## 1bhsea2021001

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### PRE-COVID-19 AND HURRICANE DORIAN AFTERMATH
- Hurricane Dorian made landfall on September 2–3, 2019 in Grand Bahama and Abaco, causing damage exceeding 25 percent of GDP.
- Cleanup and reconstruction proceeded slowly amid coordination difficulties and labor shortages.
- Tax exemptions on construction-related materials and services, and additional outlays on social protection and infrastructure, amounted to about 6 percent of GDP over four years.
- Government activated the escape clause under the Fiscal Responsibility Act (FRA) and postponed targets by four years:
  - Fiscal deficit target of 0.5 percent of GDP postponed to fiscal years (FY, July 1-June 30) 2024/25.
  - Public debt-to-GDP ratio target of 50 percent postponed to FY 2028/29.
- Institutional reforms undertaken prior to Dorian included a rules-based fiscal policy framework and a fiscal council; implementation of several reforms slowed after Dorian.
- Progress on 2019 FSAP recommendations was partial: several recommendations were legislated, but progress on structural and fiscal reforms, including a review of the tax system and tax expenditures, has been slow.

### COVID-19 SHOCK: HEALTH, ECONOMIC IMPACT, AND POLICY RESPONSE
- Health and pandemic statistics:
  - As of December 30, 2020: over 7,800 Bahamians infected and 170 deaths due to COVID-19.
  - Population referenced: approximately 385,000 people.
  - From August to October 2020, new cases peaked at over 30 per day, on average, per 100,000 people (mid-October 2020 peak).
- Tourism and labor market impacts:
  - Tourist arrivals declined by 70.5 percent year-on-year in the first ten months of 2020.
  - Tourism accounts for about 50 percent of GDP and 70 percent of employment.
  - NIB received more than 47,000 unemployment benefit applications between April and September (about 20 percent of the workforce).
  - Over 7,000 self-employed received government assistance.
- External sector and reserves:
  - Net travel receipts were negative for the first time in Q2 2020.
  - Exports contracted more than imports: 35 percent vs. 17 percent in the first three quarters relative to 2019.
  - Hurricane-related re-insurance receipts: about $400 million in 2020 compared to $900 million in 2019.
  - External foreign reserves reached an all-time high of $2.3 billion at the end of October, mostly due to government external borrowing.
- Fiscal response and measures (FY2019/20 estimates and outturns, In percent of GDP):
  - Total: 1.2 / 0.8
  - Tax Credit & Tax Deferral Program (medium and large businesses): 0.5 / 0.2
  - SME Support (loans and grants): 0.2 / 0.3
  - Utility Subventions: 0.2 / -
  - Health (Ministry of Health funding): 0.1 / 0.0
  - Unemployment Assistance (self-employed up to $200 per week for 8 weeks; FY2020/21 up to $500 per month for 5 months; duration of regular unemployment benefits extended from 13 to 26 weeks): 0.1 / 0.3
  - Food Assistance (food vouchers up to $100 per week for 8 weeks; extend program at a cost of $15M and provide an additional $17M to other programs): 0.1 / 0.0
- Additional fiscal measures and outcomes:
  - Government doubled the duration of existing unemployment benefits (UEB) to 26 weeks and allowed companies to defer tax payments if they retained at least 80 percent of their employees.
  - Health sector received additional resources of $15 million.
  - 2019/20 fiscal deficit was more than 5 percentage points higher than planned.
  - 2020Q2 year-on-year revenues halved; overall revenues were 20 percent lower than originally budgeted.
  - Overall deficit about 6½ percent of GDP.
  - Public debt increased by 10 percentage points to 68.6 percent of GDP in FY2019/20.
- Financing and ratings:
  - IMF RFI access: 100 percent of quota (SDR 182.4 million or about $250 million) approved on June 1; accounted for about 40 percent of additional financing needs for FY2019/20.
  - Remainder financed by IFIs (IDB and CDB) and domestic sources.
  - Sovereign rating downgrades by Standard and Poor’s (April and November) and Moody’s (June).
- Monetary and financial policy actions:
  - CBOB maintained policy rate at 4 percent and focused on protecting the one-to-one peg to the U.S. dollar.
  - FX measures included suspending exchange control approvals for commercial banks’ dividends and temporarily restricting certain foreign exchange uses; NIB requested to repatriate about $60 million in external assets.
  - Mandatory 3-month loan deferral starting March 2020; as of October about 15 percent of loans were on deferral (compared to 37 percent in April).
  - Banking sector: liquidity improved in Q3 due to public sector external borrowing and cautious lending; average ratio of capital to risk-weighted assets remained well above the regulatory minimum of 17 percent; credit quality indicators beginning to deteriorate and profitability contracted due to increased loan loss provisioning.

### OUTLOOK, PROJECTIONS, AND RISKS
- Growth and inflation projections:
  - Staff projects real GDP to fall by 16.2 percent in 2020.
  - Real GDP projected to grow 2 percent in 2021 and accelerate to above 8 percent in 2022, converging to the medium-term growth rate of 1.5 percent by 2026.
  - Consumer price inflation expected to decline to 0.8 percent by end-2020 and pick up to 2.2 percent in 2021.
  - Staff assumes tourism picks up significantly in 2022 and returns to 2019 levels by 2024.
- External sector projections:
  - Current account deficit projected at 17.4 percent in 2020.
  - Staff assesses the REER as moderately overvalued in the range of 6-9 percent.
  - Foreign reserves projected to end 2020 above 2019 levels due to external borrowing, but to face a net drawdown in 2021 owing to construction-related imports and slow recovery of tourism receipts.
  - Numerous FDI projects over the medium term expected to help reserves remain above three months of imports.
- Key risks (large and skewed to the downside):
  - Reopening to international tourism could trigger domestic COVID-19 resurgence and further lockdowns.
  - Delays in widespread immunization could postpone tourism recovery, worsening growth, the current account, and fiscal position with implications for debt sustainability.
  - Upside possibility: faster vaccine distribution or breakthroughs in treatments.
  - Other risks: increasing vulnerability to hurricanes due to climate change; central bank digital currency poses potential cybersecurity risks.
  - Managing these risks requires political consensus and vigilant policymaking ahead of general elections due by May 2022.
- Authorities’ views:
  - Authorities’ growth projections: -19 percent for 2020 and 3 percent for 2021.
  - Authorities expect real GDP back at pre-pandemic levels by 2024.
  - CBOB expects deflationary pressures to dissipate towards end-2020 and inflation to converge back to about 2.5 percent in 2021.

### FISCAL POLICY, FY2020/21 BUDGET, AND MEDIUM-TERM STRATEGY
- FY2020/21 budget projections:
  - Revenue projected to decline to 14.2 percent of GDP.
  - Expenditures projected to increase to 26.7 percent of GDP.
  - Fiscal deficit projected to rise to 12.4 percent of GDP.
  - Debt-to-GDP ratio projected to rise to almost 90 percent.
- COVID-19 related VAT exemptions include: building supplies, personal protective equipment, and agricultural products; exemptions extended at least until end-2020.
- Arrears clearance: government settled about $240 million of the $360 million it committed to clear in a three-year period.
- Financing needs and measures:
  - Gross financing needs this fiscal year estimated at about $2 billion (17.6 percent of GDP).
  - External issuance in October and December: US$825 million, at an annual interest rate of 8.95 percent, and an average maturity of 11 years.
  - Official financing received: US$225 million from the IDB and US$40 million from the CDB.
  - Expected additional financing by June 2021: US$150 million from the IDB; US$100 million from the World Bank Development Policy Operation; up to US$75 million from international commercial banks under the World Bank MIGA framework.
  - Remaining financing needs of about US$600 million to be filled from domestic sources.
- IMF staff medium-term fiscal recommendations:
  - Put essential capital projects through rigorous appraisal and selection processes.
  - Repeal COVID-related VAT exemptions at the first legislative opportunity and replace with more direct and targeted measures to support the vulnerable.
  - To achieve the debt target by FY2030/31, recommend additional fiscal effort of about 3 percent of GDP over four years starting in FY2022/23 and a constant primary surplus of about 5 percent of GDP thereafter.
  - Staff estimate: the decline in the deficit over the medium term of about 11 percent of GDP corresponds to fiscal effort of about 5.5-7 percent of GDP, depending on methodology used.
- Contingency and savings measures:
  - Agencies tasked to scale back recurrent and capital expenditures by $200 million for the remainder of the fiscal year.
  - Authorities confident contingency measures could result in additional revenues and savings of up to $300 million.
- Transparency and oversight:
  - Authorities committed to publishing procurement contracts of COVID-19 related spending with beneficial ownership information; Auditor General will audit FY2019/20 COVID-19 related expenses and revenue losses by March 2021.

### TAX, REVENUE ADMINISTRATION, AND EXPENDITURE REFORMS
- Current revenue structure: relies on VAT, stamp duties, business license fees, and to a lesser extent, property taxation; no income taxation.
- Staff recommendations:
  - Build comprehensive real estate price indices to provide a basis for market-value-based property taxation.
  - Consider strengthening progressive features by increasing rates on higher value residences.
  - Over the medium-term, consider income taxation to achieve a more equitable income distribution.
  - Review tax expenditures.
- Revenue administration priorities:
  - Review Department of Inland Revenue’s (DIR) organizational structure and complete the DIR bill and appropriate amendments to support integration of departments.
  - Develop strategic and operational plans with results-based management and modernize core administration functions.
  - For customs: establish an effective exemption monitoring and verification unit, strengthen risk management, develop capacity in post-clearance audit (PCA), and establish a trusted trader program (TTP).
- Expenditure efficiency and SOE reforms:
  - Administrative costs share has nearly doubled in the last decade.
  - SOE subsidies represented almost 16 percent of current expenditure last year.
  - Recommendation: contain administrative costs and reduce subsidies to SOEs by increasing operational efficiency.
  - Conduct planned comprehensive spending review (in consultation with the IDB) to identify savings and develop a framework to rank outlays by medium-term growth effects and potential to enhance social cohesion and disaster resilience.
  - Recent step: government hired an international accounting firm to review six SOEs as pilots; initial report completed with corporate governance recommendations; further restructuring/rationalization recommendations to be provided in 2021.
- Key structural fiscal reforms to pass quickly:
  - Tabling of Public Procurement Bill in Parliament in June 2020 noted as an important first step.
  - Draft PFM Bill and Public Debt Management Bill to be submitted to Parliament in the next few months and should be enacted as soon as possible.
  - Fiscal Responsibility Council should be fully operationalized without further delay.
- Tax transparency:
  - EU removed The Bahamas from its list of Non-Cooperative Jurisdictions for Tax Purposes in February 2020.
  - Launch of a tax residency certificate by end-2020 welcomed; staff cautioned against potential abuse of economic permanent residency program.

### SOCIAL PROTECTION, HUMAN CAPITAL, AND TARGETING
- Social spending context:
  - Pre-pandemic Gini coefficient (2014): around 0.5; Caribbean comparable average Gini: 0.3.
  - In 2014, about one-fifth of the population earned below US$12.4 a day; about 5 percent lived in extreme poverty (below $5 per day).
  - Total social protection spending in FY2019/20: just above 1 percent of GDP.
  - FY2019/20 health sector spending: about 3.3 percent of GDP; education spending FY2019/20: about 3 percent of GDP.
- COVID-19 social responses and coverage:
  - IDB/Cornell April 2020 survey: about 34 percent of households received at least one assistance program.
  - NIB transfers: B$37.9 million to 28,478 beneficiaries by September (UEB extended program).
  - In 2020Q3 alone, NIB paid $47 million to the unemployed under the extended UEB program.
  - Food support: National Distribution Task Force processed $1 million per week benefiting ~110,000 persons as of September 2020; later increased to $1.3 million per week.
  - Self-employed UEB extension: B$15.4 million paid to 7,115 beneficiaries to date; program initially B$200 per week for 8 weeks, later B$150 per week for 13 weeks for tourism-related self-employed.
- Targeting and data gaps:
  - Most social assistance programs are application based and validation is difficult given limited digitization.
  - Latest household-level information collected in 2013; latest full labor force survey collected in May 2019.
  - Planned pilot: means-tested social program in New Providence starting in 2021.
  - Recommendations: strengthen identification and monitoring of the vulnerable population; establish systematic communication among stakeholders; temporarily expand vocational training programs (BTVI) to a wider population.
- Education adjustments:
  - Public schools closed March–October 2020; between 8,000 and 10,000 students ages 5–18 using a new virtual platform; school lunch program continues with 5,087 students enrolled.

### MONETARY POLICY, EXCHANGE RATE, AND FINANCIAL STABILITY
- Monetary policy guidance:
  - Monetary policy should continue focusing on reserve adequacy.
  - Significant slack and limited inflation pressures suggest room to lower interest rates, but staff recommended keeping interest rates on hold for now.
  - COVID-19 related foreign exchange measures considered temporary CFMs under IMF Institutional View and should be phased out when the pandemic recedes.
- Banking sector resilience and crisis frameworks:
  - Loan moratoria should be targeted and phased out as the pandemic recedes.
  - CBOB guidance needed so banks’ estimates of expected credit losses are robust and timely; require regular loan portfolio reviews and risk assessments.
  - Commercial onshore banks can overall withstand a stress scenario where NPLs to gross loans increase by 15 percentage points, although some banks (representing about ¼ of system wide assets) could experience modest capital shortfalls.
  - Some credit unions (about 3 percent of total banking system assets) are heavily exposed to the tourism sector and may need to be resolved.
  - 2020 Central Bank and Banks and Trust Companies (Amendment) Acts establish CBOB as sole resolution authority and require recovery plans.
  - Protection of Depositors (Amendment) Act 2020 enhances DIF governance; annual DIF premiums doubled to 0.1 percent of insured deposits; Fund contained about $60 million in 2020; target ratio recommended by 2019 FSAP is 2 percent of insured deposits (about $125 million).
  - FSAP cautioned against expanding coverage to credit unions before the sector is adequately capitalized.
- Central bank actions and FX measures:
  - CBOB maintained policy rate at 4 percent.
  - CBOB announced it will lift the suspension of exchange control approvals for bank dividends by March 2021.
  - CBOB plans to require banks to increase loan loss provisioning gradually depending on the state of the economy.

