The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) believes the Bahamas will lead the Caribbean’s “better growth momentum” over the next two years, with this nation’s GDP projected to expand by 2.8 per cent next year.

The Fund, in its Western Hemisphere Economic Outlook, also described this nation’s Value-Added Tax (VAT) implementation as “an encouraging example” of a country using improved economic conditions to make much-needed fiscal and structural reforms.

It added that while the Bahamas’ 2014 GDP growth was below the 1.5 per cent average in tourism-dependent economies, this nation was set to match the 2 per cent expansion rate predicted for 2015.

“The better momentum is led by the Bahamas and Jamaica, as well as several economies from the Eastern Caribbean Currency Union (ECCU),” the IMF said.

That assessment may have been formed before the persistent delays to the $3.5 billion Baha Mar project’s opening, as that development is critical to the Bahamas hitting such growth projections.

Still, the Fund’s forecast is likely to be seized on by the Christie administration and those close to it, who are desperate for some good economic news.

They are also likely to take comfort from the IMF’s latest praise of VAT implementation, a sentiment that may not be shared by the private sector and Bahamian consumers.

“The critical challenge facing the Caribbean is to secure a sustained economic recovery while reducing still-high macroeconomic vulnerabilities, especially in tourism-dependent economies,” the Fund said.

“The favourable recent shift in external conditions is creating a window of opportunity to make more decisive progress. Policymakers should take advantage of more buoyant economic activity to achieve sufficiently ambitious fiscal consolidation targets and put public debt on a downward path.

“Headwinds to growth from policy tightening can be mitigated through the careful design of fiscal measures, notably by redirecting scarce budget resources from current spending toward high-value public investment. Phasing out the level of tax waivers and concessions would assist the consolidation process. The recent adoption of a VAT in the Bahamas provides another encouraging example.”

However, the IMF’s Caribbean assessment highlighted many of the deep-rooted structural problems that are also facing the Bahamas.

While US economic recovery and the drop in global oil prices would help stimulate growth, the IMF warned: “These positive impulses are clearly not powerful enough to overcome the long-standing structural weaknesses holding back the region.

“Despite this moderately more favourable outlook, tremendous challenges remain. For many tourist destinations in the Caribbean, the recent rise in arrivals follows several years of stagnation or decline, reflecting competitiveness gaps that even a broad-based recovery in US and European tourism demand is unlikely to offset.

“In fact, problems related to the Caribbean’s high cost levels could worsen further, as the region’s pegged currencies appreciate in lockstep with the US dollar. Unless this effect is offset by other cost savings or significant upgrades to the tourism product, many destinations are likely to lose further market share to competitors in Mexico, Central America, and beyond.”

Focusing on the solutions, the IMF added: “A broader strategy will be needed to reduce the region’s high current account deficits.

“The key is to raise competitiveness, notably in the tourism sector, by better aligning wages with productivity, reducing energy costs, and improving the quality of the supporting infrastructure and public services.”