## _cr1475 ## Source details **Canonical URL:** [_cr1475](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1475.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1475.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1475.pdf.json) --- ### Recent developments - Real GDP growth: -4.2 (2009), 1.0 (2010), 1.7 (2011), 1.8 (2012), 1.9 (2013 Prel.Est.). - Unemployment: 14.2 (2009), ..., 15.9 (2011), 14.0 (2012), 16.2 (mid-2013). - Inflation (average): 1.9 (2009), 1.3 (2010), 3.2 (2011), 2.0 (2012), 0.3 (Jan–Oct 2013). - International reserves (Millions of US dollars): 816 (2009), 860 (2010), 885 (2011), 810 (2012), 867 (2013 Prel.Est.). - Months of next year's non-FDI imports: 4.5 (2009), 4.1 (2010), 3.8 (2011), 3.4 (2012), 3.6 (2013 Prel.Est.). - Investment grew by 20.6 percent (driven by construction of the US$3.5 billion Baha Mar project). - Private consumption (70 percent of GDP) declined for the fifth consecutive year. - Tourism visitors growth: 8.3 percent (2012) to 2.3 percent (first nine months of 2013). - Hotel receipts: preliminary data indicate a fall of 7½ percent (January–September 2013). - Fiscal deficit widened to 5½ percent of GDP in FY2012/13. - Central government debt rose to 56 percent of GDP (49 percent in FY2011/12). - Current account deficit: 13½ percent of GDP (2011) to 17½ percent of GDP (2012). - Foreign reserves declined to $685 million in October 2013 from $810 million at end-2012. - Credit growth has slowed markedly; private sector credit stalled since 2009. - NPLs nearly doubled after the global financial crisis; mortgage NPLs comprised 58 percent of the NPL portfolio at end-June 2013. ### Outlook and risks - Growth and inflation projections: - Growth projected to pick up, reaching 2¾ percent in 2015–16. - Planned VAT implementation in 2014 would add an annualized 3½ percentage-points to the CPI (as reflected in staff’s baseline projections). - Demand and sectoral prospects: - Stronger demand from 2014 as US recovery accelerates and Baha Mar starts operations. - Private consumption growth expected to be close to zero through 2014; staff projections assume a current-year fiscal multiplier of ½ and a second-year multiplier near zero. - Full operation of Baha Mar could allow for an increase of almost 10 percent in total arrivals; two smaller hotel projects could add another 2¼ percent in arrivals. - External and fiscal outlook: - Primary budget projected to be balanced by FY2014/15 (from a projected deficit of 1.9 percent of GDP for FY2013/14) and move into surplus beyond. - Central government debt projected to peak at nearly 60 percent of GDP in FY2014/15, declining to 55 percent of GDP by FY2017/18. - Revenue expected to rise to about 21 percent of GDP by FY2017/18 from 17 percent of GDP in 2013/14. - Major downside risks identified: - Disappointing Baha Mar performance. - Delay in fiscal consolidation; Standard and Poor’s affirmed a BBB/A-2 rating with a negative outlook. - Lower-than-anticipated emerging market growth. - Reserve pressures due to weakening tourism receipts, loss of one-off capital inflows, and increased profit remittances (about US$105 million during January-October 2013). ### Fiscal consolidation and VAT implementation - VAT as cornerstone: - "The potential revenue yield from a 15-percent VAT is generally estimated at slightly over 7 percentage points of GDP." - "In The Bahamas, the reform’s net revenue gain is assessed at 2.2 percent of GDP." - Staff projection for initial year: "Because of these constraints, staff projects the net revenue gain from the VAT at 1.3 percent of GDP for the initial FY2014/15." - Factors limiting initial VAT revenue gains: - VAT exemptions and other tax reductions (hotel VAT rate at regional Caribbean average of 10 percent). - Capacity limitations in revenue management. - Delays in public campaign roll-out and in passage of relevant legislation; IT system acquisition/testing delays. - Absence of a consumption tax and lack of local experience. - Staff recommendations on VAT: - Set the VAT base as broadly as possible. - Deploy adequate efforts and resources to secure timely implementation of the reform. ### Medium-term fiscal framework and key fiscal projections (In percent of GDP) - Revenue: FY12/13 16.4; FY13/14 17.1; FY14/15 18.6; FY15/16 19.6; FY16/17 20.3; FY17/18 20.8 - Of which: Net gains from VAT: FY12/13 1.3; FY13/14 1.8; FY14/15 2.2; FY15/16 2.3 - Expenditure: FY12/13 21.8; FY13/14 21.6; FY14/15 21.3; FY15/16 21.2; FY16/17 21.0; FY17/18 20.8 - Net acquisition of nonfinancial assets: FY12/13 2.9; FY13/14 2.3; FY14/15 2.2; FY15/16 2.2; FY16/17 2.2; FY17/18 2.2 - Memorandum items: - Primary balance 1/2: FY12/13 -3.0; FY13/14 -1.9; FY14/15 0.0; FY15/16 1.1; FY16/17 2.0; FY17/18 2.5 - Overall fiscal balance: FY12/13 -5.4; FY13/14 -4.5; FY14/15 -2.8; FY15/16 -1.7; FY16/17 -0.7; FY17/18 -0.1 - Debt-to-GDP ratio: FY12/13 56.1; FY13/14 59.1; FY14/15 59.3; FY15/16 58.6; FY16/17 57.1; FY17/18 55.1 - "No VAT" scenario: consolidation program veers off track, with debt-to-GDP ratio above 60 percent in FY2014/15. - Expenditure discipline guidance: - Limit wage outlays to the last three years’ average of 7.4 percent of GDP. - Reduce total spending by 0.8 percent of GDP between FY2013/14 and FY2017/18, to 20.8 percent of GDP. - Adopt cost-based pricing for public utilities and rein in transfers and subsidies. ### Planned reforms of selected public corporations - Aggregate: PCs’ aggregate debt reached 16 percent of GDP at end-June 2013 (10 ½ percent in December 2008). - Water and Sewage Corporation (WSC): - Budget support averaged B$30-40 million annually (0.4 percent of 2013 GDP). - Reforms: organizational restructuring, increased outsourcing, stepped-up efforts to reduce water leakages with external technical assistance. - Bahamas Electricity Corporation (BEC) reforms (expected to be completed in 2014): - Break BEC into two entities: - A new generation service company (operate, maintain, repair, manage generation; planned private sector equity participation). - A new transmission and distribution company (100 percent government owned but operated by the private sector under a management contract). ### Public debt trajectory, DSA findings, and stress tests - Historical and projected public debt path: - "From 33.5 percent of GDP in 2008, it is expected to increase to almost 60 percent of GDP in fiscal year 2014/15." - Baseline: public debt projected to peak at almost 60 percent of GDP in fiscal year 2014/15, fall to about 55 percent of GDP by fiscal year 2017/18. - Gross public financing needs projected to decline from 7.8 percent to about 2.2 percent of GDP over the period. - Drivers: near-term primary deficit and anticipated medium-term growth driven by Baha Mar. - External borrowing: US$180 million external loan in fiscal year 2012/13; US$100 million foreign loan in October 2013 and contemplating an additional US$300 million for remainder of FY2013/14. - Scenario risks: - Historical averages or constant primary balance show debt exceeding 70 percent of GDP over the medium term. - Combined macro-fiscal shock yields a public debt ratio exceeding 70 percent of GDP and gross financing needs of 7 percent of GDP in fiscal year 2017/18. - Stress-test findings: - Greatest sensitivity of public debt to real GDP growth shocks; lowest sensitivity to exchange rate shocks. - Heat map confirms moderate sensitivity of debt level to macro shocks and low sensitivity of gross financing needs. ### Monetary and financial sector stability - Exchange rate peg: conventional fixed peg, B$1 per US$1; peg in place for over 40 years. - Policy interest rate: official discount rate reduced by 75 basis points in late 2011, to 4½ percent. - Banking sector: - NPLs remain elevated at 14 percent of total bank lending and are provisioned at over 50 percent. - Banks have written off nonperforming consumer borrowing; non-performing mortgages now account for the bulk of NPLs. - Capital to risk-weighted assets ratio (selected series): 23.5; 26.1; 25.5; 25.5; 26.6; 26.6 (2008–Q1 series). - Nonperforming loans to total loans ratio, percent: 6.1; 9.3; 11.9; 12.7; 13.6; 13.9 (2008–Q1 series). - Financial sector oversight: - Systemic Risk Surveillance Committee established. - With IMF technical assistance, authorities finalizing a financial crisis management and resolution plan and legal framework. - Creation of a credit bureau, enhancements to deposit insurance, and progress on Basel III implementation noted. - Staff emphasis: continue close monitoring of credit risks, develop more reliable house price indices, intensify monitoring given high NPLs. ### Boosting growth potential and structural reforms - Constraints: - Need to attract tourist demand to absorb supply increase. - Labor market rigidities; lack of skilled labor. - Impediments to SME growth: limited access to bank loans, complex land administration, weak trade-logistics and customs procedures. - The Bahamas slipped 7 places to 84th in 2014 Doing Business indicators. - Planned and ongoing initiatives: - Diversify tourist source markets; promote health care, sports, heritage and religious tourism; B$10 million allocated in FY2013/14 for Baha Mar marketing. - Human capital: opening of the National Training Agency; allocation of B$30 million for special education and College of The Bahamas transition; agriculture college in progress. - Improve business environment: expand e-Government, focus on business licensing, real property tax administration, and customs. - Seek stronger diversification through financial services, agriculture, port services, and PPPs (notably a $400 million Nassau Airport refurbishing project). - National Development Plan (NDP): to be prepared during the first nine months of 2014 with IDB technical assistance. ### Reserve adequacy and external stability - Recent reserve levels: - International reserves declined by $75 million to $810 million in 2012. - Reserves fell to $685 million (1.6 months of imports or 2.8 months of non-FDI imports) at end-October 2013 despite a $100 million foreign loan that added 0.4 months of non-FDI import cover. - Reserve adequacy assessment: - Reserves projected to comfortably cover all short-term external debt over the medium term but fall short against broad money and total imports thresholds. - 70–80 percent of capital goods imports financed by FDI; reserves adequate against a non-FDI imports benchmark in baseline. - Reserves substantially below the broad money norm of 20 percent. - Reserves broadly adequate