### CBDC “SAND DOLLAR”: ROLLOUT, DESIGN, BENEFITS, AND RISKS
- Fact: Sand Dollar officially launched nationwide on October 20, 2020.
- Objectives: boost financial inclusion in remote islands and strengthen payments resilience to natural disasters and pandemics.
- Rollout phases and wallet levels:
  - Phase 1: private-sector players ready systems with KYC and compliance for low-value, personal and enterprise wallets.
  - Phase 2 (slated early- through mid-2021): prepare essential infrastructure services in government and private sectors; regulations to underpin the CBDC in development.
  - Wallet access levels and limits (B$):
    - Simplified (Level 1): Balance limit 500; Transactions limit (per month) 1,500; no bank account link; low KYC.
    - Regular (Level 2): Balance limit 5,000; Transactions limit (per month) 10,000; bank account link allowed; KYC required.
    - Enhanced (Level 3): Balance limit 8,000; Transactions limit (per month) 20,000; for registered businesses and high-value individuals; enhanced due diligence required.
  - Note: basic wallet requires email or phone; level 2 requires government photo ID; level 3 requires business license and tax filings.
- Benefits (CBOB view):
  - Increases financial inclusion, lowers transaction costs, improves safety and efficiency of payments, could improve delivery of social programs and tax administration, and help detect illicit financial flows.
- Risks and mitigation:
  - Risks: substitution for bank deposits, impacts on bank funding and intermediation; costly technology and cybersecurity exposures; central bank exposures across payments chain.
  - Mitigations: Sand Dollar holdings not interest bearing; ceilings on wallet holdings; circuit breaker; wallets cannot be used outside the country or for foreign exchange operations; multi-factor authentication and AML/CFT engine; CBOB upgrading IT and monitoring systems and requiring cybersecurity assessments.
- Next steps:
  - Ensure offline usability, achieve interoperability with other wallets and integrate ACH and RTGS; invite Public Treasury and NIB to become direct participants in RTGS and ACH systems.

### PUBLIC AND EXTERNAL DEBT — DSA AND EXTERNAL VULNERABILITIES
- Public debt levels:
  - Central government debt: 68.6 percent of GDP (FY2019/20).
  - Central government external debt: 23.7 percent of GDP (FY2019/20).
  - Total public sector debt: 83.1 percent of GDP (FY2019/20).
  - Consolidated public sector debt: 80.8 percent of GDP (FY2019/20).
- Projections and financing needs:
  - Central government debt projected to rise to 88.6 percent of GDP in 2020/21.
  - Public gross financing needs (percent of GDP): 7.0 (2019), 7.6 (2020), 13.7 (2021), 17.6 (2022), 15.7 (2023), 8.8 (2024), 8.7 (2025), 5.6 (2026).
  - Gross financing needs this fiscal year estimated at about $2 billion (17.6 percent of GDP).
- DSA stress-test outcomes:
  - Contingent liability shock (banking crisis scenario): debt-to-GDP ratio would exceed 100 percent.
  - Real interest rate shock: debt-to-GDP ratio would stay around 85 percent over the medium term.
  - Combined macro-fiscal shock: government debt-to-GDP ratio would go up to 103 percent over the medium term.
  - Combined macro-fiscal shock II (major hurricane hitting main islands in FY2022/23): government debt would increase to 107 percent over the medium term.
- External debt metrics and bound tests:
  - Baseline external debt series (selected): 2019: 23.0 percent of GDP; 2020: 40.2 percent of GDP; 2021: 44.6 percent of GDP; 2026: 38.8 percent of GDP.
  - External debt-to-exports ratio: 2020 = 269.3 percent; 2021 = 353.6 percent; 2022 = 165.3 percent.
  - Bound tests: a permanent one-time 30 percent REER depreciation in 2022 would shift external debt level up by around 18 percentage points of GDP (baseline 39 → roughly 57).
- Composition shifts:
  - Short term: in the short term, government expected to rely heavily on external financing to support foreign reserves; share of foreign currency debt increases to 46.1 percent of total debt in FY2020/21 compared to 32.4 percent in FY2018/19.
  - Most new external debt is expected to be long-term; short-term debt share projected to gradually decline toward 9 percent.

### STRUCTURAL REFORMS, RESILIENCE, AND LONG-TERM GROWTH
- Medium-term potential growth projected at just 1.5 percent, considering climate change impacts.
- Priority reform areas:
  - Improve business environment: modernize administrative services, rationalize regulatory requirements, Department of Transformation and Digitization (DTD) established in November 2019, develop a National Digital Marketplace, reform corporate insolvency regime to include rehabilitative component.
  - Improve competitiveness by reducing utility costs: reduce operational inefficiencies of SOEs, invest in cost-effective renewable energy solutions.
  - Reduce frictions in job matching: expand technical and vocational training, improve quality of general education, improve skill databases and job placement services.
  - Promote sustainable tourism and accelerate CARICOM integration.
- Resilience to natural disasters:
  - Recommend improve public investment management and reprioritize expenditure based on a multi-year macro-fiscal framework.
  - Continue investment in climate-resilient infrastructure and consider mandatory property insurance as part of a multidimensional resilience strategy.
  - Annex IX recommends mandatory property insurance with means-tested subsidy options; cites New Zealand and Turkey examples.
- Institutional and data priorities:
  - Provide resources to Department of Statistics and accelerate data management initiatives.
  - Announce and adhere to an advance release calendar.
  - Improve production of timely quarterly national accounts, a household survey, and more frequent labor market statistics.
  - Steps to improve external sector statistics through adherence to BPM6 guidelines and development of IIP statistics to be advanced in 2021.
- Authorities’ commitments:
  - Pledged to bring a new law to parliament in 2021 for mandatory property insurance.
  - Preparing final draft of the Statistics Bill to establish an independent statistical office.
  - ERC recommendations broadly concurred with staff; discussing implementation timeline.

### STAFF APPRAISAL AND POLICY ADVICE SUMMARY
- Near-term priority: save lives and livelihoods while preserving fiscal and financial stability over the medium term.
- Fiscal strategy:
  - Postponing the public debt target by another two years in response to the pandemic is appropriate.
  - Putting debt on a clear downward path and rebuilding buffers will require decisive and credible fiscal measures; prepare measures now and communicate a timetable once pandemic uncertainty subsides.
  - Develop a robust, multi-year government financing strategy and operationalize the new debt management office within the Ministry of Finance without delay.
- Tax, administration, and public spending:
  - Develop comprehensive real estate price indices; consider income taxation over the medium term; modernize DIR organizational structure; establish customs exemption monitoring and PCA capacity.
  - Conduct comprehensive spending review to identify savings and rank outlays by medium-term growth and resilience effects.
- Monetary and financial stability:
  - Continue focus on reserve adequacy; phase out CFMs as pandemic recedes; strengthen macroprudential tools and interagency coordination.
  - Ensure effective implementation of crisis management framework reforms and adequate CBOB and DIF staffing.
- CBDC and AML/CFT:
  - Sand Dollar can foster financial inclusion, but effective AML/CFT implementation and tax transparency efforts are critical.
- Structural and disaster resilience priorities reiterated, including mandatory property insurance with a means-tested subsidy for premiums for all private properties.

*International Monetary Fund staff report (The Bahamas), 1bhsea2021001.*

### 2020. The team comprised Anke Weber (head), Serhan Cevik, Tariq

### 1bhsea2021001 - 2020. The team comprised Anke Weber (head), Serhan Cevik, Tariq

### PRE-COVID-19: THE AFTERMATH OF HURRICANE DORIAN
- Hurricane Dorian made landfall on September 2–3, 2019 in Grand Bahama and Abaco, causing damage exceeding 25 percent of GDP.
- Cleanup and reconstruction proceeded slowly amid coordination difficulties and labor shortages.
- Tax exemptions on construction-related materials and services, and additional outlays on social protection and infrastructure, amounted to about 6 percent of GDP over four years.
- The government activated the escape clause under the Fiscal Responsibility Act (FRA) and postponed targets by four years:
  - Fiscal deficit target of 0.5 percent of GDP postponed to fiscal years (FY, July 1-June 30) 2024/25.
  - Public debt-to-GDP ratio target of 50 percent postponed to FY 2028/29.
- Institutional reforms undertaken prior to Dorian included a rules-based fiscal policy framework and a fiscal council; implementation of several reforms slowed after Dorian.
- Progress on 2019 FSAP recommendations was partial: several recommendations were legislated, but progress on structural and fiscal reforms, including a review of the tax system and tax expenditures, has been slow.

### THE COVID-19 SHOCK: IMPACT AND POLICY RESPONSE
- Health and pandemic statistics:
  - As of December 30, 2020: over 7,800 Bahamians infected and 170 deaths due to COVID-19.
- Tourism and labor market impacts:
  - Tourist arrivals declined by 70.5 percent year-on-year in the first ten months of 2020.
  - Tourism accounts for about 50 percent of GDP and 70 percent of employment.
  - National Insurance Board (NIB) received more than 47,000 unemployment benefit applications between April and September (about 20 percent of the workforce).
  - Over 7,000 self-employed received government assistance.
- External sector and reserves:
  - Net travel receipts were negative for the first time in Q2 2020.
  - Exports contracted more than imports: 35 percent vs. 17 percent in the first three quarters relative to 2019.
  - Hurricane-related re-insurance receipts: about $400 million in 2020 compared to $900 million in 2019.
  - External foreign reserves reached an all-time high of $2.3 billion at the end of October, mostly due to government external borrowing.
- Fiscal response and measures:
  - Government measures estimated at 1.2 percent of GDP for FY2019/20; execution fell short due to limited demand and implementation delays.
  - Key measures (Text Table: In percent of GDP; Budget / Outturn):
    - Total: 1.2 / 0.8
    - Tax Credit & Tax Deferral Program (medium and large businesses): 0.5 / 0.2
    - SME Support (loans and grants): 0.2 / 0.3
    - Utility Subventions: 0.2 / -
    - Health (Ministry of Health funding): 0.1 / 0.0
    - Unemployment Assistance (self-employed up to $200 per week for 8 weeks; FY2020/21 up to $500 per month for 5 months; duration of regular unemployment benefits extended from 13 to 26 weeks): 0.1 / 0.3
    - Food Assistance (food vouchers up to $100 per week for 8 weeks; extend program at a cost of $15M and provide an additional $17M to other programs): 0.1 / 0.0
  - The government doubled the duration of existing unemployment benefits (UEB) to 26 weeks and allowed companies to defer tax payments if they retained at least 80 percent of their employees.
  - Health sector received additional resources of $15 million.
- Fiscal outcomes:
  - 2019/20 fiscal deficit was more than 5 percentage points higher than planned.
  - 2020Q2 year-on-year revenues halved; overall revenues were 20 percent lower than originally budgeted.
  - Government cut spending on salaries and goods and services; total expenditure to GDP was 2½ percentage points higher than originally planned.
  - Overall deficit about 6½ percent of GDP.
  - Public debt increased by 10 percentage points to 68.6 percent of GDP in FY2019/20.
- Financing and ratings:
  - IMF Executive Board approved access of 100 percent of quota (SDR 182.4 million or about $250 million) under the Rapid Financing Instrument (RFI) on June 1, accounting for about 40 percent of additional financing needs for FY2019/20.
  - Remainder financed by IFIs (IDB and CDB) and domestic sources.
  - Sovereign rating downgrades by Standard and Poor’s (April and November) and Moody’s (June).
- Monetary and financial policy actions:
  - Central Bank of the Bahamas (CBOB) maintained policy rate at 4 percent and focused on protecting the one-to-one peg to the U.S. dollar.
  - FX market measures included:
    - Suspending exchange control approvals for commercial banks’ dividends.
    - Allowing commercial banks greater latitude to supply foreign exchange to the public before replenishing with the central bank.
    - Suspending access to foreign exchange for international capital market and real estate investments.
    - Requesting NIB to repatriate about $60 million in external assets.
  - Loan moratoria: mandatory 3-month deferral starting March 2020 for credit facilities negatively impacted by the pandemic; banks instructed that loans in good standing pre-pandemic would not be reclassified due to deferral; banks required to report monthly on loan portfolios.
    - As of October, about 15 percent of loans were on deferral (compared to 37 percent in April).
  - Banking sector:
    - Bank liquidity improved in Q3 due to public sector external borrowing and cautious lending.
    - Average ratio of capital to risk-weighted assets remained well above the regulatory minimum of 17 percent.
    - Credit quality indicators beginning to deteriorate; profitability contracted due to increased loan loss provisioning.

### OUTLOOK AND RISKS
- Growth and inflation projections:
  - Staff projects real GDP to fall by 16.2 percent in 2020.
  - Downward revision from -12.5 percent in the June RFI request due to domestic containment measures.
  - Real GDP projected to grow 2 percent in 2021, partly supported by domestic construction activity.
  - Consumer price inflation expected to decline to 0.8 percent by end-2020 and pick up to 2.2 percent in 2021.
  - Staff assumes tourism picks up significantly in 2022 (consistent with the January 2021 WEO Update assumption of broad vaccine availability in advanced countries by the summer of 2021) and returns to 2019 levels by 2024.
  - Real GDP projected to accelerate to above 8 percent in 2022 and converge to the medium-term growth rate of 1.5 percent by 2026.
- External sector projections:
  - Current account deficit projected at 17.4 percent in 2020.
  - Staff assesses the REER as moderately overvalued in the range of 6-9 percent.
  - Foreign reserves projected to end 2020 above 2019 levels due to external borrowing, but to face a net drawdown in 2021 owing to construction-related imports and slow recovery of tourism receipts.
  - Numerous FDI projects over the medium term expected to help reserves remain above three months of imports.
- Risks:
  - Risks are large and skewed to the downside:
    - Reopening to international tourism could trigger domestic COVID-19 resurgence and further lockdowns.
    - Delays in widespread immunization could postpone the tourism recovery, worsening growth, the current account, and fiscal position with implications for debt sustainability.
  - Upside possibility: faster vaccine distribution or breakthroughs in treatments could lessen the impact significantly.
  - Other risks: increasing vulnerability to hurricanes due to climate change; central bank digital currency poses potential cybersecurity risks.
  - Managing these risks requires political consensus and vigilant policymaking ahead of general elections due by May 2022.
- Authorities’ views:
  - Authorities broadly agreed with staff’s outlook but saw upside risks to forecasts.
  - Authorities’ growth projections: -19 percent for 2020 and 3 percent for 2021.
  - Authorities expect real GDP back at pre-pandemic levels by 2024.
  - CBOB expects deflationary pressures to dissipate towards end-2020 and inflation to converge back to about 2.5 percent in 2021.

