The Bahamas: Selected Issues

IMF Staff Country Reports, May 14, 2018

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The paper makes the case for a rules-based fiscal framework for The Bahamas.
IMF staff recommends adopting a headline deficit ceiling and a cap on current expenditure growth.
The proposed rules are calibrated to guide debt toward a suitable medium-term anchor while allowing room for stabilization.
A headline deficit target is described as simpler to communicate and monitor than a structural balance rule.
The framework would allow expanding capital spending, up to the limit provided by the deficit ceiling, in the event of improvements in revenue performance.
In line with best practices, the framework should be anchored around a pre-defined medium-term debt target that will guide the calibration of proposed operational rules.

Adopt a headline deficit ceiling.
Implement a cap on current expenditure growth.
Anchor the fiscal rules around a pre-defined medium-term debt target.
Permit discretionary expansion of capital spending only within the limit set by the deficit ceiling, contingent on improved revenue performance.

Use a simple headline deficit target rather than a structural balance rule to enhance communication and monitoring.
Calibrate the deficit ceiling and current expenditure growth cap so they jointly guide debt toward the chosen medium-term debt anchor while preserving stabilization space.
Pre-define the medium-term debt target to serve as the guiding anchor for the calibration of operational rules.

Simplicity: A headline deficit target is easier to communicate and monitor than a structural balance rule.
Flexibility: The proposed design allows for capital spending increases when revenue performance improves, constrained by the deficit ceiling.
Discipline: Anchoring the framework to a medium-term debt target aligns operational limits with longer-term debt sustainability objectives.