IMF Executive Board Concludes 2022 Article IV Consultation with The Bahamas

IMF News, May 9, 2022

Source details

Canonical URL: IMF Executive Board Concludes 2022 Article IV Consultation with The Bahamas

The Bahamas experienced a tourism-led rebound: the economy expanded by almost 14 percent in 2021, as net tourism receipts tripled relative to 2020.
Staff projects real GDP growth of 8 percent in 2022.
The war in Ukraine adds considerable uncertainty and is expected to affect The Bahamas primarily through higher commodity prices.
Staff expects average inflation to increase to 6¾ percent in 2022 and to only gradually decrease as supply chain constraints wane.
The pandemic has deepened medium-term growth challenges: significant learning losses for the young, a slow employment recovery, potential lasting effects on travel, shifts in technology, and climate risks.

Public debt is close to 100 percent of GDP amid elevated financing costs, leaving limited fiscal space.
The fiscal deficit is expected to halve in 2022, to about 6¾ percent of GDP.
The authorities plan to achieve a medium-term fiscal surplus of 1½ percent of GDP, mainly through tax collection enhancements, and aim to reduce public debt to the target of 50 percent over the next ten years.
Directors stressed the need to rebuild buffers and ensure debt sustainability through a medium-term fiscal consolidation plan and a more robust debt management strategy.
Directors commended efforts to enhance revenue administration and stressed the need for meaningful tax reform and expenditure rationalization to create space for health, education, and investment spending, and targeted support to the most vulnerable.
Reforms recommended include state-owned enterprises and pensions, and improvements in fiscal transparency and accountability to strengthen credibility.

The central bank continues to focus on preserving the peg to the U.S. dollar.
The central bank phased out pandemic-related capital flow management measures last year.
Directors encouraged the central bank to allow interest rates to rise, as necessitated by market conditions, and noted temporary tightening of capital flow management measures could be appropriate if the global market environment deteriorated sharply.
Directors called for amendments to the Central Bank Act to safeguard its independence.
The current account deficit improved to 19.7 percent in 2021 in line with the tourism recovery but is expected to remain elevated in the near-term given import price pressures.
International reserves remain at a comfortable level, boosted by the IMF’s new general allocation of SDRs last year.

The banking sector has strong capital positions.
Expiration of pandemic-related loan moratoria led to only a small increase in non-performing loans.
Directors recognized the potential of the Sand Dollar to foster financial inclusion and recommended accelerating education campaigns and strengthening internal capacity and oversight.
A robust supervisory and regulatory framework for the growing virtual assets sector was recommended.
Directors highlighted the importance of further strengthening bank recovery and resolution and the AML/CFT frameworks, and encouraged updating the supervisory framework for bank intervention to ensure effective utilization of early warning indicators.

Directors emphasized that well-targeted structural reforms would enhance productivity and resilience.
Recommended measures include addressing education gaps, advancing energy sector reforms, modernizing public services, and taking strong efforts to address vulnerabilities to climate change and natural disasters, including a comprehensive disaster resilience strategy.
Directors highlighted the important role of the donor community.

Directors welcomed the strong economic rebound supported by decisive policy response and tourism recovery.
Directors cautioned that downside risks to growth persist, including rising inflationary pressures and pandemic-related uncertainty.
Key recommendations:
- Safeguard the recovery while preserving debt sustainability.
- Rebuild fiscal buffers via a medium-term fiscal consolidation plan, including meaningful tax reform and expenditure rationalization.
- Strengthen debt management strategy.
- Amend Central Bank Act to safeguard independence and allow policy rates to respond to market conditions.
- Accelerate Sand Dollar adoption efforts and strengthen oversight of virtual assets.
- Strengthen financial sector resolution frameworks and AML/CFT measures.
- Advance structural reforms to boost productivity and climate resilience.

Real GDP (annual % change): 2020: -23.8; 2021 est.: 13.7; 2022 proj.: 8.0; 2023 proj.: 4.1; 2024 proj.: 3.0; 2025 proj.: 1.9; 2026 proj.: 1.6; 2027 proj.: 1.5
Unemployment rate (%): 2020: 25.6; 2021 est.: 18.1; 2022 proj.: 13.9; 2023 proj.: 12.7; 2024 proj.: 12.3; 2025 proj.: 11.9; 2026 proj.: 11.6; 2027 proj.: 11.4
Current account balance (% of GDP): 2020: -24.0; 2021 est.: -19.7; 2022 proj.: -18.0; 2023 proj.: -12.5; 2024 proj.: -8.8; 2025 proj.: -7.7; 2026 proj.: -6.8; 2027 proj.: -6.2
CPI inflation (%, end of period): 2020: 1.2; 2021 est.: 7.3; 2022 proj.: 3.4; 2023 proj.: 3.1; 2024 proj.: 2.7; 2025 proj.: 2.6; 2026 proj.: 2.2
CPI inflation (%, period average): 2020: 0.0; 2021 est.: 2.9; 2022 proj.: 6.7; 2023 proj.: 4.8; 2024 proj.: 3.3; 2025 proj.: 2.4
Fiscal overall balance (% of GDP) 1/: 2020: -7.2; 2021 est.: -13.7; 2022 proj.: -6.7; 2023 proj.: -3.0; 2024 proj.: -2.6; 2025 proj.: -2.3; 2026 proj.: -2.1
Fiscal primary balance (% of GDP) 1/: 2020: -4.1; 2021 est.: -9.4; 2022 proj.: -2.7; 2023 proj.: 0.7; 2024 proj.: 1.0; 2025 proj.: 1.4; 2026 proj.: 1.8
Government debt (% of GDP) 1/: 2020: 75.0; 2021 est.: 103.3; 2022 proj.: 90.6; 2023 proj.: 84.2; 2024 proj.: 82.8; 2025 proj.: 81.7; 2026 proj.: 81.1; 2027 proj.: 80.4

Press Release No. 22/141, IMF Executive Board Concludes 2022 Article IV Consultation with The Bahamas