### POLICY DISCUSSIONS
- Overall challenge:
  - Preserve lives and livelihoods in the near term while laying the basis for a resilient recovery and preserving fiscal and financial stability over the medium term.
  - Dovetail recovery plans with addressing long-standing challenges of low potential growth and vulnerability to natural disasters.
- Key near-term priority:
  - Deploy adequate resources to save lives, preserve livelihoods, and mitigate scarring effects.

### A. Fiscal Policy (Near-Term Policies)
- Near-term fiscal priorities highlighted include supporting the unemployed, vulnerable groups, small businesses, and the health sector (measures and amounts summarized above).
- Fiscal consolidation and debt sustainability considerations follow from the increase in public debt to 68.6 percent of GDP and the projected deterioration in the fiscal position absent recovery.

*International Monetary Fund staff report (The Bahamas), 2020.*

### 18. The FY2020/21 budget proposes a mix of spending and revenue measures to mitigate

### 18. The FY2020/21 budget proposes a mix of spending and revenue measures to mitigate the impact of the pandemic

### Fiscal measures and outlook
- Revenue is projected to decline to 14.2 percent of GDP.
- Expenditures are projected to increase to 26.7 percent of GDP.
- Fiscal deficit projected to rise to 12.4 percent of GDP.
- Debt-to-GDP ratio projected to rise to almost 90 percent.
- COVID-19 related VAT exemptions include: building supplies, personal protective equipment, and agricultural products.
- COVID-19 spending measures extended at least until end-2020.
- Arrears clearance: government settled about $240 million of the $360 million it committed to clear in a three-year period.
- Savings measures:
  - Reduction in subventions to SOEs of about 0.8 percent of GDP over the next four years.
  - Delayed salary increases until 2021.

### Financing needs and financing measures
- Gross financing needs this fiscal year estimated at about $2 billion (17.6 percent of GDP).
- External issuance in October and December: US$825 million, at an annual interest rate of 8.95 percent, and an average maturity of 11 years.
- Official financing received:
  - US$225 million from the IDB.
  - US$40 million from the CDB.
- Expected additional financing by June 2021:
  - US$150 million from the IDB.
  - US$100 million from the World Bank Development Policy Operation.
  - Up to US$75 million from international commercial banks under the World Bank MIGA framework.
- Remaining financing needs of about US$600 million to be filled from domestic sources.
- Note: Tax measures shown for COVID include deferrals, which are due at the end of the 2020 calendar year.

### IMF staff assessment of budget measures and recommendations
- Staff welcomed continued support to the domestic economy and public health system.
- Recommended actions and cautions:
  - Put essential capital projects (hospitals and clinics, roads, infrastructure rehabilitations) through rigorous appraisal and selection processes.
  - Cautioned against VAT exemptions because they erode the tax base and could create tax cascading; recommended repealing them at the first legislative opportunity and replacing them with more direct and targeted measures to support the vulnerable.
- Contingency planning:
  - Ministry of Finance scenario analysis identified potential measures such as a sin tax on alcohol and tobacco, further recurrent spending cuts and delaying non-essential road and maintenance works.
  - Agencies tasked to scale back recurrent and capital expenditures by $200 million for the remainder of the fiscal year.
  - Clear communication between the Ministry of Finance, line ministries and agencies emphasized to avoid accidental unfunded commitments.

### Social spending, targeting, and human capital
- Most social assistance programs are application based and validation is difficult given limited digitization (Annex VII).
- Planned pilot: means-tested social program in New Providence starting in 2021.
- Recommended measures:
  - Strengthen identification and monitoring of the vulnerable population as the country moves from containment to recovery.
  - Establish systematic communication among relevant stakeholders.
  - Temporarily expand vocational training programs (Bahamas Technical and Vocational Institute, BTVI) to a wider population to minimize long-term scarring and raise human capital.

### Transparency, audit, and procurement
- Authorities committed to publishing procurement contracts of COVID-19 related spending with beneficial ownership information on their website in coming months and have begun collecting the necessary information from line ministries.
- Auditor General (AG) will audit the FY2019/20 COVID-19 related expenses and revenue losses by March 2021 and report on irregularities and abuse and can recommend legal proceedings.

### Medium-term fiscal strategy and required adjustment
- Staff projects pandemic and hurricane-related measures to gradually phase out in FY2021/22 along with the recovery.
- Staff supports authorities’ intention to postpone the achievement of the debt target by another two years.
- To achieve the debt target by FY2030/31, staff recommended:
  - Additional fiscal effort of about 3 percent of GDP over four years starting in FY2022/23.
  - A constant primary surplus of about 5 percent of GDP thereafter.
- Staff estimate: the decline in the deficit over the medium term of about 11 percent of GDP corresponds to fiscal effort of about 5.5-7 percent of GDP, depending on the methodology used.

### Tax policy and revenue administration reforms
- Current revenue structure: The Bahamas relies on VAT, stamp duties, business license fees, and to a lesser extent, property taxation; no income taxation.
- Recommendations:
  - Build comprehensive real estate price indices to provide a basis for market-value-based property taxation.
  - Consider strengthening progressive features by increasing rates on higher value residences.
  - Over the medium-term, consider income taxation to achieve a more equitable income distribution.
  - Review tax expenditures.
- Revenue administration priorities:
  - Review Department of Inland Revenue’s (DIR) organizational structure and complete the DIR bill and appropriate amendments to support integration of departments.
  - Develop strategic and operational plans with results-based management.
  - Modernize core administration functions.
  - For customs: establish an effective exemption monitoring and verification unit, strengthen risk management, develop capacity in post-clearance audit (PCA), and establish a trusted trader program (TTP).

### Expenditure efficiency and SOE reforms
- Administrative costs share has nearly doubled in the last decade.
- SOE subsidies represented almost 16 percent of current expenditure last year.
- Recommendations:
  - Contain administrative costs.
  - Reduce subsidies to SOEs by increasing operational efficiency.
  - Conduct planned comprehensive spending review (in consultation with the IDB) to identify savings and develop a framework to rank outlays by medium-term growth effects and potential to enhance social cohesion and disaster resilience.
- Recent steps:
  - Government hired an international accounting firm to review six SOEs as pilots; initial report completed with corporate governance recommendations; further restructuring/rationalization recommendations to be provided in 2021.

### Key structural fiscal reforms to pass quickly
- Public Financial Management (PFM) reforms:
  - Tabling of Public Procurement Bill in Parliament in June 2020 noted as an important first step.
  - Draft PFM Bill and Public Debt Management Bill to be submitted to Parliament in the next few months and should be enacted as soon as possible.
  - Fiscal Responsibility Council should be fully operationalized without further delay.
- Tax transparency:
  - EU removed The Bahamas from its list of Non-Cooperative Jurisdictions for Tax Purposes in February 2020.
  - Launch of a tax residency certificate by end-2020 welcomed; will provide access to financial accounts and income records according to OECD common reporting standards.
  - Staff cautioned against potential abuse of economic permanent residency program and recommended expanding accountability initiatives to the wider public sector (e.g., timely publication of National Insurance Board annual report and annual audits of public enterprises).

### Authorities’ views
- Authorities broadly concurred with fiscal challenges and remain committed to reaching the budgeted deficit target this fiscal year despite significant revenue shortfalls in the first quarter (a decline of about 45 percent compared to the same period last year).
- Authorities confident contingency measures could result in additional revenues and savings of up to $300 million.
- Ministry of Finance has begun hosting quarterly meetings with line ministries to prevent unfunded commitments.
- Authorities view tax exemptions (including construction-related materials on islands impacted by Hurricane Dorian) as essential to encourage reconstruction activity.
- Authorities reiterated commitment to fiscal discipline once the crisis subsides; most COVID-19 measures have time limits and fiscal balance should improve with recovery.
- Authorities have started discussing property and income tax policy reforms and are seeking technical assistance; they acknowledge implementation will take years.
- Findings of the expenditure review expected by March 2021 and will feed into next year’s budget.

### Monetary and exchange rate policy guidance
- Monetary policy should continue focusing on reserve adequacy.
- Significant slack and limited inflation pressures suggest room to lower interest rates, but benefits must be weighed against potential erosion of international reserves and structural bottlenecks in monetary transmission.
- Staff recommended keeping interest rates on hold for now.
- Foreign exchange measures:
  - Pandemic-related foreign exchange measures are appropriate for now but should be phased out when the pandemic recedes.
  - Some measures considered capital flow management measures (CFMs) under the IMF’s Institutional View (IV); temporary tightening of CFMs under crisis conditions is appropriate but should be closely monitored and removed as pandemic recedes.
  - Authorities should resume advancing exchange control liberalization eventually.

### Financial sector policies and stability
- Loan moratoria:
  - Should be targeted to borrowers affected by the pandemic and phased out as the pandemic recedes to promote transparency, sound risk management, and prevent 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.
- System resilience:
  - Commercial onshore banks can overall withstand a stress scenario where NPLs to gross loans increase by 15 percentage points, although some banks (representing about ¼ of system wide assets) could experience modest capital shortfalls.
  - Some credit unions (about 3 percent of total banking system assets) are heavily exposed to the tourism sector and may need to be resolved.
  - CBOB urged to intensify oversight and ensure timely intervention.
  - Once crisis recedes, CBOB should engage with banks to facilitate effective work-out of NPLs to avoid dragging down credit growth.
- Crisis management framework reforms:
  - 2020 Central Bank and Banks and Trust Companies (Amendment) Acts establish CBOB as sole resolution authority, require banks to prepare recovery plans, and provide additional resolution tools.
  - 2020 Protection of Depositors (Amendment) Act 2020 enhances Deposit Insurance Fund’s (DIF) governance, reduces payout timelines and provides access to credit unions.
  - Effective implementation requires adequate staffing at CBOB and DIF.
  - Annual DIF premiums doubled to 0.1 percent of insured deposits; Fund contained about $60 million in 2020; target ratio recommended by 2019 FSAP is 2 percent of insured deposits (about $125 million).
  - FSAP cautioned against expanding coverage to credit unions before the sector is adequately capitalized.

*Source: IMF staff report text (The Bahamas).*

### 37. Strengthening systemic risk oversight would help maintain financial stability and

### 37. Strengthening systemic risk oversight would help maintain financial stability and 

### Systemic risk oversight and financial inclusion
- A macroprudential bank capital buffer will eventually be introduced as part of the Basel III reforms; implementation has been delayed to 2022 as a result of COVID-19.
- Operationalizing the credit bureau within a year should:
  - improve financial inclusion, and
  - reduce the cost of borrowing.
- Collecting loan-level data would assist in market monitoring and future implementation of loan-to-value (LTV) and debt-to-income (DTI)-based lending standards.
- Interagency coordination on systemic matters should be improved.
- The CBOB should:
  - have the authority to recommend regulatory policy for non-bank financial institutions,
  - improve data collection, and
  - strengthen analytical capacity for assessing solvency and liquidity risks.

### AML/CFT progress and implementation
- Completed action items agreed with the Financial Action Task Force (FATF) as a jurisdiction with strategic AML/CFT deficiencies, including:
  - enhancing international cooperation,
  - initiating risk-based supervision of non-bank institutions,
  - implementing the Beneficial Ownership Law, and
  - strengthening enforcement.
- Timeline and assessments:
  - In February 2020, the FATF made an initial determination that The Bahamas had largely completed its action plan, warranting a follow-up on-site assessment.
  - The on-site visit was delayed due to COVID-19; The Bahamas was placed on the European Union’s ‘AML Blacklist’ in October 2020.
  - The FATF completed its inspection in November and removed The Bahamas from its Grey List in December.
- Authorities now need to ensure effective implementation of the strengthened AML/CFT framework.

### Sand Dollar (CBDC) rollout and risks
- The CBOB officially launched the "Sand Dollar" digital currency (CBDC) to all residents on October 20.
- Expected benefits:
  - allow previously unbanked parts of the population to participate in digital payments,
  - enhance the payment system’s efficiency and resilience given vulnerability to natural disasters.
- Risks requiring careful monitoring:
  - financial intermediation,
  - integrity, and
  - cybersecurity.
- Central bank position:
  - the Sand Dollar is only for local use and will not affect capital controls;
  - cross-border foreign exchange payments will continue to be channeled through the commercial banks, the only authorized dealers for conversions in and out of B$ instruments.

### Authorities’ views and central bank actions
- CBOB broadly agreed with staff’s assessment and stressed:
  - further monetary easing could deplete reserves,
  - commitment to remove the foreign currency restrictions once the pandemic recedes.
- Exchange control adjustments:
  - CBOB announced it will lift the suspension of exchange control approvals for bank dividends—introduced in consultation with domestic commercial banks and directly impacting three of them—by March 2021.
  - The impacted commercial banks are expected to resume accelerated repatriation over the medium-term.
- Provisions and DIF:
  - Depending on the state of the economy, the CBOB plans to require banks to increase loan loss provisioning gradually at an increasing scale.
  - CBOB agreed DIF resources need to be stepped up but cautioned about moving too quickly given negative implications for banks’ capital.
- AML/CFT emphasis:
  - CBOB highlighted progress on AML/CFT legislation and regulation and reiterated continuous supervision and cross agency collaboration.
- CBDC approach:
  - CBOB emphasized the gradual approach to the CBDC and active engagement with stakeholders to ensure legal framework development aligns with payments system needs.