relative to the IMF risk-weighted benchmark (fixed-regime measure described). - Reserves much below desirable levels by the adjusted SIDS measure (fixed-regime measure described). ### Key staff appraisal and policy recommendations - Fiscal and external imbalances have widened; reserves coverage is slipping. - Priority policy recommendations: - Rigorous implementation of the authorities’ fiscal consolidation plan; timely and successful launch of the VAT. - Accelerate expenditure controls and monitoring, especially for goods and services and transfers. - Give high priority to reforms improving the weak financial position of key public corporations and rein in transfers and subsidies. - Introduce a fiscal rule with comprehensive coverage and shock-response provisions; IMF technical assistance offered. - Maintain the exchange rate peg, supported by restored budget and external viability and rebuilt policy buffers. - Continue steady implementation of FSAP recommendations (Systemic Risk Surveillance Committee, credit bureau, deposit insurance, financial crisis management and resolution plan). ### Selected high-frequency indicators and projections (selected series and projections as presented) - Real GDP: 1.0 1.7 1.8 1.9 2.3 2.8 (Est./Proj. 2010–2015) - Nominal GDP: 0.9 -0.2 3.5 2.7 5.4 5.9 (2010–2015) - Consumer price index (annual average): 1.3 3.2 2.0 0.3 1.9 2.6 - Central government debt (percent of GDP): 43.3 45.1 48.8 56.1 59.1 59.3 (2010–2015) - Current account balance (percent of GDP): -10.1 -13.5 -17.5 -19.6 -15.4 -10.2 (2010–2015) - Gross international reserves (End of period; millions of U.S. dollars): 860 885 810 867 733 786 (2010–2015) *IMF staff report content provided in the supplied PDF content unit.* ### 1. Planned Reforms of Selected Public Corporations ____________________________________________ 11 ### 1. Planned Reforms of Selected Public Corporations ### Recent Developments - Economic activity continues to recover from the global financial crisis, but at a slow pace. - Growth and labor: - Real GDP growth: -4.2 (2009), 1.0 (2010), 1.7 (2011), 1.8 (2012), 1.9 (2013 Prel.Est.). - Unemployment: 14.2 (2009), ..., 15.9 (2011), 14.0 (2012), 16.2 (mid-2013). - Inflation (average): 1.9 (2009), 1.3 (2010), 3.2 (2011), 2.0 (2012), 0.3 (Jan–Oct 2013). - External reserves and import coverage: - International reserves (Millions of US dollars): 816 (2009), 860 (2010), 885 (2011), 810 (2012), 867 (2013 Prel.Est.). - Months of next year's non-FDI imports: 4.5 (2009), 4.1 (2010), 3.8 (2011), 3.4 (2012), 3.6 (2013 Prel.Est.). - Growth composition and tourism: - Investment grew by 20.6 percent (driven by construction of the US$3.5 billion Baha Mar project). - Private consumption (70 percent of GDP) declined for the fifth consecutive year. - Tourism visitors growth: 8.3 percent (2012) to 2.3 percent (first nine months of 2013). - Hotel receipts: preliminary data indicate a fall of 7½ percent (January–September 2013). - About seven large hotels undertook renovation in 2013; refurbishment of the 694-room Melia Nassau Beach Resort is to commence shortly. - Fiscal deterioration and public debt: - Fiscal deficit widened to 5½ percent of GDP in FY2012/13. - Authorities contracted a US$180 million (2.2 percent of GDP) external loan in late 2012 to stem reserve decline. - Central government debt rose to 56 percent of GDP (49 percent in FY2011/12). - Current account and saving/investment: - Current account deficit: 13½ percent of GDP (2011) to 17½ percent of GDP (2012). - Investment/GDP ratio increased by 5 percentage points to 33 percent of GDP in 2012. - Foreign reserves declined to $685 million in October 2013 from $810 million at end-2012. - Financial sector: - Credit growth has slowed markedly; private sector credit stalled since 2009. - Non-performing loans (NPLs) nearly doubled after the global financial crisis. - Mortgage NPLs comprised 58 percent of the NPL portfolio at end-June 2013. - Banks increased interest rate spreads largely through cutting deposit rates. - Overall, the financial sector appears sound and banks’ balance sheets remain robust. ### Outlook and Risks - Medium-term growth and inflation: - Growth projected to pick up, reaching 2¾ percent in 2015–16. - Inflation expected to remain low, but planned VAT implementation in 2014 would add an annualized 3½ percentage-points to the CPI (as reflected in staff’s baseline projections). - Demand and sectoral prospects: - Stronger demand from 2014 as US recovery accelerates and Baha Mar starts operations. - Private consumption growth expected to be close to zero through 2014; staff projections assume a current-year fiscal multiplier of ½ and a second-year multiplier near zero. - Full operation of Baha Mar could allow for an increase of almost 10 percent in total arrivals; two smaller hotel projects could add another 2¼ percent in arrivals. - Growth depends on addressing supply constraints: expanding airlift capacity, addressing infrastructure bottlenecks, strengthening tourism linkages, and diversifying the tourism product (sports and health care-based tourism). - Financial sector medium-term outlook: - Modest growth in bank lending as private sector deleverages and banks deal with problem loans. - Mortgage lending growth likely limited given residential investment fell by one third in nominal value during 2008–12. - NPL stock appears to have peaked and is expected to slowly decline as banks write off some categories and arrange flexible solutions for mortgages. - External account and reserves: - Completion of Baha Mar would reduce construction imports and boost tourism exports. - Projection: investment/GDP ratio declines while saving rate recovers (mostly higher fiscal saving), current account deficit reverts to lower pre-crisis levels, strengthening foreign reserves and external stability. - The Bahamas’ exchange rate appears broadly in line with fundamentals, though declining reserve position raises external stability concern. - Fiscal outlook and debt trajectory: - Primary budget projected to be balanced by FY2014/15 (from a projected deficit of 1.9 percent of GDP for FY2013/14) and move into surplus beyond. - Central government debt projected to peak at nearly 60 percent of GDP in FY2014/15, declining to 55 percent of GDP by FY2017/18. - Revenue is expected to rise to about 21 percent of GDP by FY2017/18 from 17 percent of GDP in 2013/14. - Major downside risks highlighted: - Disappointing Baha Mar performance: significantly lower-than-assumed net tourist arrivals or expenditure would undermine growth and fiscal revenues; a complete failure to raise tourism exports would eliminate projected uptick in growth and could pressure reserves, requiring more aggressive fiscal consolidation. - Delay in fiscal consolidation: risks to long-term debt sustainability and investment-grade credit rating; Standard and Poor’s affirmed a BBB/A-2 rating with a negative outlook and warned of potential downgrades if additional fiscal action is not taken. - Lower-than-anticipated emerging market growth: would undercut tourism strategy aimed at attracting arrivals from EM countries; could be partly offset by lower fuel prices. ### Policy Discussions — A. Ensuring Long-Run Fiscal Sustainability - Fiscal imperatives: - Central government debt exceeds 50 percent of GDP, classifying The Bahamas as a “High Scrutiny” country under the Market-Access Countries (MAC) DSA. - Authorities emphasized fiscal consolidation and lower debt as necessary for stronger economic and social outcomes. - Fiscal consolidation needed to reduce central government net financing requirements, reverse the rising debt trajectory, rebuild policy buffers, and contain medium-term borrowing costs. - Fiscal consolidation would create space for increased physical and social infrastructure spending and higher human capital outlays. - Medium-term fiscal framework discussed with staff: - Objective: achieve a balanced budget and reduce the debt ratio to some 55 percent of GDP by FY2017/18 from a projected peak of 59 ½ percent in FY2014/15. - Under the scenario, tax revenue would increase by an annual average of about 0.8 percentage-points of GDP over the next five years, largely from planned introduction of the VAT; only moderate savings on government expenditures are assumed given limited spending flexibility. - Authorities stressed high budgetary cost of basic infrastructure and public utilities in a sparsely populated archipelago. - Revenue reform measures underpinning the revenue effort: - Upward revision of various business license fees (July 2013). - Introduction of a value added tax (VAT) in July 2014. - Establishment of a Central Revenue Agency in the first quarter of 2014. - Adoption of Tax Identification Numbers. - Overhaul of customs administration in the context of a $16.5 million IDB-funded reform project. - Modernization of the real property tax (RPT) system. - Revenue administration challenges and cautions: - Bahamian Customs and RPT departments rely heavily on manual procedures and outdated information systems; current revenue collection is estimated at below 50 percent of potential. - Envisaged reforms include extensive computerization of revenue assessment and collection functions and introduction of risk-based monitoring. - Staff concurred reforms could yield significant revenue gains, but urged caution in factoring anticipated revenue improvements into the medium-term fiscal framework given pervasive capacity limitations and a record of low tax compliance. *International Monetary Fund — The Bahamas (extracted from the referenced chapter)* ### 14. The implementation of the VAT is the cornerstone of the authorities’ fiscal ### _cr1475 - 14. The implementation of the VAT is the cornerstone of the authorities’ fiscal ### Fiscal consolidation and VAT implementation - The implementation of the VAT is described as the cornerstone of the authorities’ fiscal consolidation agenda, intended to broaden the tax base, increase revenues, and improve tax administration effectiveness. - Revenue potential and assessed yields: - "The potential revenue yield from a 15-percent VAT is generally estimated at slightly over 7 percentage points of GDP." - "In The Bahamas, the reform’s net revenue gain is assessed at 2.2 percent of GDP." - Staff projection for initial year: "Because of these constraints, staff projects the net revenue gain from the VAT at 1.3 percent of GDP for the initial FY2014/15." - Factors limiting initial VAT revenue gains: - VAT