The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas exceeded 2021 economic growth projections by 180 percent, the International Monetary Fund (IMF) revealed yesterday, as it urged this nation to make increased COVID-19 vaccination rates its top priority.

The Washington D. C. based Fund, in its annual Article IV statement on The Bahamas, said the country had achieved more than double the projected gross domestic product (GDP) growth for 2021 with actual economic output expanding by 5.5 percent as opposed to the forecast 2 percent.

However, the more rapid-than-anticipated reflation of the Bahamian economy following the COVID-19 pandemic, coupled with the impact from soaring global inflation and uncertainties caused by Russia’s invasion of Ukraine, has resulted in the IMF shaving two percentage points off 2022’s growth forecast - reducing this from 8 percent to 6 percent. GDP growth estimates for 2023 have been maintained at 4.1 percent.

“The Bahamas’ tourism-dependent economy was hit hard by the COVID-19 pandemic, which came on the heels of the devastation caused by Hurricane Dorian. The economy is recovering strongly but the pandemic has exacted a tragic human and social toll, and caused a significant weakening in public finances,” the IMF said.

“Growth in 2020 was -14.5 percent, among the lowest in the region, as tourism receipts fell by more than 75 percent. Starting in the second half of 2021, the tourism sector experienced a significant rebound, with stopover arrivals doubling relative to 2020.

“Coupled with an uptick in construction activity, output is estimated to have expanded by around 5.5 percent last year. Real GDP growth is estimated at around 6 percent this year, although a full recovery to pre-pandemic levels is not expected before end-2023. Inflationary pressures are building in line with global developments and are expected to ease only gradually.”

The IMF said the economy’s re-opening, and return of many workers, will further cut the Bahamian unemployment rate to 13.9 percent in 2022 as compared to 18.1 percent in 2021 and 25.6 percent in 2020. However, the former figure indicates that close to one in seven Bahamians looking for work are unable to find it, although the figures remain open to challenge given that no Labour Force Survey has been conducted since 2019.

Meanwhile, the Fund urged The Bahamas to focus on increasing its COVID vaccination rates to protect against future outbreaks and disruption to the tourism-driven economy. “The policy priorities ahead are to safeguard the recovery, preserve debt sustainability and promote sustained and inclusive growth,” it added.

“First and foremost, this will require vaccinating the population as swiftly as possible. As the pandemic’s impact recedes, policies should focus on tackling long-standing challenges by improving the structure of revenues and spending, rebuilding fiscal space, and making the economy more resilient to the effects of climate change.....

“A re-intensification of the pandemic cannot be discarded. With about 40 percent of the population fully vaccinated, the emergence of new COVID-19 variants could prolong the pandemic and induce renewed economic disruptions. Alternatively, rising cases in source countries could dissuade travel and lead to a renewed decline in tourism.”

Assessing the deep scars inflicted by COVID-19, the IMF added: “The pandemic has deepened the country’s medium-term growth challenges and public finances have deteriorated. Education gaps have increased given the varied quality and access to remote learning. Private investment and employment will take time to recover.

“Additionally, the economy will have to contend with lasting effects of the pandemic on travel preferences as well as broader shifts in technology and climate risks. The new administration has pledged relief through tax cuts and increasing investment in resilient infrastructure, health and education. However, fiscal space has been eroded, limiting the room for manoevere to achieve these goals. Public debt is close to 100 percent of GDP, gross financing needs are high, and fiscal financing costs are elevated.”

The IMF forecast that the Government’s primary deficit, which measures by how much its spending exceeds revenue income while stripping out interest (debt service) payments, will narrow to a sum equivalent to 3 percent of GDP this fiscal year compared to 9 percent in 2020-2021. “The economic recovery accounts for about half of this decline in the primary deficit,” the Fund added.

“A reprioritisation of public spending is also needed to promote better social and economic outcomes. The Government plans to reassess the various roles and responsibilities of civil servants to improve efficiency. Measures are also underway to contain rising outlays to state-owned enterprises - monthly performance reports will be published by these enterprises starting in the next fiscal year.

“Discussions are ongoing on civil service pension reforms. Conducting rigorous cost-benefit analyses would help ensure sound capital projects selection. A more effective allocation of scarce public resources would create room for increased spending on health and education, which is well below regional peers,” it continued.

“Improving social assistance will require obtaining better information on potential recipients, including a timely and comprehensive household survey. Fiscal transparency would be further enhanced by the timely publication of audited financial statements for public sector entities, including beneficial ownership information of those receiving COVID-related spending.”

The IMF also called for “a more robust, multi-year” medium-term debt management strategy, and urged the Government’s debt advisory committee to closely track its performance and undertake “contingency” planning against a “less favourable market environment”.

“Even with significant fiscal consolidation, financing needs will decline only gradually over the medium-term. This creates elevated risks of the country finding itself in debt distress. Mitigating these risks will require careful planning,” the IMF added.

On the monetary front, the report added: “Further amendments to the 2020 Central Bank Act, including lowering the ceiling on credit to the Government and restricting Central Bank purchases of securities issued by public corporations, would help safeguard the Central Bank’s institutional and financial autonomy and bolster confidence....

“Inter-agency co-ordination on systemic matters could be enhanced, and a new inter-agency coordination body, such as a Financial Stability Council, could facilitate regular information exchange and co-operation on financial stability and crisis management issues.

“The Central Bank is encouraged to update its supervisory framework for bank intervention to ensure that early warning indicators are used more effectively. Further enhancements to the Deposit Insurance Corporation are warranted, including strengthening its governance, organisational structure and funding arrangements.”

The IMF also urged The Bahamas to properly implement a risk-based approach to combating financial crime that covered all digital asset and Sand Dollar transactions as well as regular currency.