### Structural challenges and resilience-building
- Medium-term projections and growth:
  - Staff projects medium-term potential growth at just 1.5 percent, also considering the future impact of climate change.
- ERC report alignment:
  - The Economic Recovery Committee (ERC) report outlines reform options to make the economy more resilient, inclusive, and sustainable, many aligning with longstanding staff advice.
- Priority reform areas:
  - Addressing weaknesses in the business environment:
    - modernize administrative services,
    - rationalize regulatory requirements for starting a business,
    - Department of Transformation and Digitization (DTD) established in November 2019 to make major government services accessible online,
    - develop a National Digital Marketplace as an e-commerce platform,
    - reform the corporate insolvency regime to include a rehabilitative component.
  - Improving competitiveness by reducing utility costs:
    - reduce operational inefficiencies of SOEs,
    - foster an enabling regulatory environment,
    - invest in cost-effective renewable energy solutions.
  - Reducing frictions in job matching:
    - expand technical and vocational training programs,
    - improve quality of general education,
    - improve skill databases and job placement services.
  - Promoting sustainable tourism to protect natural beauty and curb carbon emissions related to mass-tourism.
  - Accelerating Caribbean integration under CARICOM to gain economies of scale.

- Resilience to natural disasters:
  - High private sector losses from hurricanes necessitate improved physical, financial, and social resilience.
  - Actions recommended:
    - improve public investment management and reprioritize expenditure based on a multi-year macro-fiscal framework,
    - continue investment in climate-resilient infrastructure,
    - consider mandatory property insurance as part of a multidimensional resilience strategy (Annex IX).

- Data and statistics priorities:
  - Provide necessary resources to the Department of Statistics and accelerate data management initiatives.
  - Announce and adhere to an advance release calendar to improve predictability.
  - Improve production of timely quarterly national accounts, a household survey, and more frequent labor market statistics.
  - Steps taken to improve external sector statistics through adherence to BPM6 guidelines and development of international investment position statistics to be advanced in 2021.
- Authorities’ commitments:
  - Acknowledge importance of structural reforms and concur with ERC recommendations; discussing implementation timeline.
  - Pledged to bring a new law to parliament in 2021 for mandatory property insurance.
  - Preparing the final draft of the Statistics Bill to establish an independent statistical office.

### Staff appraisal — macroeconomic impact and policy advice
- COVID-19 impact and GDP projections:
  - real GDP is projected to contract by about 16 percent in 2020,
  - followed by a modest rebound of 2 percent in 2021,
  - and to converge back to pre-pandemic levels only by 2024.
  - Risks around the baseline are high due to pandemic uncertainty and vulnerability to natural disasters.
- Fiscal strategy:
  - Near-term priority is to save lives and livelihoods, but maintaining stability will require significant fiscal effort over the medium term.
  - Postponing the public debt target by another two years in response to the pandemic is appropriate.
  - Putting debt on a clear downward path and rebuilding buffers will require decisive and credible fiscal measures.
  - Recommend preparing measures now and communicating a timetable for implementation once pandemic uncertainty subsides.
  - Develop a robust, multi-year government financing strategy and operationalize the new debt management office within the Ministry of Finance without delay.
- Tax and administration recommendations:
  - Develop comprehensive real estate price indices to facilitate market-value-based property taxation.
  - Strengthen progressive features by increasing the rate on higher value residences.
  - Consider income taxation to achieve more equitable income distribution.
  - Prioritize review and modernization of the Department of Inland Revenue’s organizational structure.
  - For customs: establish an effective exemption monitoring and verification unit, strengthen risk management, and develop post-audit clearance capacity.
- Public spending reprioritization:
  - Promote inclusive and resilient medium-term growth by containing administrative costs and improving SOE operational efficiency.
  - Use the planned comprehensive spending review to identify savings and develop a framework to rank outlays by medium-term effects on growth and resilience.
- Monetary policy and financial stability:
  - Monetary policy should continue focusing on reserve adequacy.
  - COVID-19 related capital flow management measures are appropriate for now but should be phased out when the pandemic recedes.
  - The new central bank law limits lending to the government.
  - Listing of government debt on the Bahamas International Stock Exchange in July 2020 will help strengthen domestic debt markets.
  - Establishing an asset registry and real estate price index would reduce information asymmetries.
- Banking sector vulnerabilities and recommendations:
  - The banking sector remains vulnerable to pandemic-induced risks as loan moratoria expire; lower incomes and higher unemployment will weigh on asset quality.
  - Central bank should provide guidance to banks to ensure estimates of expected credit losses are robust and require regular loan portfolio reviews and risk assessments.
  - Effective implementation of recent crisis management framework reforms, including ensuring adequate staffing at the central bank, remains key.
  - Further develop macroprudential tools and strengthen interagency coordination to enhance financial sector stability.
- CBDC and AML/CFT linkage:
  - The "Sand Dollar" can help foster financial inclusion, but effective implementation of the strengthened AML/CFT framework and tax transparency efforts will be critical.
- Structural and disaster resilience priorities reiterated:
  - Modernize the business climate, rationalize SOEs, and reduce labor market frictions.
  - Gradually restore the disaster relief fund—exhausted following Hurricane Dorian.
  - Improve data collection and management to enhance agility and targeting of social programs.
  - Recommend mandatory property insurance with a means-tested subsidy for premiums for all private properties.

*Source: 1bhsea2021001 - 37. Strengthening systemic risk oversight would help maintain financial stability and*

### 55. It is recommended that the next Article IV consultation takes place on the regular 12-

### 1bhsea2021001 - 55. It is recommended that the next Article IV consultation takes place on the regular 12-

### Real sector developments
- Tourism came to a sudden standstill; air arrivals and sea arrivals by island show sharp declines (2020 Visitor Arrivals by Island: Air arrivals and Sea arrivals shown as percentage change, yoy, January to October).
- Mobility indicators:
  - Movement of Citizens to Places of Interest: percent change from pre-COVID baseline (7-day moving average), baseline median during Jan 3–Feb 6, 2020.
- Labor market:
  - New Unemployment Benefit Awards by Month: large increases in the number of recipients since the Emergency order for COVID-19.
- Inflation and output:
  - Contributions to Headline Inflation (Percent, yoy): recent decline driven by transport and energy.
  - Contributions to Real GDP Growth (Percent, yoy): Net exports and private consumption drove a sharp contraction in 2020.
- Key annual real and nominal aggregates and projections (Table 1):
  - Real GDP: 2018 = 1.5; 2019 = 3.0; 2020 = 1.2; 2021 = -16.2; 2022 = 2.0; 2023 = 8.5; 2024 = 4.0; 2025 = 3.5; 2026 = 1.8; (annual percentage changes).
  - Nominal GDP: 2018 = 3.4; 2019 = 4.3; 2020 = 4.3; 2021 = -17.3; 2022 = 4.2; 2023 = 10.6; 2024 = 6.0; 2025 = 5.5; 2026 = 3.8.
  - Consumer price index (annual average): 2018 = 2.1; 2019 = 2.3; 2020 = 2.5; 2021 = -0.2; 2022 = 1.5; 2023 = 2.2; 2024 = 2.2; 2025 = 2.1; 2026 = 2.1.
  - Unemployment rate (in percent): 2018 = 11.1; 2019 = 10.4; 2020 = 10.1; 2021 = 25.6; 2022 = 24.0; 2023 = 17.2; 2024 = 13.5; 2025 = 12.8; 2026 = 12.5.
  - Output gap (percent): 2018 = 1.5; 2019 = 1.3; 2020 = -11.7; 2021 = -10.8; 2022 = -4.2; 2023 = -2.1; 2024 = -0.3; 2025 = -0.1; 2026 = 0.0.

### External sector developments
- Current account and services:
  - Current Account Balance (B$ billions, quarterly): 2019Q1–2020Q3 series shows deterioration; Current account balance worsened as the pandemic took hold.
  - Services balance became negative in 2020Q2–Q3, with net travel receipts negative for the first time.
- Trade, capital flows, and reserves:
  - Trade deficit widened in 2020Q2 as imports and exports shrank.
  - Capital Flows (B$ billions): shown quarterly 2019Q1–2020Q3 with changes in reserves, direct investment, public sector capital, banks, other capital flows, errors and omissions.
  - Change in Central Bank FX Reserves (B$ millions, Jan-19 to Oct-20): Net commercial purchases, net government purchases, net other purchases, change in reserves plotted.
  - Total FX reserves and REER: Total FX reserves rose, reaching their highest level to help support the $ peg.
- Balance of payments aggregates and projections (Table 3, selected lines):
  - Current account balance (US$ millions): 2018 = -1,115; 2019 = 526; 2020 = -1,959; 2021 = -2,618; 2022 = -2,170; 2023 = -1,765; 2024 = -1,286; 2025 = -1,178; 2026 = -1,166.
  - Services (US$ millions): 2018 = 2,311; 2019 = 2,631; 2020 = -44; 2021 = -111; 2022 = 1,188; 2023 = 1,868; 2024 = 2,627; 2025 = 2,899; 2026 = 3,041.
  - Travel (net, US$ millions): 2018 = 3,396; 2019 = 3,790; 2020 = 910; 2021 = 727; 2022 = 2,323; 2023 = 3,177; 2024 = 4,074; 2025 = 4,444; 2026 = 4,640.
  - Change in gross reserves (increase -) (US$ millions): 2018 = 221; 2019 = -562; 2020 = -581; 2021 = 656; 2022 = 30; 2023 = -77; 2024 = -102; 2025 = -134; 2026 = -157.
  - Gross international reserves (end of period; US$ millions): 2019 = 1,196; 2020 = 1,758; 2021 = 2,339; 2022 = 1,683; 2023 = 1,653; 2024 = 1,731; 2025 = 1,832; 2026 = 1,967; 2027 (proj.) = 2,123 (Table 3 memoranda).
  - Gross international reserves in months of next year's G&S imports: 2019 = 2.9; 2020 = 5.5; 2021 = 7.7; 2022 = 4.0; 2023 = 3.5; 2024 = 3.3; 2025 = 3.3; 2026 = 3.4; 2027 = 3.5.

### Fiscal developments
- Revenues and revenues comparison:
  - Tax Revenue, 2019 chart: The Bahamas tax revenue shown relative to regional peers; tax revenues remain well below most regional competitors.
  - Total Revenue (B$ millions, quarterly): 2018Q3–2020Q3 series shows revenues halved following the pandemic.
- Expenditure and deficit:
  - Total Expenditure (B$ millions, quarterly): wages & salaries, interest payments, use of goods & services, social benefits, capital expenditure plotted; spending has been relatively contained, but the deficit widened significantly.
  - Fiscal Operations (B$ millions, quarterly): Revenue & grants, Expenditure, Overall deficit.
- Public debt profile:
  - Public debt is on an upward trajectory but remains below the regional average; skewed towards domestic and long-term sources.
  - Central Government Debt Profile, FY2019/20 (Percent): by holder (Domestic, Foreign), by currency (Foreign, Domestic), by maturity (Short-term, Long-term).
- Central government fiscal accounts and projections (Table 2a and 2b, selected lines):
  - Revenue (Millions of Bahamian dollars, fiscal year): 2017/18 = 2,042; 2018/19 = 2,426; 2019/20 = 2,087; 2020/21 = 1,583; 2021/22 = 2,011; 2022/23 = 2,388; 2023/24 = 2,673; 2024/25 = 2,857; 2025/26 = 3,000.
  - Taxes (B$ millions): 2017/18 = 1,836; 2018/19 = 2,199; 2019/20 = 1,858; 2020/21 = 1,394; projections rise to 2,703 by 2025/26.
  - Expenditure (B$ millions): 2017/18 = 2,457; 2018/19 = 2,646; 2019/20 = 2,899; 2020/21 = 2,965; projected 2025/26 = 3,157.
  - Overall Balance (Percent of GDP, Table 2b): 2017/18 = -3.2; 2018/19 = -1.6; 2019/20 = -6.6; 2020/21 = -12.4; 2021/22 = -8.8; 2022/23 = -4.0; 2023/24 = -2.6; 2024/25 = -1.8; 2025/26 = -1.0.
  - Primary Balance (Percent of GDP): 2017/18 = -0.8; 2018/19 = 0.8; 2019/20 = -3.8; 2020/21 = -8.9; 2021/22 = -5.2; 2022/23 = -0.7; 2023/24 = 0.8; 2024/25 = 1.6; 2025/26 = 2.1.
  - Central government debt (Percent of GDP): 2017/18 = 61.0; 2018/19 = 58.8; 2019/20 = 68.6; 2020/21 = 88.6; 2021/22 = 88.6; 2022/23 = 88.1; 2023/24 = 86.2; 2024/25 = 84.5; 2025/26 = 82.8; 2026 (proj.) = 81.3.
  - Central government debt (Millions of Bahamian dollars, Table 2a memorandum): 2017/18 = 7,782; 2018/19 = 7,881; 2019/20 = 8,493; 2020/21 = 9,861; 2021/22 = 10,931; 2022/23 = 11,502; 2023/24 = 11,911; 2024/25 = 12,218; 2025/26 = 12,423.
  - Central government debt by external component (Millions of B$): external = 2,637 (2017/18); 2,553 (2018/19); 2,933 (2019/20); 4,360 (2020/21); 4,922 (2021/22); 5,122 (2022/23); 5,224 (2023/24); 5,300 (2024/25); 5,352 (2025/26).

