BAHAMAS: IMF welcomes “strong economic rebound”.

As published on caribbeannationalweekly.com, Tuesday 10 May, 2022.

The International Monetary Fund (IMF) says The Bahamas is experiencing a tourism-led rebound and the economy has expanded by almost 14 percent last year, as net tourism receipts tripled relative to 2020.

“The strong recovery is expected to continue in 2022, with real GDP (gross domestic product) growth projected at eight percent. The war in Ukraine, which adds considerable uncertainty to the outlook, is expected to affect The Bahamas primarily through higher commodity prices,” the IMF said, adding that it expects average inflation to increase to 6.75 percent in 2022 and to only gradually decrease as supply chain constraints wane.

The Washington-based financial institution said the COVID-19 pandemic has deepened medium-term growth challenges and public finances have deteriorated.

“The young experienced significant learning losses and employment will take time to recover. Additionally, there may be lasting effects of the pandemic on travel, shifts in technology, and climate risks.”

It said the Phillip Davis administration has pledged relief through tax cuts and increasing outlays on investment and education. However, with public debt close to 100 percent of GDP amid elevated financing costs, there is limited room for maneuver.

The IMF said the government is seeking to rebuild fiscal buffers over the medium-term, noting that the fiscal deficit is expected to halve this year, to about 6.75 percent of GDP.

The authorities plan to achieve a medium-term fiscal surplus of 1.5 percent of GDP, mainly through tax collection enhancements to reduce public debt to the target of 50 percent over the next 10 years. The Central Bank of the Bahamas continues to focus on preserving the peg to the US dollar and phased out the pandemic-related capital flow management measures last year.

International reserves remain at a comfortable level, boosted by the IMF’s new general allocation of Special Drawing Rights (SDRs) last year.

The IMF executive directors agreed with the thrust of the Article IV consultation, welcoming the “strong economic rebound,” supported by the authorities’ decisive policy response and the recovery in tourism.

But they cautioned that downside risks to growth persist, including from rising inflationary pressures and pandemic-related uncertainty and in that context, stressed the need to safeguard the recovery, preserve debt sustainability, and promote sustainable, inclusive, and diversified growth.

They also emphasized the importance of rebuilding buffers and ensuring debt sustainability in the context of a medium-term fiscal consolidation plan.

They said given the sizable financing needs are likely to persist, Nassau is being encouraged to implement a more robust debt management strategy while commending the authorities’ efforts to enhance revenue administration.

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