on the evolution of COVID-19 cases.
  - A possible opening of commercial travel on or before July 1 is being considered.
- Institutional response:
  - An Economic Recovery Committee comprising public and private sector entities established to guide a comprehensive pandemic response strategy.
- Fiscal support measures announced by authorities (temporary and targeted, amounting to roughly 4 percent of GDP):
  - Grants and subsidized loans for small businesses.
  - Direct cash assistance for unemployment.
  - Payroll support for large employers in the form of tax credits and deferrals.
  - Food assistance and other social services.
- Central Bank of The Bahamas (CBOB) near-term response objectives:
  - Maintain sustainable foreign exchange market conditions.
  - Maintain domestic financial stability.
  - Provide targeted accommodation of distressed borrowers.
- Credit-relief and forbearance measures:
  - CBOB encouraged domestic banks and credit unions to provide 3-month loan moratoria for impacted households and businesses.
  - Forbearance provided for borrowers who maintained their accounts in good standing prior to the onset of the pandemic.
- Temporary measures to ensure reserve adequacy implemented by the CBOB:
  - Suspended resident access to foreign exchange for international capital market investments through the Bahamas Depository Receipts and the Investment Currency Market until a recovery is entrenched.
  - Commercial banks given a more relaxed margin within which to sell foreign exchange to the public before they can draw on the CBOB’s foreign reserves.
  - Suspended exchange control approvals of dividend payments for commercial banks to preserve buffers.
  - Requested the National Insurance Board to liquidate some external investments and bring the proceeds back onshore.
  - CBOB continuing to assess foreign exchange market outlook and stands ready to adopt additional measures as necessary.
- Monetary policy stance:
  - CBOB considered reducing interest rates but ruled it out in the current context.
  - Rationale: expansionary monetary policies, unless accompanied by additional foreign exchange inflows, would stimulate import spending outside of the productive sector and intensify foreign exchange market pressures.
  - Use of macroprudential tools to encourage targeted credit flow to support recovery needs of businesses and households in existing banking relationships.

### Macroeconomic Outlook
- Combined shocks:
  - The combined fallout from the pandemic and hurricane Dorian expected to take a heavy toll on the economy.
- Real economic activity projections for 2020:
  - Authorities project a contraction somewhere between 9 to 15 percent, depending on when economic activity and tourism resume.
- Growth outlook for 2021:
  - Authorities’ growth outlook for 2021 is weaker than staff outlook, with tourism demand expected to remain subdued and any potential recovery largely contingent on international developments.
- Labor market:
  - Unemployment rate projected to reach as high as 35 percent.
- Uncertainty:
  - Outlook subject to considerable uncertainty around the path of the pandemic and its economic impacts.
- Fiscal context and targets:
  - The Bahamas achieved fiscal targets for FY2018/19 after three consecutive years of fiscal consolidation.
  - Post-hurricane expenditures led authorities to invoke the ‘Exceptional Circumstances Clause’ of the Fiscal Responsibility Act, allowing temporary deviation from fiscal objectives due to external shocks.
  - The departure from fiscal targets was originally projected to span the next five budget cycles, with compliance resuming in FY2024/25, but the pandemic will further delay reaching these targets.
  - Authorities committed to achieving the fiscal deficit target of 0.5 percent of GDP by FY2026/27 and the debt target of 50 percent of GDP by FY2030/31.
- Fiscal pressures and revenue:
  - Pandemic and sudden stop in tourism resulting in significant reduction in revenues.
  - Revenue shortfalls combined with post-hurricane reconstruction costs and pandemic-related increases in social welfare and health care spending expected to weigh heavily on fiscal outturns this fiscal year and next.
- External reserves and financial sector:
  - External reserves projected to decline significantly in 2020 due to reduction in foreign currency receipts related to the halt in tourism and increased imports for reconstruction.
  - Overall financial sector outlook remains stable, with average capital buffers well in excess of international benchmarks and commercial banks maintaining a cautious lending stance.
- Continued reform commitments:
  - Authorities committed to continuing comprehensive reforms initiated prior to hurricane Dorian as soon as conditions permit, including:
    - Finalization of public financial and debt management bills.
    - Transformation of state-owned enterprises into more self-sustaining entities.
    - Pursuing measures to increase revenue collections.
    - Enhancing resilience to natural disasters.
  - Government commits to publishing information on the use of loan proceeds, with the bulk earmarked for revenue replacement, and to have the utilization of these proceeds audited and reported on by the Auditor General.
- International compliance progress:
  - The Bahamas made good progress implementing action items agreed with the Financial Action Task Force (FATF) to strengthen the AML/CFT framework; FATF made an initial determination that The Bahamas has largely completed its action plan.
  - In February, the European Union removed The Bahamas from its list of Non-Cooperative Jurisdictions for Tax Purposes.

### Conclusion and Role of Fund Support
- Financing described at the outset:
  - 182.4 million, equivalent to 100 percent of quota.
  - This assistance will help meet the urgent balance of payments needs associated with the massive drop in tourism and the increased health spending.
- Authorities’ stance:
  - The Bahamas values engagement with the Fund and appreciates the Fund’s responsiveness during the global crisis.
  - Continued commitment to reform together with support from the Fund and other international partners expected to play a key role in dealing with the crisis.

*From content unit: 1bhsea2020001.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1bhsea2020001.pdf_