### Financial sector developments
- Credit, mortgages, and nonperforming loans:
  - Credit growth by sector (Percent, yoy): Consumer credit, Business credit, Residential mortgages, Commercial mortgages, Total credit series show continued contraction; private sector credit continues to contract.
  - Mortgage commitments and lending rates (Left axis, B$ millions; Right axis, rate): Mortgage commitments value increased recently from low levels; residential and commercial lending rates plotted.
  - Nonperforming loans (NPLs): NPLs are starting to increase as moratoria are phased out; Non Performing Loans (Percent of total loans) and total provisions to NPLs plotted.
- Bank profitability and balance sheets:
  - Return on Assets (Percent): series shows profitability dampened and uneven across banks (includes 2 domestic banks and 3 foreign banks).
  - Banks' Balance Sheets (Left axis, B$ billions; right axis, percent): Securities & other, Net loans, Cash & interbank, Equity, Deposits, CAR, and minimum regulatory requirement shown.
- Capital ratios and liquidity:
  - Capital adequacy: Capital ratios remain well above the regulatory minimum.
  - Banking Sector Liquid Assets (B$ millions, Jan-18 to Sep-20): Balances with central bank, Treasury bills, Government registered stocks, Others; liquidity remains ample.
- Selected financial soundness indicators (Table 5, 2012–2019):
  - Regulatory capital to risk-weighted assets: 2012 = 29.1; 2013 = 31.1; 2014 = 32.8; 2015 = 33.3; 2016 = 28.6; 2017 = 32.5; 2018 = 32.3; 2019 = 28.1.
  - Nonperforming loans to total gross loans: 2012 = 13.6; 2013 = 15.3; 2014 = 15.3; 2015 = 14.2; 2016 = 11.4; 2017 = 9.2; 2018 = 8.3; 2019 = 7.2.
  - Return on assets: 2012 = 1.5; 2013 = 1.4; 2014 = -1.2; 2015 = 1.9; 2016 = 2.0; 2017 = 1.8; 2018 = 2.3; 2019 = 2.4.
  - Liquid asset to total assets: 2012 = 20.2; 2013 = 21.8; 2014 = 22.6; 2015 = 24.1; 2016 = 25.9; 2017 = 29.0; 2018 = 26.6; 2019 = 29.6.
  - Total private sector credit to GDP (memo): 2012 = 61.8; 2013 = 61.6; 2014 = 58.1; 2015 = 53.4; 2016 = 52.1; 2017 = 49.2; 2018 = 47.4; 2019 = 45.9.

### Central bank and financial system accounts
- Central Bank (Table 4, end of period, selected lines, in millions of Bahamian dollars):
  - Net international reserves: 2018 = 1,196; 2019 = 1,758; 2020 = 2,339; 2021 = 1,683; 2022 = 1,653; 2023 = 1,731; 2024 = 1,846; 2025 = 1,916; 2026 = 1,982.
  - Reserve money: 2018 = 1,252; 2019 = 1,731; 2020 = 1,432; 2021 = 1,493; 2022 = 1,651; 2023 = 1,750; 2024 = 1,846; 2025 = 1,916; 2026 = 1,982.
- Financial system (Table 4, end of period, selected lines):
  - Net foreign assets: 2018 = 1,071; 2019 = 1,790; 2020 = 2,127; 2021 = 1,377; 2022 = 1,459; 2023 = 1,658; 2024 = 1,887; 2025 = 2,146; 2026 = 2,441.
  - Credit to nonfinancial public sector, net: 2018 = 2,735; 2019 = 2,775; 2020 = 3,003; 2021 = 3,276; 2022 = 3,740; 2023 = 4,070; 2024 = 4,325; 2025 = 4,544; 2026 = 4,686.
  - Credit to private sector: 2018 = 5,886; 2019 = 5,892; 2020 = 4,874; 2021 = 5,079; 2022 = 5,617; 2023 = 5,955; 2024 = 6,283; 2025 = 6,519; 2026 = 6,743.
  - Liabilities to the private sector (broad money): 2018 = 7,109; 2019 = 7,893; 2020 = 6,530; 2021 = 6,804; 2022 = 7,525; 2023 = 7,978; 2024 = 8,416; 2025 = 8,733; 2026 = 9,034.

### Social and demographic indicators (Table 1, selected items)
- GDP (US$ millions), 2019 = 13,579.
- GDP per capita (US$), 2019 = 35,664.
- 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.

*Sources: Central Bank of The Bahamas; Department of Statistics; Ministry of Finance; CBOB; Google COVID-19 Mobility Reports; UNDP Human Development Report; S&P Global Market Intelligence; IMF International Financial Statistics; and IMF staff calculations.*

### Annex I. Past Policy Advice

### Annex I. Past Policy Advice

### Fiscal Policy
- Recommendation: Ratify remaining PFM reforms and operationalize the fiscal council
  - Current: The fiscal council was established, and its first report will be submitted to Parliament in Q1 2021, but some details about budgetary control and compensation are still being finalized and hiring of technical staff is proceeding. Key PFM reforms are ongoing.
  - Status: (implied ongoing)
- Recommendation: Give fiscal policy a greater role to achieve medium-term public policy objectives, including greater income equality
  - Current: No changes.
  - Status: (implied none)
- Recommendation: Review tax expenditures and consider a more comprehensive tax reform
  - Current: No progress on tax expenditure review. Real property tax reform has been internally discussed.
  - Status: (implied limited progress)

### Structural Policy
- Recommendation: Increase resilience to natural disasters
  - Current: Catastrophe insurance policy helped improve financial resilience to natural disasters. Natural Disaster Fund was depleted following Dorian.
  - Status: (implied mixed)
- Recommendation: Advance energy sector reforms to improve the reliability of the electricity grid and reduce costs
  - Current: Investments have been made, but equipment failures continue disrupting power provision and the financial restructuring of BPL is not yet concluded.
  - Status: (implied ongoing)
- Recommendation: Reduce skills mismatches in the labor market
  - Current: The Bahamas Technical and Vocational Institute introduced a tuition-free training program to New Providence with IDB funding.
  - Status: (implied implemented in part)

### Monetary and Financial Policy
- Recommendation: Fully implement the new framework for the international sector and comply with AML/CFT and global tax transparency commitments
  - Current: Parliament enacted key legislation, including the Business License and Investment Fund acts. Legislative improvements in AML/CFT and tax transparency now need to be implemented effectively.
  - Status: (implied legislative progress; implementation pending)
- Recommendation: Develop a local real estate price index
  - Current: Discussions are ongoing.
  - Status: (ongoing)
- Recommendation: Operationalize the Credit Bureau
  - Current: The Credit Bureau has been established, but it is yet to become fully operational.
  - Status: (partially implemented)
- Recommendation: Consider alternative technologies to a Central Bank Digital Currency (CBDC), mitigate risks
  - Current: The CBDC was rolled out to all islands. Risk mitigation underway.
  - Status: (implemented and ongoing risk mitigation)

### Data
- Recommendation: Produce quarterly National Accounts, compile balance-of-payments statistics according to BPM6, produce estimates of the IIP; publish and adhere to a data release calendar
  - Current: Department of Statistics completed and published quarterly National Accounts. Compilation of BPM6 and IIP statistics has started. The public consultation period for the new Statistical Bill ended in September 2020 and the final draft is being prepared for debate in Parliament.
  - Status: (progressing)
- Recommendation: Conduct a household survey
  - Current: The household survey will take place after the completion of the 2021 National Census.
  - Status: (planned)

*Source: Annex I. Past Policy Advice, 1bhsea2021001 - Annex I. Past Policy Advice*

### 2019. Despite the sharp fall in tourism receipts, external reserves were at an all-time high of

### 1bhsea2021001 - 2019. Despite the sharp fall in tourism receipts, external reserves were at an all-time high of

### External reserves and assessment
- External reserves were at an all-time high of approximately $2.3 billion at the end of October 2020, due to front-loading of the government’s external borrowing activity.
- By the end of 2020, reserves are forecasted to remain at elevated levels, near $2.3 billion, and higher than the previous year.
- Assessment: At 178 percent of the Fund’s Assessing Reserve Adequacy (ARA) metric, the forecasted end-2020 level of foreign reserves is above the suggested range of 100-150 percent for reserve adequacy.
- Despite global uncertainties caused by the pandemic, reserve metrics are projected to remain within the adequate range in the medium-term on average.
- Policy recommendations:
  - Reduce dependence on the tourism sector for foreign exchange earnings by encouraging FDI and reinvigorating key sectors.
  - Reduce food and tourism related imports while improving the industry around local substitutes to shrink the goods deficit in the long run.

### Risk Assessment Matrix (RAM) — potential deviations from baseline
- Overview: The RAM lists events that could materially alter the baseline and provides staff’s subjective assessment of relative likelihood and impact.
- Identified risks, directional effect, relative likelihood, impact, and suggested policy responses:
  - Unexpected shift in the COVID-19 pandemic
    - Direction: Downside ()
    - Relative likelihood: High
    - Impact: High
    - Policy response: Institute robust screening and quarantine processes, strengthen health system, and establish effective channels of communication.
  - COVID-19-related fiscal measures to be phased out faster to reduce the fiscal burden
    - Direction: Upside ()
    - Relative likelihood: Low
    - Impact: Medium
    - Policy response: (implied) Phase out fiscal measures faster to reduce fiscal burden.
  - Widespread social discontent and political instability
    - Direction: Downside ()
    - Relative likelihood: High
    - Impact: High
    - Policy response: Implement well-targeted social assistance programs and provide adequate healthcare to respond to the pandemic.
  - Oversupply and volatility in the oil market
    - Direction: Upside ()
    - Relative likelihood: Medium
    - Impact: Medium
    - Policy response: Reform utility SOEs to improve pass-through of energy prices to customers.
  - Slow recovery from hurricanes
    - Direction: Downside ()
    - Relative likelihood: High
    - Impact: High
    - Policy response: Prioritize reconstruction efforts to kick-start the local economy; employ a multi-sector recovery strategy.
  - Higher frequency and severity of natural disasters related to climate change
    - Direction: Downside ()
    - Relative likelihood: Medium
    - Impact: High
    - Policy response: Enhance ex-ante preparedness and risk reduction strategies, invest in resilient infrastructure, rebuild financial resilience.
  - Cyber-attacks
    - Direction: Downside ()
    - Relative likelihood: Medium
    - Impact: High
    - Policy response: Strengthen cybersecurity preparedness in Fintech and digitalization projects.

### Public Debt Sustainability Analysis (DSA) — key findings and projections
- 1. Debt stock and gross financing requirements
  - Central government debt increased to 68.6 percent of GDP in FY2019/20 compared to 58.8 percent in FY2018/19, as a result of Hurricane Dorian and COVID-19.
  - Gross financing needs for FY2019/20 are estimated at 13.7 percent, 6.1 percentage points above FY2018/19.
  - For FY2020/21, debt and gross financing needs are projected to increase further to almost 90 percent of GDP and 18 percent of GDP, respectively.
  - Over the medium term, both debt and gross financing needs are projected to decrease in line with the economic recovery.
  - Staff expects that by 2025/26 the economy is at its maximum revenue capacity without further policy changes (the VAT rate was increased from 7.5 to 12 percent in 2018/19, but due to an initial grace period, the 2018/19 revenue-to-GDP ratio is not an accurate indicator of the steady state).

- 2. Debt profile
  - In the short term (until FY2020/21), the government is expected to rely heavily on external financing to support foreign reserves.
  - Recently approved external loans (since June 2020) include:
    - IMF’s RFI (about US$250 million)
    - IDB Policy Based Loans (US$225 million)
    - CDB loan (US$40 million)
    - Recent external issuances (US$600 million in October and US$225 million in early December)
  - Loans under discussion include:
    - World Bank Development Policy Operation (US$100 million)
    - World Bank MIGA initiatives (up to US$75 million)
  - As a result, the share of foreign currency debt increases to 46.1 percent of total debt in FY2020/21, compared to 32.4 percent in FY2018/19.
  - Staff assumes that once the pandemic recedes, the authorities will increase their reliance on domestic financing.
  - Regarding maturity, most of the new external debt is expected to be long-term; hence, the short-term debt share is projected to gradually decline toward 9 percent of total debt although it sharply increased in FY2019/20 to finance Hurricane Dorian and COVID-19 measures.

- 3. Debt vulnerability
  - The heat map deteriorated relative to the June 2020 RFI request.
  - Risks around the debt level remain high, as the debt-to-GDP ratio peaks above 80 percent.
  - Risks around gross financing needs turned to “high” from “low” or “moderate” as they now exceed the threshold of 15 percent of GDP for FY2020/21.
  - The debt profile is exposed to a high risk of market perception and change in the share of short-term debt.
  - Risks around external financing requirements, public debt held by non-residents, and the size of foreign currency debt remain moderate.

- 4. Realism of baseline assumptions
  - Staff projects real growth to average 2 percent over the medium term.
  - Inflation is expected to remain low (1.7 percent).
  - The primary balance is projected to improve after the temporary deterioration in the next two years, turning to a surplus from FY2023/24 onwards.
  - Past growth forecast errors are attributed to a substantial revision to national accounts in 2017, unexpected events such as the bankruptcy of a major hotel project in 2015, and natural disasters (Hurricane Matthew and Dorian).
  - Past projections for the primary balance appear to have been relatively optimistic, while inflation has turned out lower than expected.

- 5. Macro–fiscal stress test (scenarios and outcomes)
  - Contingent liability shock scenario:
    - Assumes a banking crisis requiring a one-time increase in non-interest expenditures equivalent to 10 percent of banking sector assets.
    - Also assumes a real GDP growth shock of one standard deviation for two consecutive years together with higher interest rates and lower inflation.
    - Result: The debt-to-GDP ratio would exceed 100 percent.
  - Real interest rate shock:
    - Assumes the interest rate increases by the difference between the average projected real interest rate level over the projection horizon and maximum real historical level (about 460 basis points).
    - Result: The debt-to-GDP ratio would stay around 85 percent over the medium term; the ratio would not enter a decreasing trend due to the long-term impact on debt service.
  - Combined macro shock scenario:
    - Consists of shocks to real GDP growth, inflation, government revenue and expenditure, exchange rate, and interest rate.
    - Result: The government debt to GDP ratio would go up to 103 percent over the medium term.
  - Combined macro-fiscal shock II (major hurricane hitting main islands in FY2022/23):
    - Assumes a devastating impact on infrastructure and housing resulting in a sharp contraction in FY2022/23 and zero growth in FY2023/24.
    - The government response would include wide-ranging tax exemptions; on average, revenue would be lower by 4 percent of GDP as a result.
    - Unlike Dorian, assumes a longer lasting expenditure impact due to infrastructure recovery and social protection (cumulative expenditure would be about 7 percent of GDP higher).
    - Inflation would eventually be higher than the baseline by 1 percentage point due to the strong demand on construction workers.
    - Result: Government debt would increase to 107 percent over the medium term.