exemptions and other tax reductions adopted alongside the new tax (the hotel VAT rate will be at the regional Caribbean average of 10 percent). - Capacity limitations in revenue management. - Delays in public campaign roll-out and in securing passage of relevant legislation in Parliament, complicating timely acquisition and testing of IT systems in public and private sectors. - Absence of a consumption tax and lack of local experience in its management. ### Medium-Term Fiscal Framework and fiscal projections (In percent of GDP) - Table of key fiscal aggregates (Fiscal year ends June 30th): - Revenue: FY12/13 16.4; FY13/14 17.1; FY14/15 18.6; FY15/16 19.6; FY16/17 20.3; FY17/18 20.8 - Of which: Net gains from VAT: FY12/13 1.3; FY13/14 1.8; FY14/15 2.2; FY15/16 2.3 - Expenditure: FY12/13 21.8; FY13/14 21.6; FY14/15 21.3; FY15/16 21.2; FY16/17 21.0; FY17/18 20.8 - Of which: Net acquisition of nonfinancial assets: FY12/13 2.9; FY13/14 2.3; FY14/15 2.2; FY15/16 2.2; FY16/17 2.2; FY17/18 2.2 - Memorandum items: - Primary balance 1/2: FY12/13 -3.0; FY13/14 -1.9; FY14/15 0.0; FY15/16 1.1; FY16/17 2.0; FY17/18 2.5 - Overall fiscal balance: FY12/13 -5.4; FY13/14 -4.5; FY14/15 -2.8; FY15/16 -1.7; FY16/17 -0.7; FY17/18 -0.1 - Debt-to-GDP ratio: FY12/13 56.1; FY13/14 59.1; FY14/15 59.3; FY15/16 58.6; FY16/17 57.1; FY17/18 55.1 - Scenario analysis: - An illustrative "no VAT" scenario shows the consolidation program veering off track, with the debt-to-GDP ratio above 60 percent of GDP in FY2014/15. - Staff recommendations on VAT: - Set the VAT base as broadly as possible. - Deploy adequate efforts and resources to secure timely implementation of the reform. ### Expenditure discipline and public spending measures - Key expenditure guidance: - Enhanced spending discipline urged, especially on wages, goods and services, and subsidy outlays. - Limit wage outlays to the last three years’ average of 7.4 percent of GDP, noting manageable central government hiring pressure beyond 2014 due to improved tourism employment prospects (e.g., opening of Baha Mar). - Strictly limit growth of spending on goods and services given recent sharp increases. - Some downsizing of the public investment budget is assumed given completion of high-cost road and airport rehabilitation projects. - Keep budget transfers and subsidies in check; implement reforms of public corporations, including adoption of cost-based pricing for public utilities to reduce net financing requirements. - Aggregate spending outcome: - "Total spending is expected to be reduced by 0.8 percent of GDP between FY2013/14 and FY2017/18, to 20.8 percent of GDP." ### Planned reforms of selected public corporations (Box 1) - Aggregate context: - PCs’ aggregate debt reached 16 percent of GDP at end-June 2013 (10 ½ percent in December 2008). - Water and Sewage Corporation (WSC): - Budget support averaged B$30-40 million annually (0.4 percent of 2013 GDP). - Reforms include organizational restructuring, increased outsourcing, stepped-up efforts to reduce water leakages with external technical assistance. - Bahamas Electricity Corporation (BEC) envisaged reforms (expected to be completed in 2014): - Break BEC into two new entities: - A new generation service company to operate, maintain, repair, and manage BEC’s electricity generation facilities and develop new power plants; planned private sector equity participation to permit involvement of international energy sector partners and resources for capacity building and modernization. - A new transmission and distribution company to operate, maintain, and expand transmission and distribution systems; the entity would be 100 percent government owned but operated by the private sector under a management contract. ### Rule-based fiscal framework - Authorities intend to introduce a rule-based fiscal framework to guard against fiscal shortsightedness and make medium-term targets more predictable, taking account of country-specific conditions (small island state, vulnerability to natural disasters). - Staff notes for a fiscal rule: - Considerable transparency demands and need for comprehensive coverage of fiscal operations. - Must balance sustainability and flexibility and provide for policy responses to unforeseen shocks (e.g., natural disasters). - IMF signaled readiness to provide technical assistance. ### Enhancing external stability and reserve pressures - Exchange rate and external position: - The peg to the U.S. dollar and low inflation have underpinned nominal (NEER) and real effective exchange rate (REER) stability; CGER methodologies reveal no significant misalignment, conditional on planned fiscal adjustment and growth-enhancing policies. - ERER approach suggests the REER is overvalued by about 4 percent; MB approach suggests undervaluation by 3 percent. External sustainability (ES) approach not undertaken owing to lack of official IIP data. - Sources of reserve pressures: - Weakening tourism receipts. - Diminution of previously available "one-off" capital inflows (privatization, bank capital increases). - Increase in commercial banks’ profit remittances (about US$105 million during January-October 2013). - Government shifted bulk of budget deficit financing to external loans; proceeds totaling $400 million for FY2013/14 helped bolster reserves. - Authorities view higher foreign debt as temporary pending medium-term external improvements. - Policy emphasis: - Staff calls for strong policy efforts to stem deterioration and replenish reserves to mitigate shocks, allow counter-cyclical policy, and enhance peg credibility. - Progress in expanding the tourism base and removing structural impediments to growth is emphasized to strengthen external sustainability. ### Reserve adequacy assessment (Box 2) - Recent reserve developments: - International reserves declined by $75 million to $810 million in 2012. - Reserves fell further to $685 million (1.6 months of imports or 2.8 months of non-FDI imports) at end-October 2013 despite a foreign loan ($100 million) that added 0.4 months of non-FDI import cover. - Reserve adequacy findings: - Reserves are projected to comfortably cover all short-term external debt over the medium term but fall short against thresholds pertaining to broad money and total imports. - 70–80 percent of capital goods imports are financed by FDI; when evaluated against a non-FDI imports benchmark, reserves would remain adequate throughout the baseline period. - Reserves remain substantially below the broad money norm of 20 percent, though related risks are limited given strong central bank restrictions on capital flows (all outward capital transfers require exchange control approval; outflows of resident-owned capital are restricted). - Reserves are broadly adequate relative to the risk-weighted benchmark (IMF, Assessing Reserve Adequacy, February 2011), where the fixed-regime measure is 30 percent of short-term debt at remaining maturity + 15 percent of other portfolio liabilities + 10 percent of broad money + 10 percent of exports. - Reserves are much below desirable levels by the adjusted SIDS measure (Nkunde Mwase, WP/12/205), where the fixed-regime measure is 95 percent of short-term debt at remaining maturity + 10 percent of broad money + 35 percent of exports. ### Monetary and financial sector stability - Monetary framework and peg: - The exchange rate peg to the U.S. dollar has been in place for over 40 years and continues to serve the country well. - The peg has delivered inflation performance in line with main trading partners and supported financial stability. - Authorities consider capital controls effective in shielding domestic monetary conditions; they expect U.S. QE tapering to likely not exert undue pressure on reserves. - Policy interest rate: - The official discount rate was reduced by 75 basis points in late 2011, to 4½ percent. - Staff and authorities agree that the current low policy rate remains appropriate given weak credit demand and subdued domestic activity. - Credit information and lending: - Introduction of a credit bureau is expected to improve transparency and inform lending decisions; authorities and banks voiced concerns that full visibility of indebtedness could weaken incentives to expand credit. - Nonperforming loans (NPLs) and bank asset quality: - NPLs remain elevated at 14 percent of total bank lending and are provisioned at over 50 percent. - Banks have written off nonperforming consumer borrowing; non-performing mortgages now account for the bulk of NPLs. - Banks favor case-by-case handling and restructuring of mortgages to avoid flooding the market with foreclosures. - Staff encourages continued close monitoring of credit risks and collateral values. - Staff and authorities agree on the desirability of developing more reliable house price indices to improve collateral assessment, provisioning, and real estate market liquidity and transparency. *Source: IMF staff report content provided in the supplied PDF content unit.