IMF Executive Board Concludes 2023 Article IV Consultation with The Bahamas
IMF News, February 2, 2024
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- Published: February 2, 2024
Economic performance and near-term outlook
- Real GDP growth:
- 2021: 17.0 (annual % change)
- 2022: 14.4 (annual % change)
- 2023: 4.3 (annual % change, estimated)
- 2024–2028: 2.3; 1.8; 1.6; 1.5 (proj. for 2024–2027)
- Unemployment rate:
- 2021: 17.6%
- 2022: 10.8%
- 2023: 8.8%
- 2024–2027: 8.9%; 9.0%; 9.1% (proj.)
- Inflation (CPI):
- End of period: 2021: 4.1%; 2022: 5.5%; 2023: 3.6%; 2024–2027: 2.9%; 2.4%; 2.1%; 2.0%
- Period average: 2021: 5.6%; 2022: 3.4%; 2023: 3.1%; 2024–2026: 2.6%; 2.2%
- External sector:
- Current account balance as % of GDP:
- 2021: -21.1%
- 2022: -8.2%
- 2023: -6.2% (projected narrowed)
- 2024–2027: -6.1%; -5.8%; -5.7%; -5.5% (proj.)
- Assessment:
- Economy continues to rebound vigorously, driven by large tourism inflows.
- Tourist arrivals and real average spending surpassed pre-pandemic levels in 2023 and are expected to continue rising in the near term.
- Risks include an economic slowdown in tourism source markets and potential costly natural disasters.
Fiscal developments and recommendations
- Fiscal balances and debt:
- Fiscal overall balance (% of GDP, FY July 1 - June 30):
- 2021: -13.1%
- 2022: -3.9%
- 2023: -2.6%
- 2024–2028: -2.0%; -1.7%; -1.2%; -1.0% (proj.)
- Fiscal primary balance:
- 2021: -9.0
- 2022: -1.3
- 2023: 0.3
- 2024: 1.7
- 2025: 2.8
- Government debt (% of GDP) 1/:
- 2021: 100.0%
- 2022: 88.9%
- 2023: 84.2%
- 2024–2028: 83.2%; 81.9%; 80.8%; 79.5%; 78.1% (proj.; 1/ Fiscal year)
- Key fiscal recommendations:
- Speed up reduction in debt-to-GDP.
- Use the implementation of the OECD global minimum corporate income tax as an opportunity to introduce a well-designed corporate income tax and a personal income tax on highest earners.
- Revise tax preferences and exemptions to create a more progressive and efficient tax system.
- Rationalize SOE spending and improve SOE financial management; publish audited financial statements of SOEs.
- Enhance debt management and fiscal transparency:
- Consider extending competitive auctions to domestic government securities across maturities.
- Increase predictability of sovereign issuance plans.
- Lower the limit on central bank advances to the government.
- Make deviations from PFM Act targets time-bound with clear guidance on return timelines.
- Publish beneficial ownership information for providers that obtain public contracts.
- Ensure an independent process to select members of the fiscal council.
Financial sector resilience and reforms
- Current conditions:
- Financial sector remains robust, with abundant liquidity and declining NPLs.
- Private credit growth is muted and underperforming relative to output growth.
- Recommended actions:
- Continue implementation of the 2019 FSAP recommendations.
- Enhance supervision and regulation of crypto assets.
- Make the Resolution Unit within the central bank and the Financial Stability Council adequately staffed and operational.
- Increase deposit insurance coverage and improve the Deposit Insurance Corporation’s governance.
- Consider further amendments to the DARE Act to align with global standards, accompanied by additional resources for onsite inspections.
- Expand financial sector data collection to better identify systemic risk and design macroprudential policies.
Climate, infrastructure, and social policy priorities
- Climate and disaster resilience:
- Build effective measurement, reporting and verification frameworks for climate-related projects.
- Develop projects with co-benefits across other SDG.
- Partner with established institutions in climate finance to exploit climate financing opportunities.
- Consider reforms to the property insurance market:
- A public mandate for minimum property insurance combined with partial public funding of micro-insurance products, land-planning, and incentives for resilient infrastructure investments.
- Energy and growth constraints:
- Accelerate transition to renewable energy to improve electricity affordability and reliability.
- Support authorities’ goal of 30 percent share of renewables by 2030 through hastening solar projects and improving the national electricity company’s governance.
- Consider a higher base rate for electricity to help cover renewable investments.
- Expand public-private partnerships and incentivize private investments in renewables through direct subsidies or tax credits.
- Social outcomes and potential growth:
- Raising potential growth beyond 1.5 percent is conditional on addressing bottlenecks in the energy sector and labor markets.
- Reorient spending toward education, healthcare, targeted social transfers and infrastructure to improve social outcomes.
- Close gaps in digitalization of public services and data gathering to reduce frictions against private investment and improve targeting of social assistance.
- Address regressivity of public spending by improving targeting of social assistance.
Executive Board assessment — summary points
- Near-term growth prospects are favorable but require policy adjustments to strengthen potential growth and reduce downside risks.
- The recovery of tourism has restored losses from hurricane Dorian and the Covid crisis; unemployment is at its lowest level since 2008.
- The favorable environment provides space to pursue greater fiscal sustainability, social equity, and climate resilience.
- Recommendations emphasize fiscal consolidation, improved tax design and administration, SOE reform, enhanced fiscal transparency, strengthened financial sector oversight, climate financing readiness, insurance market reform, renewable energy acceleration, and better-targeted social spending.
Source: IMF press release, February 2, 2024.