*Source: 1bhsea2021001 - 2019. Despite the sharp fall in tourism receipts, external reserves were at an all-time high of*

### 6. External Debt.

### 6. External Debt.

### Overview
- The stock of public external debt is expected to jump to 40 percent of GDP in 2020 from 23 percent in 2019, driven by large central government external financing needs and the state-owned electricity company’s plans to issue external bonds.
- Bound test results indicate sensitivity to shocks to the non-interest current account and the real effective exchange rate.

### Public debt levels and composition (selected historical and FY2019/20 figures)
- Central government debt: 68.6 percent of GDP (FY2019/20).
  - Central government external debt: 23.7 percent of GDP (FY2019/20).
  - Central government domestic debt: 44.9 percent of GDP (FY2019/20).
  - Of which: in foreign currency (central government): 0.4 percent of GDP (FY2019/20).
- Public corporations' debt: 14.4 percent of GDP (FY2019/20).
  - Public corporations external debt: 4.8 percent of GDP (FY2019/20).
  - Public corporations domestic debt: 9.6 percent of GDP (FY2019/20).
  - Of which: in foreign currency (public corporations): 2.7 percent of GDP (FY2019/20).
- Total public sector debt: 83.1 percent of GDP (FY2019/20).
  - Total public sector external debt: 28.5 percent of GDP (FY2019/20).
  - Total public sector domestic debt: 54.6 percent of GDP (FY2019/20).
  - Of which: in foreign currency (total public sector): 3.1 percent of GDP (FY2019/20).
- Consolidated public sector debt: 80.8 percent of GDP (FY2019/20).
  - Consolidated public sector external debt: 29.6 percent of GDP (FY2019/20).
  - Consolidated public sector domestic debt: 51.3 percent of GDP (FY2019/20).
  - Of which: in foreign currency (consolidated): 2.3 percent of GDP (FY2019/20).

### Debt Sustainability Analysis — Baseline projections and drivers
- Nominal gross public debt projection path (selected years): 45.5 (2019), 58.8 (2020), 68.6 (2021), 88.6 (2022), 88.6 (2023), 86.2 (2024), 84.5 (2025), 82.8 (2026) — all in percent of GDP as presented in the DSA figure.
- Public gross financing needs (percent of GDP): 7.0 (2019), 7.6 (2020), 13.7 (2021), 17.6 (2022), 15.7 (2023), 8.8 (2024), 8.7 (2025), 5.6 (2026).
- Real GDP growth (in percent): 0.9 (2019), 2.9 (2020), -8.5 (2021), -10.5 (2022), 9.3 (2023), 5.4 (2024), 3.7 (2025), 2.6 (2026), 1.6 (beyond as shown).
- Inflation (GDP deflator, in percent): 1.6 (2019), 1.9 (2020), 0.9 (2021), 0.4 (2022), 2.0 (2023), 1.9 (2024), 2.0 (2025), 1.9 (2026).
- Effective interest rate (in percent): 5.1 (2019), 4.2 (2020), 4.2–4.7 range in projection years and around 4.1–3.9 toward 2026 as shown in the table.
- Change in gross public sector debt (cumulative): 3.5 (2019), -2.1 (2020), 9.8 (2021), 20.0 (2022), -0.6 (2023), -1.8 (2024), -1.8 (2025), -1.6 (2026) — cumulative 12.6 over the projection horizon.
- Identified debt-creating flows (annual, sum): 1.4 (2019), -1.8 (2020), 12.6 (2021), 19.5 (2022), -0.7 (2023), -2.4 (2024), -2.4 (2025), -2.3 (2026) — cumulative 9.5.
- Primary deficit (percent of GDP): 1.3 (2019), -0.8 (2020), 3.8 (2021), 8.9 (2022), 5.2 (2023), 0.7 (2024), -0.8 (2025), -1.6 (2026) — cumulative 10.3.
- Primary (noninterest) revenue and grants (percent of GDP): 14.5 (2019), 18.1 (2020), 16.9 (2021), 14.2 (2022), 16.2 (2023), 17.9 (2024), 19.0 (2025), 19.4 (2026) — cumulative 106.3.
- Primary (noninterest) expenditure (percent of GDP): 15.8 (2019), 17.3 (2020), 20.6 (2021), 23.1 (2022), 21.4 (2023), 18.6 (2024), 18.2 (2025), 17.8 (2026) — cumulative 116.6.
- Automatic debt dynamics (percent): 0.9 (2019), -0.4 (2020), 7.7 (2021), 11.3 (2022), -5.7 (2023), -2.7 (2024), -1.4 (2025), -0.4 (2026) — cumulative 1.4.
  - Of which: real interest rate contribution: 1.3 (2019), 1.3 (2020), 2.2 (2021), 3.3 (2022), 1.7 (2023), 1.7 (2024), 1.7 (2025), 1.7 (2026) — cumulative 11.7.
  - Of which: real GDP growth contribution: -0.4 (2019), -1.7 (2020), 5.4 (2021), 8.0 (2022), -7.4 (2023), -4.4 (2024), -3.0 (2025), -2.1 (2026) — cumulative -10.3.
- Other identified debt-creating flows: -0.8 (2019), -0.6 (2020), 1.2 (2021), -0.6 (2022), -0.3 (2023), -0.3 (2024), -0.3 (2025), -0.3 (2026) — cumulative -2.1.
- Residual, including asset changes: 2.1 (2019), -0.3 (2020), -2.8 (2021), 0.5 (2022), 0.2 (2023), 0.5 (2024), 0.7 (2025), 0.6 (2026) — cumulative 3.1.

### Stress tests, bound tests, and scenario results
- Bound tests and scenario results (external debt in percent of GDP):
  - Baseline in the bound-test figure: 39 percent of GDP (baseline average projection shown).
  - Historical scenario average projection shown: 66 percent (historical average scenario in the figure).
  - Non-interest current account shock: a permanent one-half standard deviation increase in the non-interest current account deficit beginning in 2022 would put the public external debt ratio on an increasing trajectory, reaching 55 percent of GDP by 2026.
  - Real effective exchange rate shock: a permanent one-time 30 percent real effective exchange rate depreciation in 2022 would shift external debt level up by around 18 percentage points of GDP (baseline 39 → roughly 57 in the real depreciation shock figure).
  - Combined shock scenario (permanent 1/4 standard deviation shocks applied to the real interest rate, growth rate, and current account balance): external debt-to-GDP ratio rises to 43 percent in 2022 (combined shock figure shows 49 in another combined-shock depiction depending on shock composition; the document notes 43 percent for the specific combined shock described earlier).
  - Interest rate shock, growth shock, and combined scenarios are depicted with baseline of 39 percent and scenario outcomes varying to upper ranges shown in the figures.
- External debt-to-exports ratio (Table 2): examples by year:
  - 2016: 67.2 percent
  - 2017: 85.9 percent
  - 2018: 66.7 percent
  - 2019: 60.8 percent
  - 2020: 269.3 percent (reflecting the collapse in exports in US dollar terms)
  - 2021: 353.6 percent
  - 2022: 165.3 percent
  - 2023: 130.1 percent
  - 2024: 106.9 percent
  - 2025: 99.9 percent
  - 2026: 95.9 percent
- Gross external financing need (in billions of US dollars and percent of GDP, Table 2):
  - 2016: $1.1 billion (9.3 percent of GDP)
  - 2017: $2.1 billion (16.8 percent of GDP)
  - 2018: $1.3 billion (9.7 percent of GDP)
  - 2019: -$0.3 billion (-2.1 percent of GDP)
  - 2020: $2.1 billion (18.6 percent of GDP)
  - 2021: $2.7 billion (10-Year?? note in table formatting) — table shows multiple entries and decade aggregates; data as presented.
- Scenario with key variables at their historical averages shows external debt levels reaching 44.6–78.4 percent of GDP in projection years as presented in Table 2.

### Risk assessment and vulnerabilities
- Heat-map-style indicators and thresholds used in the DSA:
  - Bond spread (EMBIG/5Y CDS): EMBIG shown as 849 (bp) and 5Y CDS shown as 743 (bp) in the DSA summary box.
  - Benchmarks cited in risk assessment: 200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; 20 and 60 percent for the share of foreign-currency denominated debt.
- DSA notes that gross financing needs benchmark of 15 percent is used to flag risks under specific shocks or baseline scenarios.
- Public debt profile is vulnerable to:
  - Large swings in the non-interest current account.
  - Significant real effective exchange rate depreciations.
  - Shocks to real interest rates and growth that, when combined, can raise external debt-to-GDP materially (e.g., combined shock to 43 percent in 2022 in one scenario).

### Key quantitative findings from Table 2 (FY2016–26 external DSA)
- Baseline external debt series (selected): 2016: 19.9 percent of GDP; 2017: 25.9; 2018: 24.4; 2019: 23.0; 2020: 40.2; 2021: 44.6; 2022: 43.4; 2023: 42.2; 2024: 40.8; 2025: 39.8; 2026: 38.8.
- Identified external debt-creating flows (line 3, percent of GDP): -0.1 (2016), 2.7 (2017), -1.8 (2018), -13.4 (2019), 14.8 (2020), 12.1 (2021), 2.3 (2022), -0.3 (2023), -4.5 (2024), -4.8 (2025), -4.7 (2026).
- Current account deficit, excluding interest payments (line 4): 7.9 (2016), 11.6 (2017), 7.3 (2018), -5.1 (2019), 15.7 (2020), 19.5 (2021), 13.3 (2022), 9.8 (2023), 5.6 (2024), 5.0 (2025), 4.7 (2026).
- Net non-debt creating capital inflows (negative, line 8): -8.7 (2016), -9.0 (2017), -9.3 (2018), -8.5 (2019), -7.4 (2020), -8.4 (2021), -9.2 (2022), -10.1 (2023), -10.3 (2024), -10.6 (2025), -10.3 (2026).
- Automatic debt dynamics (line 9): 0.6 (2016), 0.1 (2017), 0.2 (2018), 0.2 (2019), 6.5 (2020), 1.0 (2021), -1.7 (2022), 0.0 (2023), 0.2 (2024), 0.8 (2025), 0.9 (2026).
- Residual, including change in gross foreign assets (line 13): 1.5 (2016), 3.3 (2017), 0.2 (2018), 12.1 (2019), 2.4 (2020), -7.8 (2021), -3.4 (2022), -1.0 (2023), 3.0 (2024), 3.9 (2025), 3.6 (2026).

*Source: IMF staff (1bhsea2021001 - 6. External Debt).*

### 3.      During the second wave, The Bahamas faced worse outcomes relative to its size than

### 1bhsea2021001 - 3.      During the second wave, The Bahamas faced worse outcomes relative to its size than

### COVID-19 epidemiology and outcomes
- Population referenced: approximately 385,000 people.
- From August to October 2020, The Bahamas had the highest number of new cases relative to population in the Caribbean (excluding Aruba), even exceeding the United States for that period.
- By mid-October 2020, new cases peaked at over 30 per day, on average, per 100,000 people.
- Total deaths relative to population have been higher than most of the Caribbean (data reference as of Dec 14 2020 in figures).

### Geographic and temporal pattern of infections
- Jul 1: Borders reopen (noted as a key date).
- Mar 15: 1st case; Mar 24: Borders closed 1st time; Apr 1: 1st death.
- After reopening, cases rose quickly; a spike in Grand Bahama was quelled by end-August, but infections surged in New Providence until end-October.
- Island-specific observations from figures:
  - Infections surged in New Providence until late October.
  - Cases were highest relative to size in Bimini.
  - New island specific curfews implemented; intermittent weekend curfews starting from mid-October for the worst affected islands coincided with a sizeable fall in new cases.

### Health system capacity, detection, and response
- Global Health Security (GHS) Index overall rank for The Bahamas: 142nd.
- GHS sub-ranks for The Bahamas:
  - “Health system”: 177th.
  - “Detection and reporting”: 152nd.
- Interpretation: Low scores in “health system” and “detection” indicate vulnerabilities that may explain the high infection rate, though some higher-ranked countries experienced worse outcomes.
- Government actions to relieve healthcare pressure:
  - Hired workers from abroad.
  - Expedited exams for locally registered nursing students and employed junior doctors.
  - Set up a National Response Facility combining public and private healthcare resources and redeveloping certain hospitals.
  - Deployed an emergency field hospital through Samaritan’s Purse.
- Hospital utilization trends:
  - Hospitalized cases recently fell as new daily infections trended downwards (figure timeframe Jul-20 to Dec-20).
  - Breakdown of hospitalizations not yet available in some instances.
- Testing and surveillance:
  - Testing increased during the second wave; contact tracing efforts were enhanced.
  - Positivity rate remained high for an extended period but later came down.
  - Authorities updated inefficient data management systems, enhanced testing capacity in labs, found faster ways to process tests, and established a contact tracing command center.

### Mobility, containment measures, and reopening dynamics
- Mobility metrics (Google Mobility) showed:
  - Sharp drop in visits to places of interest when lockdowns were imposed.
  - Visits increased as measures were lifted in May and June 2020.
  - Visits fell again after cases rose in July 2020 and following re-implementation of some restrictions.
  - Mobility remains subdued; most activity metrics are below pre-crisis levels.
- Reopening chronology and implications:
  - Phase 3 reopening proceeded; numerous U.S. carriers expanded flights to various islands in October 2020.
  - Previous rapid lifting of restrictions led to rising cases and reinstatement of containment measures.
  - Because infections remain high in source markets and voluntary social distancing matters, lifting containment measures is unlikely to rapidly bring back activity.
  - ECCU success stories emphasize strict guidelines on reopening to international tourists, including strict screening upon arrival and border controls such as a tier system of high to low risk source countries.
  - Despite removing mandatory quarantine on arrival to The Bahamas, many hotels require testing on the first day in addition to the requirement for testing five days after arrival.
- Timeline markers referenced in figures: Feb-20 through Nov-20 mobility and activity trends; nationwide lockdown and targeted curfews by island noted.