* ### 23. The authorities continue to make progress in implementing recommendations of the ### _cr1475 - 23. The authorities continue to make progress in implementing recommendations of the ### Financial sector oversight and FSAP implementation - The authorities have established a Systemic Risk Surveillance Committee to monitor the stability of domestic banks. - With IMF technical assistance, the authorities are finalizing a financial crisis management and resolution plan and legal framework as they endeavor to rationalize and further strengthen the supervisory and regulatory frameworks. - The insurance and securities sectors have recently adopted new legal and institutional frameworks, and oversight is improving. - Supervisors are implementing other key recommendations from the July 2012 FSAP. - The staff confirmed the authorities’ commitment to undergo an AML/CFT assessment of compliance; the 18-month deadline following completion of the July 2012 FSAP was likely to slip, with the assessment expected in second half of 2014 under the aegis of the Caribbean Financial Action Task Force (CFATF). Key findings from the July 2012 FSAP (Box 3) - No short-term threats to financial stability were found; the country’s financial system had weathered the global crisis reasonably well. - Tight capital and exchange controls supported The Bahamas’ U.S. dollar peg and insulated the financial system from global stability threats. - The offshore financial sector is disproportionately large (with total assets about 75 times GDP) but contributes less than 3 percent to GDP because capital and exchange controls and limited exposure to the domestic real estate market provide a firewall separating the offshore and onshore financial systems. - The onshore financial sector is resilient and could withstand substantial economic, solvency, and liquidity shocks. - Other financial institutions (credit unions, the insurance sector, and securities markets) have limited systemic impact. - Oversight of the financial system is independent and strong, particularly banking supervision; revisions to the Central Bank Act are in progress and a committee for implementing Basel III is constituted. - Actions underway include creating a credit bureau, enhancing the deposit insurance system, and a credit union act released for consultation. - November 2013 Fund technical assistance recommended legislative reforms to strengthen the bank crisis resolution framework, including increasing deposit insurance funds, establishing recovery and resolution plans, and further strengthening provisions on emergency liquidity assistance. - The high level of non-performing loans calls for intensifying the monitoring of financial institutions. ### Boosting growth potential and structural reforms Constraints to growth identified - Need to attract sufficient tourist demand to absorb a large impending increase in supply. - Labor market rigidities and persistently high unemployment rates suggest wage rigidities; business surveys cite a lack of skilled labor. - Impediments to SME growth: (i) limited access to bank loans, training and business development services; (ii) a complex system of land administration raising transaction costs; (iii) weak trade-logistics mechanisms and customs procedures constraining SME access to external markets. As a result, SMEs are concentrated in low-productivity services in less technology- and knowledge-intensive areas. - The Bahamas slipped 7 places to 84th place in the 2014 World Bank doing Business Indicators, with particularly low rankings in starting a business, getting credit, protecting investors, enforcing contracts, and registering property. - About 90 percent of all registered businesses employ fewer than 20 persons (Inter-American Development Bank, Country Strategy with the Commonwealth of The Bahamas, 2012–2014). Planned and ongoing initiatives - Plans to diversify tourist source markets beyond the eastern seaboard of the US and to promote non-traditional segments such as health care, sports, heritage and religious tourism; authorities allocated B$10 million in FY2013/14 to conduct marketing for the Baha Mar resort. - Initiatives to strengthen human capital: opening of the National Training Agency for vocational and technical job training (targeting school-drop out young adults); allocation of B$30 million for special education and the transition of the College of The Bahamas to University status; an agriculture college in progress. - A new policy framework under consideration to enhance creation and expansion of small and medium sized enterprises and long-term employment opportunities. - Plans to make key government agencies more customer-friendly and easier to access (e.g., expanding the e-Government platform), with initial focus on business licensing, real property tax administration, and customs. - Seeking stronger economic diversification through development of financial services, agriculture, and port services; provision of physical and social infrastructure, including through public-private partnerships (PPPs). Pending a formal PPP regulatory framework, authorities noted successful PPP arrangements, most notably a $400 million Nassau Airport refurbishing project. National development planning - Staff welcomed plans to develop a comprehensive national development plan (NDP) with technical assistance from the Inter-American Development Bank. - The NDP to be prepared during the first nine months of 2014 would assess macroeconomic performance, institutions and governance, and propose medium- and long-term strategies for: (i) promising sectors including tourism, agriculture, port services, and financial services; (ii) individual islands; (iii) human capital; (iv) infrastructure; and (v) effective government. - The NDP should be completed in a timely fashion and backed by a broad cross section of society. ### Exchange system, monetary policy legal framework, and other developments - Authorities confirmed no new exchange measures on making of payments and transfers for current international transactions or measures that would give rise to multiple currency practices since the last Article IV consultation. - Revisions to the central bank act, mainly to further enhance independence and policy flexibility in open market operations, are in progress and should be completed by mid-2014. ### Staff appraisal — fiscal, external, and policy recommendations Key assessments - Both the fiscal and external imbalances have widened in recent years, while reserves coverage is slipping. - The Bahamian economy is recovering from the global financial crisis but at a painfully slow pace; economic activity should recover more strongly from 2014 onward with stronger growth in the US and the opening of Baha Mar, helping to reduce high unemployment. - Medium-term growth will depend on diversifying tourist source markets and the tourism experience, expanding incoming airlift capacity; closing infrastructure bottlenecks and workforce skills shortages; and strengthening non-tourism sectors. Priority policy recommendations - Rigorous implementation of the authorities’ fiscal consolidation plan is essential to recapturing medium-term budget and debt sustainability. - The VAT is the cornerstone of the fiscal adjustment program; staff encourages the authorities to insure its timely and successful launch. - Accelerate efforts to reinforce expenditure controls and monitoring, especially for goods and services and transfers. - Give high priority to reforms improving the weak financial position of key public corporations and rein in transfers and subsidies. - Introduce a fiscal rule to enhance the predictability and credibility of budget policies; staff encourages authorities to flesh out reform details and implementation timeframe; the Fund stands ready to provide technical assistance. - Maintain the exchange rate peg, supported by efforts to restore budget and external viability and rebuild depleting policy buffers; staff encourages close adherence to prudent fiscal policies and structural reforms. - Continue steady implementation of key FSAP recommendations and enhanced monitoring of financial system developments (Systemic Risk Surveillance Committee, creation of a credit bureau, strengthening deposit insurance, and preparing a financial crisis management and resolution plan with Fund technical assistance). Concluding recommendations on structural competitiveness - Enhance the business environment, improve educational standards to foster human capital development, and identify clear strategies for island- and sector-level development (tourism, agriculture, financial services, port activities). - Ensure government initiatives are informed by the NDP’s guidance and recommendations. *IMF staff assessment as presented in the source document.* ### 34. Staff recommends that the next Article IV consultation with The Bahamas be ### _cr1475 - 34. Staff recommends that the next Article IV consultation with The Bahamas be ### Recommendation - Staff recommends that the next Article IV consultation with The Bahamas be conducted on the standard 12-month cycle. ### Risk Assessment Matrix — Main threats, likelihood, and expected impact - Fiscal policy shock in the United States (failure to raise the debt ceiling). - Likelihood of realization of the threat: Low - Expected impact if threat is realized: High - Notes: Setbacks from a U.S. fiscal impasse could weaken tourism, pressure the balance of payments, cause reserve coverage to fall, and keep fiscal deficits elevated as the revenue base narrows. - Global oil shock. - Likelihood of realization of the threat: Low - Expected impact if threat is realized: Medium - Notes: Rising fuel prices would raise headline inflation, boost travel costs, and reduce tourist arrivals. - Disappointing results from the Baha Mar project. - Likelihood of realization of the threat: Low - Expected impact if threat is realized: High - Notes: In a tail risk where the project fails to raise overall tourism exports, projected growth uptick from 2015 onward would not materialize, adversely affecting fiscal revenues and the public debt outlook; the project entails no contingent fiscal risks as it is entirely financed by foreign private sources. - Lower than anticipated emerging market growth potential. - Likelihood of realization of the threat: Medium - Expected impact if threat is realized: Medium - Notes: A slowdown in EM would undercut the growth outlook given the tourism strategy targeting EM arrivals; effect could be tempered by a decline in fuel prices. - Delays in implementing fiscal consolidation. - Likelihood of realization of the threat: Medium - Expected impact if threat is realized: High - Notes: Further delays, especially on tax revenue-enhancing reforms, could risk long-term debt sustainability and the investment-grade credit rating. - Credit risk (banking NPLs and collateral uncertainty). - Likelihood of realization of the threat: Low - Expected impact if threat is realized: Low - Notes: NPLs remain high and uncertainty on collateral values for non-performing mortgages exists; capital buffers provide shock-absorbing capacity, but persistent NPLs could raise provisioning and charge-offs and drag down profitability. - Other risks (weather-related natural disasters, possible increase in crime). - Likelihood of realization of the threat: Medium - Expected impact if threat is realized: Medium/high - Notes: Weather disasters would undermine growth and fiscal outlooks; a rise in crime would negatively affect tourism if not addressed. ### Recent developments and high-level diagnostics (figures summary) - Tourism, output growth, and unemployment: - BHS real GDP growth series shown for 2003–2013 with associated BHS air arrivals (percent change) and USA unemployment trends; captions note tourism and output growth remained low reflecting continued weakness in the U.S. labor market. - Current account and reserves: - Current account deficit has widened significantly, but FDI and other capital