### Social spending, programs, and COVID-19 fiscal responses
- Pre-pandemic social indicators:
  - Latest 2014 Gini coefficient: around 0.5.
  - Caribbean comparable average Gini: 0.3.
  - In 2014, about one-fifth of the population earned below US$12.4 a day; about 5 percent lived in extreme poverty (below $5 per day).
- Social protection architecture:
  - Social insurance: National Insurance Board (NIB) covers unemployment benefits (UEB), pensions (age 60 women, 65 men), work-related benefits, life event benefits.
  - Mandatory contributions: employees 3.9 percent; self-employed 8.8 percent; employers additional 5.9 percent.
  - Health care: Ministry of Health governance; 74 clinics delivering primary care; Public Hospitals Authority manages three public hospitals; National Health Insurance (NHI) Authority established 2016.
    - NHI coverage limited: about 20 percent of the population.
    - Out-of-pocket expenses account for about 1/3 of total health expenditures.
    - FY2019/20 health sector spending: about 3.3 percent of GDP.
  - Education: compulsory ages 5–16; ~50,000 students; spending in FY2019/20: about 3 percent of GDP.
  - Social assistance: Ministry of Social Services and Urban Development; total social protection spending in FY2019/20: just above 1 percent of GDP.
- COVID-19 related social spending changes:
  - IDB/Cornell April 2020 survey: about 34 percent of households received at least one assistance program.
  - UEB payments nearly 20 times higher in the first six months of 2020 than same period last year.
  - NIB transfers: B$37.9 million to 28,478 beneficiaries by September (UEB extended program).
  - In 2020Q3 alone, NIB paid $47 million to the unemployed under the extended UEB program.
  - Emergency fiscal health spending: end-June 2020 about 0.1 percent of GDP for quarantine facilities, expanding healthcare facilities, PPE and medical supplies, and Family Islands response.
  - FY2020/21 budget allocates an additional 0.3 percent of GDP to the Ministry of Health for COVID-19 activities.
  - NHI budget expanded by B$18 million to B$38 million.
  - Food support: National Distribution Task Force processed $1 million per week benefiting ~110,000 persons as of September 2020; later increased to $1.3 million per week.
  - Disbursements through task force to NGOs: approximately $11.9 million to date (as of report).
  - Self-employed UEB extension (tourism sector):
    - To date B$15.4 million paid to 7,115 beneficiaries.
    - Original amount B$200 per week for 8 weeks; after July 1, B$150 per week for 13 weeks.
    - Program covers Bahamian self-employed in tourism only; converted part-time businesses have deduction of B$30 per working day.
- Education adjustments:
  - Public schools closed March–October 2020; classes conducted face-to-face, virtual, or hybrid thereafter.
  - University of The Bahamas continued virtually.
  - Between 8,000 and 10,000 students ages 5–18 using a new virtual platform for pre-uploaded programs.
  - School lunch program continues with 5,087 students enrolled.
  - Ministry providing digital packages and print materials where students are not connected; an online application created for parents to home school.
- Program targeting and coverage challenges:
  - NHI coverage limitation: only 20 percent can benefit from NHI-related initiatives.
  - Coverage gaps: self-employed UEB extension limited to tourism-related self-employed; approximately 13,500 informal workers exist (UNDB, 2020).
  - Food support distribution via walk-in demand and lack of up-to-date data/registration reduces effectiveness.
  - Social assistance programs are application based; validating information is challenging due to limited digitalized information and limited information exchange across stakeholders.
  - Some social programs benefited high-income households in particular (survey/figure evidence).

### Challenges highlighted
- Initial inadequate detection and facilities: low GHS rankings in key categories (“health system” 177th; “detection” 152nd).
- Testing positivity remained high for an extended period despite increased testing.
- Limited NHI coverage (about 20 percent) and persistent out-of-pocket spending (~1/3 of total health expenditures).
- Extended downturn implies further UEB extensions likely needed, requiring additional resources.
- Education digitalization strategy lacking; unequal access to online tools risks widening inequality in education outcomes.
- Targeting limitations: coverage of social assistance and informality limit reach; outdated data (2013 Household Survey) constrains means-testing pilots planned for New Providence in 2021.

*Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1bhsea2021001.pdf*

### 12. As the country moves from the containment to the recovery phase, more emphasis

### 12. As the country moves from the containment to the recovery phase, more emphasis should be placed on improving the efficiency and targeting of social spending.

### Social spending, data gaps, and targeting
- Finding: Without current information, it is impossible to target help and subsidize appropriately.
- Finding: The latest household level information was collected in 2013 and the latest full labor force survey was collected in May 2019.
- Recommendation: Improve social statistics and collect more information about households to understand the income/wealth distribution and sources of income.
- Recommendation: Collect data on socioeconomic variables at the subnational level, by island, to better assess vulnerabilities and needs.
- Recommendation: Update the Tourism Satellite Account to shed light on linkages between the tourism sector and other domestic sectors.

### Digitization of health information and digital health services
- Recommendation: Digitize key information, particularly in the health sector.
- Rationale: Digitization is critical to ensure an efficient and adequate healthcare system for the eventual new, post-COVID-19 normal.
- Recommendation: Expand telemedicine services and modernize processes for data collection, flow, storage and analysis of health information.
- Recommendation: Invest significantly in connectivity, digital and medical equipment, training of health providers, and development of digital health solutions to be shared with the public (e.g., apps or wearables to track health data).

### Institutional information exchange and resilient statistics collection
- Recommendation: Institutionalize information exchange across relevant stakeholders, including:
  - Ministry of Finance
  - Ministry of Social Services and Urban Development
  - Ministry of Health and health service providers
  - Ministry of Education
  - National Emergency Management Agency
  - National Insurance Board
- Recommendation: Develop new statistics collection methods that allow continuation of data generation during extreme shocks (hurricanes, pandemics).
- Suggested methods: Online or telephone surveys based on international experience.

### Private sector role in health care delivery
- Finding: Currently 15 percent of NHI affiliates have private insurance, thus there is a duplication of services, since these users seek healthcare at the NHI instead of using their private providers.
- Recommendation: Conduct further analysis of the role of the private sector in the delivery of health care.

### Annex VIII. The “Sand Dollar” — overview and objectives
- Fact: The Bahamas’ Central Bank Digital Currency (CBDC), the “Sand Dollar”, was officially launched on October 20, 2020, and is the first state-backed digital currency in the world.
- Objective: Boost financial inclusion for communities in remote islands and strengthen resilience of the payments system to natural disasters and pandemics.
- Design: The CBDC architecture features safeguards to mitigate financial intermediation, integrity, and cybersecurity risks.

### Payment system context and pilots
- Context: National Payment Council introduced in 2003; RTGS since 2005; ACH complemented RTGS in 2010.
- Reform: Legal/regulatory framework adapted in 2017 to allow Payment Service Providers (PSPs) and Money Transmission Businesses (MTBs).
- Integration: PSPs, MTBs, and regulated Credit Unions gained access to the RGTS in 2019.
- Pilot: Exuma pilot (December 2019) exceeded expectations — enrollment of 1,300 individuals and 2,000 more expressions of interest; Sand Dollars amounting to B$ 48,000 were in circulation.

### Rollout phases and wallet levels
- Rollout: Nationwide rollout started on October 20 with two phases.
  - Phase 1: Private-sector players ready systems with KYC and compliance across low-value, personal and enterprise wallets.
  - Phase 2 (slated for early- through mid-2021): Prepare essential infrastructure services in government and private sectors; regulations to underpin the CBDC are still in the works.
- Wallet access levels (Table 1: Sand Dollar Access Levels):
  - Simplified (Level 1): Target group — Unbanked individuals, micro entrepreneurs; Balance limit (B$) 500; Transactions limit (per month, B$) 1,500; Link to bank account — No; Access to wallet — Online, face to face (banks, PSPs, MTBs); Customer due diligence / KYC requirements — Low, no official ID required; Foreign Transactions — No.
  - Regular (Level 2): Target group — Individuals with bank accounts; Balance limit (B$) 5,000; Transactions limit (per month, B$) 10,000; Link to bank account — Yes; Access to wallet — Face to face (banks, PSPs, MTBs); Customer due diligence / KYC requirements — KYC and identification required, waived if applicant is existing customer of the wallet provider; Foreign Transactions — No.
  - Enhanced (Level 3): Target group — Registered businesses and high-value individuals; Balance limit (B$) 8,000; Transactions limit (per month, B$) 20,000; Link to bank account — Yes; Access to wallet — Authorized onboarding entities; Customer due diligence / KYC requirements — Enhanced Due Diligence as per AML/CFT guidelines; Foreign Transactions — No.
- Note: The Central Bank has an in-house know your customers (KYC) or eKYC solution; a basic wallet only requires an email address or phone number but is restricted to a $500 balance and $1500 in monthly transactions; the next level requires a government photo ID with limits $5,000 for balances and $10,000 transactions; the enhanced level requires businesses to provide their license and tax filings.

### Benefits, risks, and mitigation features
- Benefits (according to CBOB):
  - Increases financial inclusion among the unbanked and underbanked.
  - Lowers transaction costs compared to cash or existing electronic payment forms.
  - Improves safety and efficiency of making payments (POS, online, peer-to-peer).
  - Could improve delivery of social programs and strengthen tax administration through formalization of transactions.
  - Widespread adoption could facilitate detection of illicit financial flows.
- Risks and costs:
  - CBDC could substitute for deposits in commercial banks, impacting bank funding, profitability, and intermediation.
  - Costly investments in technologies, infrastructure, and external expertise.
  - Central bank exposures across payments chain (front-end wallets, technology maintenance, transaction monitoring, financial integrity).
  - Vulnerability to cyberattacks and technological glitches affecting reputation.
- Mitigation features embedded in architecture:
  - Financial stability: Sand Dollar holdings will not earn interest; ceilings limit wallet holdings; level 2 and 3 wallets linked to accounts at financial institutions; circuit breaker to prevent massive flows; recommendation for careful bank-level analysis of deposit structure.
  - Financial integrity: Central Bank Law and other legislation amended; plan to promote an e-KYC register; multi-factor authentication; passcode or biometrics required on mobile devices; transactions linked to an AML/CFT engine; wallets cannot be used outside the country or for foreign exchange operations on their own.
  - Cybersecurity: Central bank has a unit to monitor cyber risk and is upgrading IT and monitoring systems; AFIs required to complete robust independent cybersecurity assessments; ongoing financial literacy training and consumer awareness.

### Next steps for the Sand Dollar
- Ensure offline usability so citizens can transact without electricity or cell phone network.
- Achieve interoperability with other wallets and integration between ACH and RTGS.
- Invite Public Treasury and the National Insurance Board to become direct participants in RTGS and ACH systems.

### Annex IX. Introducing Mandatory Property Insurance — key points
- Finding: The majority of damage caused by hurricanes to The Bahamas is not covered by insurance.
- Finding: About 60 percent of buildings destroyed by Hurricane Dorian in The Bahamas were not insured at all or not adequately insured.
- Rationale: Lack of insurance payouts following a large disaster can hinder reconstruction efforts and slow economic recovery; government grants are insufficient and present a significant burden to the public purse.
- Recommendation: A mandatory insurance scheme with premiums adjusted according to the quality of buildings would help ease the socioeconomic burden, encourage mitigation measures, and prevent moral hazard.
- Note: New Zealand and Turkey are cited as relevant examples of mandatory national disaster insurance.
- Observation: Public sector can transfer some natural disaster risks through insurance and state-contingent debt instruments, but most of the damages are in the private sector; regional tools such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) provide disaster risk management tools and financing.

*Source: THE BAHAMAS, INTERNATIONAL MONETARY FUND.*

### 3. The Bahamas would benefit from a compulsory property insurance, regardless of

### 3. The Bahamas would benefit from a compulsory property insurance, regardless of whether there is mortgage financing to properties

### Overview
- Compulsory natural disaster/property insurance can limit macro-financial impact on government and private sector following large disasters.
- Two international examples examined: New Zealand and Turkey.

### New Zealand example
- Compulsory earthquake insurance introduced in 1993, achieving almost complete insurance coverage at affordable premiums and limiting macro-financial impact of large earthquakes on government and private sector.
- Natural Disaster Fund (NDF) features:
  - Provides the first layer of insurance for 98 percent residential homes throughout New Zealand, with the private sector delivering additional coverage.
  - Provides insurance for residential structures, land, and contents in the event of an earthquake, natural landslide, volcanic eruption, hydrothermal event, and tsunami, as well as fire resulting from any of these natural disasters.
  - Administered by the Earthquake Commission (EQC), a statutory entity, on an autonomous, arm’s length basis, and funded through a charge against the premium paid for building insurance by residential homeowners.
  - The premium is fixed in law and bears no relationship to structure-related or geographical risk, or to any other actuarial reality.
  - Current policy costs 20 cents for every $100 of home or contents fire insurance that a household had.
  - The fund is underpinned by a legislated government guarantee to compensate for any shortfall if the balance is insufficient to cover damages.
  - Investment strategy:
    - Invested mainly in New Zealand’s fixed interest securities, with part invested in international equities.
    - International equities provide liquidity in tradable financial assets outside New Zealand that would not be affected by a major natural disaster in the country.
    - If a drawdown on the NDF is needed to meet significant claims, international equities can be sold first, thereby eliminating the government’s responsibility to provide immediate funding.
    - Investing part of the fund in global equities can potentially allow the fund to grow faster.
  - Transparency and governance:
    - Frequent publication of the NDF’s audited financial statements.
    - Extensive information included in the government’s aggregate financial statements; NDF fully incorporated into the central government’s balance sheet and income statement.
    - NDF’s statement of investment policies is published.
    - Formal mechanism for annual statements of intent by EQC (and every ministry, executing agency, statutory body, and state-owned enterprise) reporting back on implementation.