inflows have cushioned reserve losses. - Net international reserves (end of period, Millions of US$) and months of next year's non-FDI related imports: charted with reserve months and a 3 months/base money target. - Private sector credit and loan arrears: - Private sector credit has stagnated. - Loan arrears have remained high (breakdowns by arrears duration and provisions to NPLs shown). - Banking system indicators: - Banks’ capital position remains strong, but profitability has declined (capital to assets ratio, net income in percent of assets, return on assets). ### Fiscal developments and outlook (figures and tables summary) - Government expenditure and revenue dynamics: - Government expenditure has remained elevated while revenue declined mainly due to a slower economic recovery, resulting in a larger fiscal deficit and higher government debt to GDP ratio. - Table 1 — Selected social and economic indicators (annual series and levels; select entries presented exactly as in source): - Real GDP: 1.0 1.7 1.8 1.9 2.3 2.8 (Est. 2010–2015) - Nominal GDP: 0.9 -0.2 3.5 2.7 5.4 5.9 - Consumer price index (annual average): 1.3 3.2 2.0 0.3 1.9 2.6 - Unemployment rate (in percent): n.a 15.9 14.0 16.2 15.5 14.5 - Saving rate (percent of GDP): 15.3 14.5 15.7 16.9 18.2 17.9 - Investment rate (percent of GDP): 25.4 28.1 33.1 36.5 33.5 28.2 - Exports of goods and services: 4.9 7.9 8.3 -1.0 7.7 9.5 - Travel receipts (gross): 7.4 5.4 5.0 -4.4 8.1 13.8 - Imports of goods and services: 1.1 12.9 15.6 3.9 0.1 -0.4 - Central government revenue and grants: 16.6 18.3 17.8 16.4 17.1 18.6 - Central government expenditure: 19.8 22.0 22.2 21.8 21.6 21.3 - Overall balance: -3.2 -3.7 -4.3 -5.4 -4.5 -2.8 - Primary balance: -0.9 -1.0 -2.0 -3.0 -1.9 0.0 - Central government debt: 43.3 45.1 48.8 56.1 59.1 59.3 - Current account balance: -10.1 -13.5 -17.5 -19.6 -15.4 -10.2 - Change in net international reserves (Increase -): -0.6 -0.3 0.9 -0.7 1.5 -0.6 - External public debt (end of period): 11.6 13.2 17.8 19.7 21.3 20.7 - Gross international reserves (End of period; millions of U.S. dollars): 860 885 810 867 735 789 - In months of next year's G&S imports: 2.4 2.2 1.9 2.0 1.7 1.8 - In months of next year's non-FDI related G&S imports: 4.1 3.8 3.4 3.6 3.0 3.1 - In percent of reserve money: 104 100 90 97 82 87 - External debt-service ratio (in percent of exports of G&S): 11.1 8.0 7.4 11.3 4.9 4.4 - GDP (in millions of Bahamian dollars): 7,888 7,873 8,149 8,367 8,819 9,338 - Central government fiscal operations (selected rows from Tables 2 and 3.1, in millions of Bahamian dollars and percent of GDP): - Revenue (millions B$): 1,302 1,442 1,427 1,355 1,470 1,685 1,873 2,039 2,185 (Prel. FY09/10–Proj. FY17/18) - Expenditure (millions B$): 1,553 1,731 1,776 1,803 1,860 1,935 2,033 2,109 2,192 - Net lending (+) / borrowing (–) (millions B$): -250 -289 -348 -448 -390 -250 -160 -70 -7 - Revenue (percent of GDP): 16.6 18.3 17.8 16.4 17.1 18.6 19.6 20.3 20.8 - Expenditure (percent of GDP): 19.8 22.0 22.2 21.8 21.6 21.3 21.2 20.1 20.8 - Net lending/borrowing (percent of GDP): -3.2 -3.7 -4.3 -5.4 -4.5 -2.8 -1.7 -0.7 -0.1 - Primary balance (In percent of GDP): -0.9 -1.0 -2.0 -3.0 -1.9 0.0 1.1 2.0 2.5 - Central government debt (In percent of GDP): 43.3 45.1 48.8 56.1 59.1 59.3 58.6 57.1 55.1 - Nominal GDP (In millions of B$): 7,854 7,880 8,011 8,258 8,593 9,078 9,570 10,034 10,513 ### Key fiscal measures and revenue reforms - Table 3.2 — Key Fiscal Measures for FY2013/14 (estimated yields and effective dates) - Establish new business license fees on banks: 3 percent of gross revenue. - Estimated yield: 28 (millions of Bahamas dollars) - Effective date: July 2013 - Reform the business license fees schedule (0.75–1.75 percent rates based on turnover; eliminate special categories except for financial institutions and stand-alone gas stations). - Estimated yield: 20 (millions of Bahamas dollars) - Effective date: July 2013 - Increase business license fee rates for offshore banks and trust companies. - Estimated yield: 5.5 (millions of Bahamas dollars) - Effective date: July 2013 - Subject public corporations to business license fees (remove the exemption) — fees rates (0.75–1.75 percent) based on turnover. - Estimated yield: 5 (millions of Bahamas dollars) - Effective date: July 2013 - Introduce an environmental levy on certain imported items (various fee rates depending on items). - Estimated yield: 7 (millions of Bahamas dollars) - Effective date: July 2013 - Introduce a customs processing fee of between B$10 and B$500; eliminate the old B$10 stamp tax levied on customs entries. - Estimated yield: 3 (millions of Bahamas dollars) - Effective date: July 2013 - Introduction of Financial Administration and Audit Act to enhance public financial management. - Estimated yield: N.A - Effective date: July 2013 - Total estimated yield: 68.5 (millions of Bahamas dollars) — Total in percent of GDP: 0.8 — Effective date: July 2013 - Table 3.3 — Revenue measures for FY2014/15–FY2016/17 (staff estimates of net gains by FY2016/17): - Introduction of a 15-perecnt VAT; along with concurrent reductions in various import duty, excise tax rates, and other fees. - Staff estimate of net gains by FY2016/17: 2.2 percent of GDP - Customs operation reform (modernization, single window, automated systems, strengthened internal audit and revenue reporting). - Staff estimate of net gains by FY2016/17: 0.3 percent of GDP - Authorities' estimate: 0.5 percent of GDP - Property tax reform (multi-year overhaul of IT systems, expanded coverage, taxpayer education, operations manuals, enforcement initiatives; ongoing from 2012). - Staff estimate: (presented as part of table; no numeric net gain printed in supplied excerpt) ### External, saving, investment, and financial sector developments (figure summaries) - External sector developments charted (2000–2018) showing exports, imports, current account, factor income, transfers, and net exports as percent of GDP. - National, government, and nongovernment saving and investment (NIA/BoP-based; percent of GDP) charted for 2000–2018: total investment, government investment, nongovernment investment, total saving, government saving, nongovernment saving. - Regional financial comparisons (NPLs to Total Loans, Provisions to NPLs, Capital to Risk-Weighted Assets, Return on Assets) show: - NPLs rose sharply following the recession. - Provisions to NPLs remain around the 40 percent level. - Banking system’s ample capital buffers provide shock-absorbing capacity. - Profitability is declining. - Structural competitiveness indicators: - Bahamas scores well on airport capacity and is near regional average on import costs and electricity tariffs. - Regulatory environment needs improvement in some areas (Doing Business Indicators, 2014; rankings out of 185 countries plotted). *Italic: IMF staff report content as provided in the supplied source excerpt.* ### 0.6 percent of GDP ### _cr1475 - 0.6 percent of GDP ### Fiscal measures and revenue initiatives - Excise tax on tobacco: Introduction of stamps on tobacco products upon the payment of excise tax (effective from January 2014). - Revenue estimate discrepancy: "0.6 percent of GDP (Authorities estimate: 1 percent of GDP)". - Staff data sources: "Source: Ministry of Finance; and Fund staff estimates and projections." ### Public debt trajectory and Debt Sustainability Analysis (DSA) findings - Historical and projected path: - "From 33.5 percent of GDP in 2008, it is expected to increase to almost 60 percent of GDP in fiscal year 2014/15." - Under the baseline, "public debt is projected to peak at almost 60 percent of GDP in fiscal year 2014/15, but to fall to about 55 percent of GDP by fiscal year 2017/18 and remain on a declining trajectory thereafter." - Gross public financing needs: - Projected to decline "gradually from 7.8 percent to about 2.2 percent of GDP over the period." - Drivers of debt dynamics: - "Mainly driven by the near-term primary deficit, which is expected to be eliminated over the medium term as fiscal consolidation already in train accelerates notably following the introduction of the value-added tax in fiscal year 2014/15." - "Anticipated strengthening of real GDP growth over the medium term, initially underpinned by the nearly completed $3.5 billion Baha Mar tourist project, would also help curb the rise in the public debt ratio." - Composition and vulnerability: - "Risks arising from the maturity or currency composition of public debt are moderate, as short term debt and foreign currency denominated debt constitute relatively small fractions of total debt." - "Short-term liabilities remain a relatively small portion of total public debt (some 12 percent in 2012), have on average been stable during 2001–12, and are mostly held domestically." - External borrowing and associated risks: - To bolster reserves, the government contracted "a US$180 million external loan in fiscal year 2012/13". - Fiscal year 2013/14: "contracting a US$100 million foreign loan in October 2013 and contemplating an additional US$300 million for the remainder of fiscal year 2013/14." - Authorities view such borrowing as temporary and "are committed to insuring that such borrowing is rigorously contained." - Scenario and historical-sensitivity risks: - Medium-term projections using historical averages for macro-fiscal paths or a constant primary balance show "a sharp further rise of public debt, exceeding 70 percent of GDP over the medium term, with elevated gross financing needs as well." - Combined macro-fiscal shock scenario yields "a public debt ratio exceeding 70 percent of GDP and gross financing needs of 7 percent of GDP in fiscal year 2017/18." - Forecast track record and implementation risk: - "The forecast track record showing a tendency toward optimism in forecasts of real GDP growth and the primary balance" poses downside risks to the baseline. - Emphasis: "the need for stronger efforts in addressing the implementation risks and ensuring rigorous adherence to the ongoing fiscal consolidation program." ### Stress tests, heat map, and realism of baseline assumptions - Sensitivity results: - "DSA’s macro-fiscal stress tests indicate a moderate sensitivity of public debt to a variety of shocks, with the greatest sensitivity being to real GDP growth shocks and sensitivity to exchange rate shocks the lowest of the various shocks considered." - Heat map: "confirms the moderate sensitivity of the debt level to macro shocks, and reveals a low sensitivity of gross financing needs to the same set of shocks." - Forecasting realism: - "The forecast track record shows a waning of optimism tendencies in forecasts of real GDP growth in recent years; and the unfavorable debt dynamics under assumption of historical performance for the primary balance underscores the need for stronger efforts..." - Boom-bust risk: "limited in light of relatively slow pace of economic recovery and very weak credit growth in recent years." - Distributional projections: - Public debt predictive densities plotted by percentiles for 2011–2018 (percentile bands shown: 10th-25th, 25th-75th, 75th-90th) and baseline/symmetric/asymmetric distributions (figures in source). ### External sector: balance of payments and reserves - Current account and components (selected levels, in millions of U.S. dollars): - Current account balance: -797; -1,066; -1,424; -1,638; -1,354; -955; -770; -738; -713 (Est. 2010–2018). - Goods (trade balance): -1,888; -2,132; -2,401; -2,402; -2,376; -2,366; -2,349; -2,422; -2,523. - Services: 1,329; 1,339; 1,229; 999; 1,254; 1,646; 1,844; 1,979; 2,099. - Travel (net): 1,936; 2,033; 2,107; 1,991; 2,164; 2,491; 2,741; 2,950; 3,149. - Current account as percent of GDP: - -10.1; -13.5; -17.5; -19.6; -15.4; -10.2; -7.9; -7.2; -6.6 (Est. 2010–2018). - Goods (trade balance) percent of GDP: -23.9; -27.1; -29.5; -28.7; -26.9; -25.3; -24.0; -23.6; -23.4. - Travel (net) percent of GDP: 24.5; 25.8; 25.9; 23.8; 24.5; 26.7; 28.0; 28.7; 29.3. - Capital and financial account (in millions of U.S. dollars): - 1,144; 986; 1,140; 1,696; 1,222; 1,009; 907; 853; 792 (Est. 2010–2018). - Gross international reserves (memorandum): - In millions of US dollars: 860; 885; 810; 867; 735; 789; 925; 1,040; 1,120. - Nominal GDP (millions of U.S. dollars): 7,888; 7,873; 8,149; 8,367; 8,819; 9,338; 9,802; 10,266; 10,760. - External public debt and service indicators (latest observations and series): - External public debt (in percent of GDP): 5.4; 9.8; 11.6; 13.2; 17.8; 17.6 (2008–June 2013 series context). - External debt service (in percent of exports of goods and services): 6.0; 24.7; 11.1; 8.0; 7.4... (series truncated in source). ### Central Bank and financial system summary (selected items) - Central Bank (end of period, millions of Bahamian dollars): - Gross international reserves: 860; 885; 810; 867; 733; 786. - Reserve money: 826; 881; 899; 896; 897; 902. - Currency held by the private sector: 308; 324; 344; 343; 343; 345. - Financial system (end of period, millions of Bahamian dollars): - Net foreign assets: 152; 281; 208; 263; 127; 177. - Net domestic assets: 6,039; 6,030; 6,095; 6,015; 6,160; 6,147. - Credit to private sector: 6,573; 6,648; 6,629; 6,528; 6,563; 6,638. - Liabilities to the private sector (broad money): 6,191; 6,310; 6,304; 6,278; 6,287; 6,325. - Selected financial indicators (latest observations / series): - Broad money (12-month percentage change): 5.1; 1.8; 2.6; 1.9; -0.1; -1.0 (2008–2013/June). - Private sector credit (12-month percentage change): 5.1; 0.9; -0.4; 1.1; -0.3; -1.9 (2008–2013/June). - Three-month treasury-bill rate (end of period): 2.7; 2.6; 2.3; 1.3; 0.2; 0.5 (2008–2013/June). - Domestic public debt (in percent of GDP, end of period): 38.7; 44.5; 48.9; 49.3; 52.2; 53.3 (2008–June 2013). - Nonperforming loans to total loans ratio, percent: 6.1; 9.3; 11.9; 12.7; 13.6; 13.9 (2008–Q1 series). - Capital to risk-weighted assets ratio, percent: 23.5; 26.1; 25.5; 25.5; 26.6; 26.6 (2008–Q1 series). ### Key projections and fiscal-accounting decomposition (selected projections) - Public debt and macro projections (selected years and indicators): - Nominal gross public debt (percent of GDP) 2011–2018: 31.3; 45.1; 48.8; 56.1; 59.1; 59.3; 58.6; 57.1; 55.1. - Public gross financing needs (percent of GDP) 2011–2018: 4.5; 6.4; 7.6; 7.8; 6.0; 4.4; 3.8; 2.7; 2.2. - Real GDP growth (in percent) 2011–2018: 0.5; 1.3; 1.7; 1.9; 2.1; 2.5; 2.8; 2.7; 2.5. - Inflation (GDP deflator, in percent) 2011–2018: 1.7; -1.0; -0.1; 1.2; 1.9; 3.0; 2.5; 2.1; 2.2. - Debt change decomposition (2011–2018, cumulative and identified flows): - "Change in gross public sector debt" cumulative: 2.2; 1.8; 3.6; 7.3; 3.0; 0.2; -0.8; -1.4; -2.0; cumulative 6.4. - "Identified debt-creating flows": 2.1; 1.8; 4.9; 5.1; 3.0; 0.2; -0.8; -1.4; -2.0; cumulative 4.2. - "Primary deficit": 1.0; 1.9; 3.3; 4.2; 2.5; 0.6; -0.5; -1.4; -2.0; cumulative 3.6. - "Automatic debt dynamics (interest rate/growth differential)": 1.1; 2.5; 1.6; 0.9; 0.5; -0.4; -0.3; 0.0; 0.0; cumulative 0.6. - Residual (including asset changes): 0.0; 0.0; -1.2; 2.2; 0.0; 0.0; 0.0; 0.0; 2.2. - Effective interest rate (in percent) used in projections: 5.9; 6.2; 5.2; 5.0; 5.0; 4.9; 4.9; 4.8; 4.7. *Source: IMF staff.* ### Annex 1. Figure 3. The Bahamas: Public DSA - Baseline Scenario ### Annex 1. Figure 3. The Bahamas: Public DSA - Baseline Scenario ### Debt dynamics and contributions (2002–2018) - Debt-creating flows shown as contributions to changes in public debt (cumulative scale presented from -4 to 10 and percent scale -10 to 20). - Identified debt-creating components: - Primary deficit - Real GDP growth - Real interest rate - Exchange rate depreciation - Other debt-creating flows - Residual - Projection horizon shown through 2018. ### Baseline projections and underlying assumptions (selected years 2013–2018) - Baseline scenario (Real GDP growth, Inflation, Primary Balance, Effective interest rate): - Real GDP growth: 1.9 2.1 2.5 2.8 2.7 2.5 - Inflation: 1.2 1.9 3.0 2.5 2.1 2.2 - Primary Balance: -4.2 -2.5 -0.6 0.5 1.4 2.0 - Effective interest rate: 5.0 5.0 4.9 4.9 4.8 4.7 - Historical scenario (Real GDP growth, Inflation, Primary Balance, Effective interest rate): - Real GDP growth: 1.9 0.5 0.5 0.5 0.5 0.5 - Inflation: 1.2 1.9 3.0 2.5 2.1 2.2 - Primary Balance: -4.2 -1.3 -1.3 -1.3 -1.3 -1.3 - Effective interest rate: 5.0 6.1 6.7 7.0 7.2 7.3 - Constant Primary Balance scenario: - Real GDP growth: 1.9 2.1 2.5 2.8 2.7 2.5 - Inflation: 1.2 1.9 3.0 2.5 2.1 2.2 - Primary Balance: -4.2 -4.2 -4.2 -4.2 -4.2 -4.2 - Effective interest rate: 5.0 6.1 6.5 6.5 6.5 6.4 _Source: IMF staff._ ### Alternative scenarios and composition of public debt (2011–2018) - Gross Nominal Public Debt (in percent of GDP) projected under: - Baseline - Historical - Constant Primary Balance - Public Gross Financing Needs (in percent of GDP) projected through 2018. - Composition by maturity (short-term; medium and long-term) shown 2002–2018 (in percent of GDP). - Composition by currency (local currency-denominated; foreign currency-denominated) shown 2002–2018 (in percent of GDP). ### Scenario-specific underlying assumptions (2013–2018) — shocks - Primary Balance Shock scenario: - Real GDP growth: 1.9 2.1 2.5 2.8 2.7 2.5 - Inflation: 1.2 1.9 3.0 2.5 2.1 2.2 - Primary balance: -4.2 -3.4 -1.6 -0.1 0.9 1.7 - Effective interest rate: 5.0 6.1 6.5 6.7 6.7 6.8 - Real GDP Growth Shock scenario: - Real GDP growth: 1.9 0.2 0.6 2.8 2.7 2.5 - Inflation: 1.2 1.4 2.6 2.5 2.1 2.2 - Primary balance: -4.2 -3.0 -1.6 0.5 1.4 2.0 - Effective interest rate: 5.0 6.1 6.5 6.7 6.7 6.8 - Real Interest Rate Shock: - Real GDP growth: 1.9 2.1 2.5 2.8 2.7 2.5 - Inflation: 1.2 1.9 3.0 2.5 2.1 2.2 - Primary balance: -4.2 -2.5 -0.6 0.5 1.4 2.0 - Effective interest rate: 5.0 6.1 6.9 7.5 7.9 8.3 - Real Exchange Rate Shock: - Real GDP growth: 1.9 2.1 2.5 2.8 2.7 2.5 - Inflation: 1.2 2.2 3.0 2.5 2.1 2.2 - Primary balance: -4.2 -2.5 -0.6 0.5 1.4 2.0 - Effective interest rate: 5.0 6.1 6.5 6.7 6.7 6.8 - Combined Shock: - Real GDP growth: 1.9 0.2 0.6 2.8 2.7 2.5 - Inflation: 1.2 1.4 2.6 2.5 2.1 2.2 - Primary balance: -4.2 -3.4 -1.6 -0.1 0.9 1.7 - Effective interest rate: 5.0 6.1 7.0 7.6 8.0 8.3 _Source: IMF staff._ ### Stress tests (Annex 1. Figure 5) — macro-fiscal shocks (2013–2018) - Stress tests include: - Baseline - Primary Balance Shock - Real GDP Growth Shock - Real Interest Rate Shock - Real Exchange Rate Shock - Combined Macro-Fiscal Shock - Additional stress tests and Baseline underlying assumptions are shown. - Metrics presented across scenarios: - Gross Nominal Public Debt (in percent of GDP) 2013–2018 (scale 48–68 percent shown) - Gross Nominal Public Debt (in percent of Revenue) 2013–2018 (scale 200–380 percent shown) - Public Gross Financing Needs (in percent of GDP) 2013–2018 (scale 0–9 percent shown) - Interest rate shock illustrative series (2008–2018) with percent axis 0–35. ### External Debt Sustainability: Bound Tests (Annex 1. Figure 6) - External debt (in percent of GDP) historical and baseline series 2008–2018 with individual and combined shocks: - Individual shocks are permanent one-half standard deviation shocks. - Combined shocks include permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance. - One-time real depreciation of 30 percent occurs in 2010 in the real depreciation shock. - Representative box averages shown (baseline, scenario, historical) for key variables. - Noted baseline values (examples in figure captions): - Baseline: 21 (reference value shown repeatedly in figure annotations) - Historical: 3 (historical reference shown) - CA shock: 35 (scenario annotation) - Combined shock examples: 28, 30 - Growth shock example: 20 ### External debt stock and flows (selected historical and projected figures) - Baseline: External debt (in percent of GDP) 2007–2018: - 2007: 6.8 - 2008: 9.7 - 2009: 14.4 - 2010: 14.6 - 2011: 15.4 - 2012: 17.8 - 2013: 18.5 - 2014: 21.1 - 2015: 21.3 - 2016: 20.9 - 2017: 20.9 - 2018: 20.8 - Change in external debt (2007–2018): - 2007: -0.5 - 2008: 2.8 - 2009: 4.7 - 2010: 0.2 - 2011: 0.8 - 2012: 2.4 - 2013: 0.7 - 2014: 2.6 - 2015: 0.2 - 2016: -0.4 - 2017: 0.0 - 2018: -0.1 - Identified external debt-creating flows (4+8+9) 2007–2018 (percent of GDP): - 2007: 2.2 - 2008: 0.2 - 2009: 2.4 - 2010: -1.1 - 2011: 5.1 - 2012: 12.8 - 2013: 14.3 - 2014: 10.1 - 2015: 4.9 - 2016: 2.6 - 2017: 2.1 - 2018: 1.6 - Current account deficit, excluding interest payments (percent of GDP) 2007–2018: - 2007: 11.2 - 2008: 10.3 - 2009: 10.0 - 2010: 9.5 - 2011: 12.9 - 2012: 16.6 - 2013: 18.7 - 2014: 14.4 - 2015: 9.3 - 2016: 7.0 - 2017: 6.4 - 2018: 5.9 - Deficit in balance of goods and services (percent of GDP) 2007–2018: - 2007: 8.7 - 2008: 9.2 - 2009: 8.6 - 2010: 7.1 - 2011: 10.1 - 2012: 14.4 - 2013: 16.8 - 2014: 12.7 - 2015: 7.7 - 2016: 5.2 - 2017: 4.3 - 2018: 3.9 - Exports (percent of GDP) 2007–2018: - 2007: 45.8 - 2008: 46.6 - 2009: 39.1 - 2010: 40.7 - 2011: 44.0 - 2012: 46.0 - 2013: 44.4 - 2014: 45.3 - 2015: 46.9 - 2016: 