### Turkey example
- Turkish Catastrophe Insurance Program (TCIP) established in 2000; requires all property owners to have disaster insurance; functions like a conventional indemnity-based catastrophe insurance pool.
- Institutional design:
  - TCIP is a nonprofit public entity supervised by the undersecretariat of the Treasury, with operational management subcontracted to private insurance companies.
- TCIP objectives:
  1. Providing nationwide compulsory insurance against earthquakes for all dwellings within the scope of the scheme at an affordable premium.
  2. Ensuring risk sharing within the country and transfer a portion of the risk to the international reinsurance market.
  3. Reducing the government’s fiscal exposure to earthquakes.
  4. Encouraging risk mitigation and earthquake-resistant construction practices.
  5. Accumulating long-term resources to cover catastrophic damages.
- Policy design features:
  - Compulsory TCIP policy is a stand-alone property earthquake policy with a maximum insured amount per policy and a deductible of 2 percent (to reduce administrative costs associated with small claims).
  - Annual premium rate is determined according to construction type (steel or reinforced concrete, masonry, and so on) and location (five seismic zones throughout the country).
  - As a public-private partnership, TCIP has become the largest insurance program in Turkey, reduced the government’s fiscal exposure to natural disaster risk, and raised public awareness about risk mitigation.

### Key implications for The Bahamas
- A compulsory property/natural disaster insurance scheme could:
  - Achieve broad coverage and affordable premiums, as in New Zealand.
  - Reduce government fiscal exposure to catastrophic events, as in Turkey.
  - Support liquidity management by combining domestic fixed-income holdings with international assets to provide immediately tradable buffers.
  - Improve transparency and fiscal reporting by fully incorporating the fund into government financial statements and publishing investment policies and audited accounts.
  - Encourage risk mitigation and resilient construction through design of premiums and program objectives.
- Design considerations drawn from examples:
  - Legal mandate for compulsory coverage and clear scope of coverage (structures, land, contents, and specified perils).
  - Fixed or legally-determined premium mechanisms versus risk-rated premiums.
  - Explicit government guarantee to back the fund in cases of shortfall.
  - Investment policy that includes international assets to preserve liquidity and reduce immediate fiscal calls.
  - Public-private operational arrangements to leverage private sector distribution and management capacity.
  - Use of deductibles (for example, a 2 percent deductible) to reduce administrative costs associated with small claims.
  - Geographic and construction-type distinctions in premium-setting (for example, multiple seismic zones and construction categories).

*Prepared by Serhan Cevik.*

### 2022. Discussions are likely to focus on consolidating the work of the existing strategy, with a focus

### THE BAHAMAS

### STATISTICAL ISSUES
- General: "Data provision is broadly adequate for surveillance. However, some weaknesses remain in both coverage and timeliness, partly reflecting capacity constraints."
- National Accounts:
  - Supply and use tables finalized; rebased GDP estimates released by the Department of Statistics (DoS) in September 2017.
  - New national accounts system rebased to 2012; expanded coverage including offshore banking units and branch operations of foreign airlines.
  - National Accounts Advisory Committee established with Statistics Canada’s support; MOUs being implemented to improve administrative data classification, quality assurance and sharing.
  - DoS published quarterly GDP estimates for the period 2015-2019 in November 2020, "broadly consistent with the 2008 SNA recommendations."
- Price Statistics:
  - CPI weights updated using the 2013 Household Expenditure Survey (HES); "these weights are over seven years old now and require updating."
  - November 2017 mission recommended conducting a Household Expenditure Survey in 2018/19.
  - Errors in the CPI for May and June 2017 were corrected and series revised.
- Government Finance Statistics:
  - Submissions follow Government Finance Statistics Manual 2014; data cover only operations of the budgetary central government.
  - Authorities are working on consolidated general government data; "Data coverage should be expanded to include all the public bodies classified outside the existing budgetary central government and consequently to compile the General Government."
  - Monthly or quarterly data should be made available in a timely manner.
  - Authorities are not reporting public sector debt data to the World Bank’s Quarterly Public Sector Debt database, but the Central Bank of The Bahamas published quarterly debt data of public corporations as well as the central government debt.
- Monetary and Financial Statistics:
  - The Central Bank of The Bahamas reports monetary and financial statistics for the central bank, other depository corporations, and other financial corporations to the IMF’s Statistics Department using standardized report forms.
  - The Bahamas reports some basic series and indicators of the Financial Access Survey (FAS), including the two indicators that are part of the U.N. Sustainable Development Goals.
- Financial Sector Surveillance:
  - The CBOB compiles for internal use 16 financial soundness indicators (FSIs) and publishes them in its annual Financial Stability Report.
- External Sector Statistics (ESS):
  - "The Central Bank of The Bahamas (CBOB) does not compile international investment position (IIP) statistics."
  - Balance of payments presentation unchanged for many years; compilation system has not captured new developments (e.g., growing portfolio investment outflows); framework does not conform to latest international statistical guidelines.
  - Remote TA mission on ESS in September 2020 recommended: (i) numerous enhancements and corrections to existing source data; (ii) expanding data sources to improve scope and coverage; (iii) addressing classification changes from BPM5 to BPM6 and preparing BPM6-compliant balance of payments and IIP statistics.
  - Implementation would require more resources allocated by the CBOB to ESS compilation.

### DATA STANDARDS AND QUALITY
- Participation: The country participates in the Enhanced General Data Dissemination System (e-GDDS).
- National Summary Data Page launched in December 2018 with assistance of STA.
- Data Reports on the Observance of Standards and Codes (ROSC) are not available.

### TABLE OF COMMON INDICATORS REQUIRED FOR SURVEILLANCE (SUMMARY OF TIMELINESS AND FREQUENCY)
- Exchange Rates: Date of Latest Observation 08/20; Date Received 10/20; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: 08/20; 10/20; M; M; M.
- Reserve/Base Money: 08/20; 10/20; M; M; M.
- Broad Money: 08/20; 10/20; M; M; M.
- Central Bank Balance Sheet: 08/20; 10/20; M; M; M.
- Consolidated Balance Sheet of the Banking System: 08/20; 10/20; M; M; Q.
- Interest Rates: 09/20; 10/20; M; M; M.
- Consumer Price Index: 06/20; 10/20; M; I; I.
- Revenue, Expenditure, Balance and Composition of Financing — General Government: NA; NA; NA; NA; NA.
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: 06/20; 9/20; M; Q; Q.
- Stocks of Central Government and Central Government-Guaranteed Debt: 06/20; 9/20; Q; Q; Q.
- External Current Account Balance: 03/20; 08/20; Q; Q; I.
- Exports and Imports of Goods and Services: 03/20; 08/20; Q; Q; Q.
- GDP/GNP: 2019; 9/20; A; A; A.
- Gross External Debt: 06/20; 9/20; Q; Q; Q.
- International Investment Position: NA; NA; NA; NA; NA.

### STATEMENT BY THE BAHAMIAN AUTHORITIES (Louise Levonian and Latoya Smith) — COVID-19 DEVELOPMENTS
- "Over 7,000 confirmed cases and just under 200 deaths to date."
- Government measures: lockdowns, curfews, border closures; unemployment and food assistance, business continuity and payroll programs, public health support.
- Borders re-opened in latter part of 2020; two major resorts began accepting tourists in December.

### RECENT PERFORMANCE AND ECONOMIC OUTLOOK
- 2019: After Hurricane Dorian in Q3 2019, real GDP grew by 1.2 percent, slowing from 3.0 percent in 2018.
- 2020: Real GDP is estimated to have contracted by 16.2 percent in 2020.
- 2021: A modest rebound to 2.0 percent growth is projected for 2021.
- Full recovery: Staff projects full recovery to pre-crisis levels by 2024; authorities project recovery by 2023.
- Prices:
  - Average annual prices forecast to decline by 0.2 percent for 2020 following a 2.5 percent increase in the preceding year.
  - Inflation projected to return to trend in 2021 at 2.2 percent.
  - Central Bank anticipates inflation returning to approximately 2.5 percent in 2021.
- Labor market:
  - Unemployment rate expected to rise to 25.6 percent in 2020 ("rise by more than two-fold").
  - Surge seen as temporary; gradual improvement expected as tourism resumes.
- Policy measures to support employment: Small Business Development Center (SBDC) and other SME support and entrepreneurship initiatives.

### FISCAL RESPONSIBILITY AND SUSTAINABILITY
- Pre-pandemic progress on fiscal reform provided a modest buffer entering the pandemic.
- Fiscal framework: Rules-based fiscal policy framework established; fiscal council created. Council’s first report due to parliament by end of Q1 2021.
- Legislation progress: Public Procurement Bill passed in June 2020; Public Financial Management (PFM) and Public Debt Management (PDM) Bills scheduled for submission to parliament early 2021.
- Tax transparency: Removal from EU’s list of Non-Cooperative Jurisdictions for Tax Purposes in February 2020.
- Fiscal outcomes:
  - Deficit declined to 1.7 percent of GDP in FY2018/2019.
  - Overall budget deficit rose to 6.4 percent of GDP in FY2019/2020.
  - Authorities forecast reducing the deficit to 0.5 percent and debt to GDP ratios to 62.9 percent by FY2024/2025.
- Fiscal Strategy Report (2020 FSR) measures:
  - Diagnostic reviews of the tax regime, tax expenditures and incentives.
  - Expenditure measures: limit growth in public sector employment; targeted review of public expenditure in FY2020/2021.
  - Strengthen capacity of revenue enhancement unit and accelerate State-Owned Enterprises (SOE) reform agenda.

### LONG-TERM, INCLUSIVE GROWTH
- Economic Recovery Committee (ERC) established April 2020; developed strategic recommendations to address COVID-19 economic impact.
- Medium-term focus: support micro-, small- and medium-sized businesses (MSMEs), diversification, skills development, and investment in digitization within government agencies to increase efficiency and simplify conducting business.

### BUILDING RESILIENCE TO CLIMATE CHANGE
- Authorities agree with staff recommendations: enhance ex-ante preparedness, pursue risk reduction strategies (including mandatory property insurance), invest in resilient infrastructure, and rebuild financial resilience.
- Legislation: Authorities committed to presenting a new law to parliament in 2021 to mitigate risks associated with natural disasters.
- Planned financing and projects:
  - Propose to utilize $80 million of the $170 million IDB Contingent Credit Line for investment projects to advance solar energy opportunities on a commercial scale in the Family Islands in FY2020/2021.
  - Streetlight retrofitting project with solar installation in progress with funding from the Caribbean Development Bank.

### MONETARY AND FINANCIAL SECTOR
- Central Bank measures during pandemic:
  - Commercial banks and credit unions encouraged to defer loan payments initially for 3months for affected households and firms.
  - CBoB issued supervisory guidance on deferrals, business continuity, and pandemic-related issues.
  - Heightened surveillance to monitor asset quality and provisioning.
- Foreign exchange and reserve measures:
  - Temporarily suspended exchange control approvals of dividend payments for commercial banks.
  - Limited residents’ access to foreign currency for international capital market investments through the Bahamas Depository Receipt (BDR) and the Investment Currency Market (ICM).
  - National Insurance Board asked to liquidate some external investments and bring proceeds onshore.
  - Relaxed margin within which commercial banks permitted to sell foreign exchange to the public.
  - Authorities treat these as temporary capital flow management measures (CFMs) to be phased out as recovery takes hold.
- Monetary stance: Given uncertainty regarding foreign exchange inflows and reserve adequacy, CBoB considers a neutral monetary policy stance most prudent.
- Market development: Government debt listed on the Bahamas International Stock Exchange (BISX) to strengthen monetary policy transmission.
- Financial sector reforms:
  - Efforts to strengthen AML/CFT framework and address FATF deficiencies resulted in removal from FATF Grey list in December 2020.
  - Central Bank of the Bahamas Act 2020 amended to make the Central Bank the Resolution Authority for troubled banks, establish the Bank’s CBDC as legal currency, and improve governance arrangements between the CBoB and the government.
  - Banks and Trust Companies Act 2020 establishes a framework for bank resolutions and liquidations.
  - Protection of Depositors (Amendment) Act 2020 revised to improve governance of the Deposit Insurance Fund (DIF).

### CENTRAL BANK DIGITAL CURRENCY (Sand Dollar)
- Following research, consultation, and a successful pilot in 2019, the Sand Dollar was launched nationwide in October 2020.
- Objectives: modernize the payments system, enhance resilience to external shocks, and promote financial inclusion.
- Safeguards:
  - Sand Dollar permitted only for domestic transactions.
  - Sand Dollar is not interest bearing to minimize disintermediation and substitutability within the banking system.
  - Central Bank Act amended to establish Sand Dollar as legal tender and to criminalize counterfeiting or reproduction of digital currency.
  - Payments Systems Act revised to make the Central Bank the regulator of issuers of electronic money products.
  - Central Bank finalizing an electronic customer due diligence (e-KYC) system.
- Deployment and cybersecurity:
  - Cybersecurity assessments completed for six firms to distribute Sand Dollars within registered mobile wallets.
  - Evaluation commenced for an additional three firms, including one bank and one credit union.

### COVID-19 VACCINES
- National COVID-19 Vaccine Consultative Committee established to develop a national COVID-19 Vaccination Plan.
- Government secured vaccine doses via COVAX Facility with a down payment to secure enough doses to vaccinate 20 percent of the population.
- Authorities are pursuing additional doses and "expect to have vaccines available in The Bahamas by the end of the first quarter of this year."

### CONCLUSION
- The Bahamas faced unprecedented challenges from Hurricane Dorian followed by the COVID-19 pandemic, which have "eroded fiscal buffers, interrupted investment plans and caused some reform setbacks."
- Authorities prioritize health and welfare while remaining committed to their fiscal strategy and economic reform, with plans to "redouble their efforts when the crisis subsides."

*IMF staff report content as presented in the source document.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1bhsea2021001.pdf_