47.9 - 2017: 48.6 - 2018: 49.1 - Imports (percent of GDP) 2007–2018 (selected series shown in source): - 2007: 54.5 - 2008: 55.8 - 2009: 47.7 - 2010: 47.8 - 2011: 54.1 - 2012: 60.4 - 2013: 61.1 - 2014: 58.1 - 2015: 54.6 - 2016: 53.1 - 2017: 53.0 - 2018: 53.1 - Net non-debt creating capital inflows (negative) (percent of GDP) 2007–2018: - 2007: -9.0 - 2008: -10.4 - 2009: -8.5 - 2010: -11.1 - 2011: -8.5 - 2012: -4.4 - 2013: -5.0 - 2014: -4.9 - 2015: -4.8 - 2016: -4.7 - 2017: -4.6 - 2018: -4.6 - Automatic debt dynamics 1/ (percent of GDP) 2007–2018: - 2007: -0.1 - 2008: 0.3 - 2009: 0.9 - 2010: 0.5 - 2011: 0.6 - 2012: 0.6 - 2013: 0.5 - 2014: 0.6 - 2015: 0.3 - 2016: 0.3 - 2017: 0.3 - 2018: 0.3 - Contribution from nominal interest rate (percent of GDP) 2007–2018: - 2007: 0.2 - 2008: 0.3 - 2009: 0.3 - 2010: 0.6 - 2011: 0.6 - 2012: 0.8 - 2013: 0.9 - 2014: 1.0 - 2015: 0.9 - 2016: 0.9 - 2017: 0.8 - 2018: 0.8 - Contribution from real GDP growth (percent of GDP) 2007–2018: - 2007: -0.1 - 2008: 0.2 - 2009: 0.4 - 2010: -0.1 - 2011: -0.2 - 2012: -0.3 - 2013: -0.3 - 2014: -0.4 - 2015: -0.6 - 2016: -0.6 - 2017: -0.5 - 2018: -0.5 - Residual, incl. change in gross foreign assets (2-3) 3/ (percent of GDP) 2007–2018: - 2007: -2.7 - 2008: 2.6 - 2009: 2.3 - 2010: 1.3 - 2011: -4.3 - 2012: -10.3 - 2013: -13.6 - 2014: -7.5 - 2015: -4.7 - 2016: -3.0 - 2017: -2.0 - 2018: -1.7 - External debt-to-exports ratio (in percent) 2007–2018: - 2007: 14.9 - 2008: 20.7 - 2009: 36.7 - 2010: 35.8 - 2011: 34.9 - 2012: 38.7 - 2013: 41.7 - 2014: 46.5 - 2015: 45.5 - 2016: 43.6 - 2017: 43.0 - 2018: 42.4 - Gross external financing need (in billions of US dollars) 2007–2018: - 2007: 1.0 - 2008: 0.9 - 2009: 0.9 - 2010: 0.9 - 2011: 1.1 - 2012: 1.4 - 2013: 1.7 - 2014: 1.4 - 2015: 1.0 - 2016: 0.8 - 2017: 0.8 - 2018: 0.7 - Gross external financing need (in percent of GDP) 2007–2018: - 2007: 11.9 - 2008: 10.8 - 2009: 11.1 - 2010: 11.1 - 2011: 13.7 - 2012: 17.7 - 2013: 20.0 - 2014: 15.5 - 2015: 10.4 - 2016: 8.1 - 2017: 7.5 - 2018: 6.9 Notes and formulas (as presented in source) - 1/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate. e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt. - 2/ Contribution from price and exchange rate changes defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. - 3/ For projection, line includes the impact of price and exchange rate changes. - 4/ Gross external financing need defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period. - 5/ Key variables in the historical-average scenario include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP. - 6/ Debt-stabilizing non-interest current account: long-run, constant balance that stabilizes the debt ratio assuming key variables remain at their levels of the last projection year. ### Key macroeconomic assumptions underlying baseline (historical averages and projections) - Real GDP growth (in percent) historical and projected (selected series): - Historical average and deviations summarized in table; projections include series: 1.9 2.3 2.8 2.8 2.5 2.5 (as presented in the Key Macroeconomic Assumptions table) - GDP deflator in US dollars (change in percent): example projection entries include 0.8 3.0 3.0 2.1 2.2 2.3 - Nominal external interest rate (in percent): example projection entries include 4.9 5.5 4.5 4.2 4.0 3.8 - Growth of exports (US dollar terms, in percent): example projection entries include -1.0 7.7 9.5 7.2 6.3 5.8 - Growth of imports (US dollar terms, in percent): example projection entries include 3.9 0.1 -0.4 2.0 4.5 5.0 - Current account balance, excluding interest payments (percent of GDP) historical-to-projection: - Example series: -18.7 -14.4 -9.3 -7.0 -6.4 -5.9 - Net non-debt creating capital inflows (percent of GDP) projection examples: - 5.0 4.9 4.8 4.7 4.6 4.6 ### Press release summary and outlook (Article IV consultation, January 17, 2014) - Key 2012–2013 developments: - Real GDP grew by 1.8 percent in 2012; projected at nearly 2 percent for 2013. - Unemployment rose to 16.2 percent in mid-2013. - Fiscal deficit widened to 5½ percent of GDP in FY 2012/13 (mainly due to customs revenue underperformance). - Current account deficit reached 17½ percent of GDP in 2012, up from 13½ percent in 2011. - Foreign reserves equivalent to 1.6 months of imports (2.8 months of non-FDI imports) at end-October 2013. - Outlook and risks: - Economic expansion expected to strengthen from 2014 onward with higher U.S. growth and the opening of Baha Mar. - Central government debt projected to peak at nearly 60 percent of GDP in fiscal year 2014/15, then begin declining by fiscal year 2017/18. - Risks: widened current account deficit, pressures on foreign reserves, disappointing Baha Mar performance, delay in fiscal consolidation, and lower-than-anticipated emerging market growth potential. - Policy implications: need for timely implementation of plans for fiscal consolidation and economic diversification. - Executive Board concluded 2013 Article IV consultation on a lapse-of-time basis and endorsed the staff appraisal without a meeting. ### Selected economic indicators (estimates/projections) - Real GDP (annual percent change): - 2010: 1.0 - 2011: 1.7 - 2012: 1.8 - 2013: 1.9 (est.) - 2014: 2.3 (proj.) - 2015: 2.8 (proj.) - Nominal GDP (annual percent change): 0.9 -0.2 3.5 2.7 5.4 5.9 (2010–2015 series) - Consumer price index (annual average): 1.3 3.2 2.0 0.3 1.9 2.6 (2010–2015 series) - Unemployment rate (in percent): n.a 15.9 14.0 16.2 15.5 14.5 (2010–2015 series; est./proj. noted) - Saving rate (percent of GDP): 15.3 14.5 15.7 16.9 18.1 18.0 - Investment rate (percent of GDP): 25.4 28.1 33.1 36.5 33.5 28.3 - Central government (fiscal years ending June 30) — key lines (percent of GDP): - Revenue and grants: 16.6 18.3 17.8 16.4 17.1 18.6 (2010–2015) - Expenditure: 19.8 22.0 22.2 21.8 21.6 21.3 - Overall balance: -3.2 -3.7 -4.3 -5.4 -4.5 -2.8 - Primary balance: -0.9 -1.0 -2.0 -3.0 -1.9 0.0 - Central government debt: 43.3 45.1 48.8 56.1 59.1 59.3 - External sector (calendar years): - Current account balance (percent of GDP): -10.1 -13.5 -17.5 -19.6 -15.4 -10.2 (2010–2015) - External public debt (end of period, percent of GDP): 11.6 13.2 17.8 19.7 21.3 20.7 - Memorandum items: - Gross international reserves (end of period; millions of U.S. dollars): 860 885 810 867 733 786 (2010–2015) - Reserves in months of next year's G&S imports: 2.4 2.2 1.9 2.0 1.7 1.8 - Reserves in months of next year's non-FDI related G&S imports: 4.1 3.8 3.4 3.6 3.0 3.1 - External debt-service ratio (percent of exports of G&S): 11.1 8.0 7.4 11.3 4.9 4.4 - GDP (in millions of Bahamian dollars): 7,888 7,873 8,149 8,367 8,819 9,338 (2010–2015) ### Fund relations, data adequacy, and technical assistance (selected) - Membership: Joined August 21, 1973; Article VIII. - Exchange rate arrangement: conventional fixed peg, B$1 per US$1. - Assessment of data adequacy: broadly adequate for surveillance; gaps include institutional capacity for IIP statistics and general government accounts, and balance of payments compilation consistent with BPM6. - Technical assistance provided (selected entries, dates and purposes listed in source), including CPI, Macroeconomic Forecasting, Government Finance Statistics, Public Debt Management, VAT support, Basel II Implementation, and Banking Law contingency planning. _Source: IMF staff (from Annex 1. Figure 3 and associated figures/tables in the provided IMF document)._ ### 1.9 years and had grown from two loans totaling US$113 million in 2010 to eight loans totaling ### _cr1475 - 1.9 years and had grown from two loans totaling US$113 million in 2010 to eight loans totaling ### IDB Lending and Private Sector Support - Lending envelope: US$195 million was exceeded primarily due to the need to provide countercyclical support to the government’s efforts to counteract the economic downturn triggered by the global financial crisis. - Growth in lending: Grew from two loans totaling US$113 million in 2010 to eight loans totaling US$333 million (active loans as of October 31, 2013). - Private sector support: Provided primarily via four multilateral investment fund operations, totaling US$852,764. ### Technical Cooperation Portfolio - Total approvals: US$6.8 million. - Sector composition: - Infrastructure: 89 percent (critical to the tourism industry). - Trade: 5 percent. - Education and social protection: 4 percent. - Social protection: 2 percent. - Performance: Indicators have improved over the past three years, mainly due to better project execution in the road transport subsector. ### Proposed IDB Country Strategy 2013–2017 (presented November 2013) - Strategic objectives: Support transformative initiatives of GoBH to: - ensure macroeconomic sustainability; - ensure social stability and employment; - increase resilience to the negative impacts of climate change. - CS priority areas: 1. Public Finances and Management 2. Citizen Security and Justice 3. Energy 4. Private Sector Development 5. Coastal Risk Management and Climate Change Adaptation ### Active Loans (as of October 31, 2013) — summary figures (In millions of U.S. dollars) - Total number of loans: 8 - Total Approved: 333.4 - Total Disbursed: 189.8 - Total Available: 140.7 - Selected entries: - BH-L1003 Investing in Students and Programs for the Innovative Reform of Education (INSPIRE): Approved 12.9, Disbursed 10.8, Available 2.0 (Approval Date Nov30, 2005) - BH-L1024 Supplementary Financing for New Providence Transport Program: Approved 100.0, Disbursed 100, Available 0 (Approval Date May 22,2008) - BH-L1027 Air Transport Reform Program (PBL): Approved 47.5, Disbursed 15, Available 32.5 (Approval Date Dec 14, 2011) - BH-L1027 Air Transport Reform Program (TC Loan): Approved 2.5, Disbursed 0.25, Available 2.25 (Approval Date Dec 14, 2011) - BH-L1028 WSC Support Program––New Providence Water Supply and Sanitation Systems Upgrade: Approved 81.0, Disbursed 24.8, Available 53.9 (Approval Date Nov 16, 2011) - BH-L1016 Trade Sector Support Program: Approved 16.5, Disbursed 0.19, Available 16.3 (Approval Date Jul 18, 2012) - BH-L1029 New Providence Transport Program Supplementary Financing II: Approved 65.0, Disbursed 38, Available 26.8 (Approval Date Sep 04, 2012) - BH-L1030 Social Safety Net Reform Program: Approved 7.5, Disbursed 0.70, Available 6.8 (Approval Date Jul 18, 2012) ### Net Flow of IADB Convertible Currencies (US$ million) - 2009 - a. Loan Disbursements: 24.6 - b. Repayments principal: 7.9 - c. Net Loan Flow (a–b): 16.7 - d. Subscriptions & Contributions: 0.7 - e. Interests & Charges: 5.1 - f. Net Cash Flow (c–d–e): 10.9 - 2010 - a. Loan Disbursements: 32.8 - b. Repayments principal: 8.6 - c. Net Loan Flow (a–b): 24.2 - d. Subscriptions & Contributions: 0.3 - e. Interests & Charges: 5.6 - f. Net Cash Flow (c–d–e): 18.3 - 2011 - a. Loan Disbursements: 57.0 - b. Repayments principal: 9.4 - c. Net Loan Flow (a–b): 47.6 - d. Subscriptions & Contributions: 0.3 - e. Interests & Charges: 5.7 - f. Net Cash Flow (c–d–e): 41.6 - 2012 (Projected) - a. Loan Disbursements: 83.8 - b. Repayments principal: 12.2 - c. Net Loan Flow (a–b): 71.6 - d. Subscriptions & Contributions: 1.2 - e. Interests & Charges: 6.0 - f. Net Cash Flow (c–d–e): 64.4 ### Statistical Issues - Data adequacy: Statistical data are broadly adequate for surveillance purposes, but some weaknesses remain. - Data production: The central bank produces annual, quarterly, and monthly reports on macroeconomic developments, and monetary and fiscal data, and is the main source of economic information. - Public sector accounts: Operations of public corporations are not compiled into a consolidated set of public sector accounts, although their debt is included in the public debt data. A presentation of general government accounts, including revenue, expenditure, and overall balance, is not available. - Department of Statistics (DoS) activities: - 2009–2010 focus: Preparation and execution of the 2010 census. - Initiatives: Improvements to national accounts, including rebasing the GDP. - CPI methodology updates: Base year moved to 2010 from 1995; additional categories introduced with higher weights for some items, including transport and communications; coverage expanded to include the island of Abaco, in addition to New Providence and Grand Bahama. - New indices: Export-import price indices (XMPI) for goods and major services developed with CARTAC technical assistance; procedures for systematic re-sampling and re-weighting modified. - External debt and IIP: The Bahamas does not prepare economy-wide external debt position nor an international investment position (IIP), although they have stated their intention to do so and to adopt Balance of Payments Manual 6 (BMP6). - TASC engagement: IDB, with USCB technical support, promoted the “Tool for Assessing Statistical Capacity” (TASC); there was a mission to meet with the DoS in late November, 2013. - Upcoming DoS activities: Producing and disseminating comprehensive census data and implementing bi-annual labor force surveys. - Dissemination: The Bahamas began participating in the General Data Dissemination System (GDDS) in 2003; metadata were posted on the Fund’s Dissemination Standards Bulletin Board on February 14, 2003. ### IMF Article IV Consultation — Press Release No. 14/23 (January 23, 2014) - IMF Executive Board: Concluded the Article IV consultation with The Bahamas on a lapse-of-time basis on January 17, 2014, and endorsed the staff appraisal without a meeting. - 2013 near-term outlook: - Real GDP projected to grow at nearly 2 percent for 2013, similar to 2012. - Unemployment rose to 16.2 percent in mid-2013. - Fiscal deficit widened to 5½ percent of GDP in Fiscal Year 2012/13 (July 1-June 30), mainly due to customs revenue underperformance. - Current account deficit reached 17½ percent of GDP in 2012, up from 13½ percent in 2011, driven by sustained goods and services imports related to Baha Mar. - Foreign reserves: equivalent of 1.6 months of imports (2.8 months of non-FDI imports) at end-October 2013. - Medium-term projections and risks: - Economic expansion should strengthen from 2014 onward with higher U.S. growth and the opening of Baha Mar. - Central government debt projected to peak at nearly 60 percent of GDP in fiscal year 2014/15, and to decline to 55 percent of GDP in fiscal year 2017/18. - Completion of Baha Mar expected to reduce construction imports and boost tourism services exports. - Banking system: Ample capital and liquidity buffers; elevated non-performing loans levels have stabilized and likely to recede slowly. - Risks: Shortfalls in Baha Mar performance, delay in fiscal consolidation, lower than anticipated tourist arrivals if global growth weakens. - Policy implication: Need for timely implementation of fiscal consolidation and economic diversification plans. ### Executive Board Assessment — Key Messages - Growth: Economy recovering slowly; stronger recovery expected from 2014 with U.S. growth and Baha Mar opening. - Structural challenges: Diversify tourist source markets and tourism experience; expand incoming airlift capacity; close infrastructure bottlenecks; address workforce skills shortages; strengthen non-tourism sectors. - Fiscal policy: - Rigorous implementation of authorities’ fiscal consolidation plan essential for medium-term budget and debt sustainability. - VAT is the cornerstone of fiscal adjustment; authorities should ensure its timely and successful launch. - Accelerate efforts to reinforce expenditure controls and monitoring, especially goods and services spending and transfers. - Prioritize reforms to improve weak financial position of key public corporations and rein in transfers and subsidies. - Introduce a fiscal rule to enhance predictability and credibility of budget policies; details and implementation timeframe should be fleshed out. - Exchange rate: Exchange rate peg has served The Bahamas well; should be supported by restoring budget and external viability and rebuilding policy buffers. - Financial sector reforms: - Commendations: Steady implementation of key Financial Sector Assessment Program recommendations and enhanced monitoring. - Notable measures: Establishment of a Systemic Risk Surveillance Committee, creation of a credit bureau, strengthening of the deposit insurance system. - Ongoing work: Financial crisis management and resolution plan under preparation with Fund technical assistance. - Concern: High level of non-performing loans calls for intensified monitoring of financial institutions. - National Development Plan (NDP): Authorities’ efforts to craft a comprehensive NDP in 2014 are welcome; timely completion and broad societal backing important for success. - Structural competitiveness: Need sustained efforts to strengthen the business environment, improve educational standards, and identify strategies for development of islands and key sectors (tourism, agriculture, financial services, port activities). ### Selected Social and Economic Indicators (Annual and Levels) - Real GDP (annual percentage change) - 2010: 1.0 - 2011: 1.7 - 2012: 1.8 - 2013 (Est.): 1.9 - 2014 (Proj.): 2.3 - 2015 (Proj.): 2.8 - Nominal GDP (annual percentage change) - 2010: 0.9 - 2011: -0.2 - 2012: 3.5 - 2013 (Est.): 2.7 - 2014 (Proj.): 5.4 - 2015 (Proj.): 5.9 - Consumer price index (annual average) - 2010: 1.3 - 2011: 3.2 - 2012: 2.0 - 2013 (Est.): 0.3 - 2014 (Proj.): 1.9 - 2015 (Proj.): 2.6 - Consumer price index (end of period) - 2010: 1.5 - 2011: 3.2 - 2012: 0.7 - 2013 (Est.): 0.3 - 2014 (Proj.): 5.4 - 2015 (Proj.): 2.6 - Unemployment rate (in percent) - 2010: n.a - 2011: 15.9 - 2012: 14.0 - 2013 (Est.): 16.2 - 2014 (Proj.): 15.5 - 2015 (Proj.): 14.5 - Saving rate (percent of GDP) - 2010: 15.3 - 2011: 14.5 - 2012: 15.7 - 2013 (Est.): 16.9 - 2014 (Proj.): 18.1 - 2015 (Proj.): 18.0 - Investment rate (percent of GDP) - 2010: 25.4 - 2011: 28.1 - 2012: 33.1 - 2013 (Est.): 36.5 - 2014 (Proj.): 33.5 - 2015 (Proj.): 28.3 - Credit to the nonfinancial public sector (annual percentage change) - 2011: 37.5 - 2012: 4.0 - 2013 (Est.): 14.9 - 2014 (Proj.): 6.5 - 2015 (Proj.): 4.1 - 2016 (Proj.): 5.7 - Credit to the private sector (annual percentage change) - 2010: -0.4 - 2011: 1.1 - 2012: -0.3 - 2013 (Est.): -1.5 - 2014 (Proj.): 0.5 - 2015 (Proj.): 1.1 - Liabilities to the private sector (annual percentage change) - 2010: 2.6 - 2011: 1.9 - 2012: -0.1 - 2013 (Est.): -0.4 - 2014 (Proj.): 0.1 - 2015 (Proj.): 0.6 - Exports of goods and services (annual percentage change) - 2010: 4.9 - 2011: 7.9 - 2012: 8.3 - 2013 (Est.): -1.0 - 2014 (Proj.): 7.7 - 2015 (Proj.): 9.5 - Travel receipts (gross) (annual percentage change) - 2010: 7.4 - 2011: 5.4 - 2012: 5.0 - 2013 (Est.): -4.4 - 2014 (Proj.): 8.1 - 2015 (Proj.): 13.9 - Imports of goods and services (annual percentage change) - 2010: 1.1 - 2011: 12.9 - 2012: 15.6 - 2013 (Est.): 3.9 - 2014 (Proj.): 0.1 - 2015 (Proj.): -0.4 Central government (percent of GDP) - Revenue and grants - 2010: 16.6 - 2011: 18.3 - 2012: 17.8 - 2013 (Est.): 16.4 - 2014 (Proj.): 17.1 - 2015 (Proj.): 18.6 - Expenditure - 2010: 19.8 - 2011: 22.0 - 2012: 22.2 - 2013 (Est.): 21.8 - 2014 (Proj.): 21.6 - 2015 (Proj.): 21.3 - Overall balance - 2010: -3.2 - 2011: -3.7 - 2012: -4.3 - 2013 (Est.): -5.4 - 2014 (Proj.): -4.5 - 2015 (Proj.): -2.8 - Primary balance - 2010: -0.9 - 2011: -1.0 - 2012: -2.0 - 2013 (Est.): -3.0 - 2014 (Proj.): -1.9 - 2015 (Proj.): 0.0 - Central government debt - 2010: 43.3 - 2011: 45.1 - 2012: 48.8 - 2013 (Est.): 56.1 - 2014 (Proj.): 59.1 - 2015 (Proj.): 59.3 External sector (percent of GDP) - Current account balance - 2010: -10.1 - 2011: -13.5 - 2012: -17.5 - 2013 (Est.): -19.6 - 2014 (Proj.): -15.4 - 2015 (Proj.): -10.2 - Change in net international reserves (Increase -) - 2010: -0.6 - 2011: -0.3 - 2012: 0.9 - 2013 (Est.): -0.7 - 2014 (Proj.): 1.5 - 2015 (Proj.): -0.6 - External public debt (end of period) - 2010: 11.6 - 2011: 13.2 - 2012: 17.8 - 2013 (Est.): 19.7 - 2014 (Proj.): 21.3 - 2015 (Proj.): 20.7 Memorandum items - Gross international reserves (End of period; millions of U.S. dollars) - 2010: 860 - 2011: 885 - 2012: 810 - 2013 (Est.): 867 - 2014 (Proj.): 733 - 2015 (Proj.): 786 - In months of next year's G&S imports - 2010: 2.4 - 2011: 2.2 - 2012: 1.9 - 2013 (Est.): 2.0 - 2014 (Proj.): 1.7 - 2015 (Proj.): 1.8 - In months of next year's non-FDI related G&S imports - 2010: 4.1 - 2011: 3.8 - 2012: 3.4 - 2013 (Est.): 3.6 - 2014 (Proj.): 3.0 - 2015 (Proj.): 3.1 - In percent of reserve money - 2010: 104 - 2011: 100 - 2012: 90 - 2013 (Est.): 97 - 2014 (Proj.): 82 - 2015 (Proj.): 87 - External debt-service ratio (in percent of exports of G&S) - 2010: 11.1 - 2011: 8.0 - 2012: 7.4 - 2013 (Est.): 11.3 - 2014 (Proj.): 4.9 - 2015 (Proj.): 4.4 - GDP (in millions of Bahamian dollars) - 2010: 7,888 - 2011: 7,873 - 2012: 8,149 - 2013 (Est.): 8,367 - 2014 (Proj.): 8,819 - 2015 (Proj.): 9,338 *Source: IMF staff report and IDB information as presented in the supplied document.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1475.pdf_