The Tribune

By Neil Hartnell

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) has further boosted The Bahamas’ 2025 economic growth prospects to just shy of 3 percent while “regurgitating” its now-annual call for the country to introduce a “personal income tax” and 15 percent VAT rate.

The Washington D.C-based Fund, in a statement in its annual Article IV consultation with The Bahamas, again reiterated its belief that further austerity measures - meaning new and increased taxes, as well as government spending reforms - are needed to hit the Government’s target 50 percent gross domestic product (GDP) to debt ratio by the 2030-2031 fiscal year.

The Davis administration has already repeatedly asserted that personal income tax, as well as what would be a 50 percent hike to the present VAT rate, are not being considered by the Government. However, the positives in the latest IMF statement are that the unemployment is expected to remain stable at just below 10 percent through 2026, while The Bahamas’ GDP growth prospects for this year have been revised upwards again to 2.8 percent.

That represents a 0.6 percentage point, or 60 basis-point, jump from the IMF’s projected 2.2 percent expansion for The Bahamas that was unveiled just two months ago in mid-October 2025. The increase, based on GDP data from the 2025-2026 Budget, represents around a further $90m rise in Bahamian economic output this year, while the Fund also raised its 2026 growth forecast slightly - from 2.1 percent to 2.2 percent.

Michael Halkitis, minister of economic affairs, and Latrae Rahming, the Prime Minister’s communications director, did not respond to Tribune Business messages seeking comment before press time. The IMF, though, still reiterated its projection that Bahamian economic growth will soon fall to its long-run average of between 1.5 percent to 2 percent without meaningful reform.

“The economy remains resilient, and growth is expected to decelerate slightly in 2025. Real GDP was robust in the first semester and is projected to grow by 2.8 percent in 2025, mainly driven by construction and buoyant cruise tourism. Growth is projected to continue moderating in 2026, partly due to relatively stagnant stay-over tourism,” the IMF said, adding that inflation for 2025 is expected to be below 1 percent.

Acknowledging that the Government’s finances have “continued to strengthen” following the world’s emergence from the COVID-19 pandemic, the IMF expressed scepticism that the Davis administration will achieve its forecast $75,5m, or 0.5 percent of GDP, Budget surplus for the 2025-2026 fiscal year without actually saying so. The data that accompanied its statement, though, projected overall deficits equal to 0.5 percent of GDP for this year and next.

“While declining, central government debt remains elevated at 74 percent of GDP and further fiscal consolidation is required,” the Fund added. “Achieving the authorities’ 50 percent of GDP target for central government debt in fiscal year 2030-2031 is estimated to require additional measures.

“In addition to sustained actions to improve tax administration and compliance, quickly reducing central government debt to 50 percent of GDP should be prioritised by adopting new revenue-enhancing and expenditure-optimising measures.”

Chief among these measures were introduction of a “a progressive personal income tax” and “raising the standard VAT rate to around 15 percent”, which would bring The Bahamas into the “mid-point” of rates charged by other Caribbean states.

Other IMF proposals included replacing the Business Licence fee with corporate income tax; eliminating the $120,000 cap or ceiling on annual real property tax payments; reducing VAT and Customs duties exemptions; and “improving the operations of state-owned enterprises (SOEs) and reducing fiscal transfers to them” - especially the Public Hospitals Authority and Water & Sewerage Corporation.

“These measures would allow for a reduction in the fiscal deficit but would also give some space to invest more in education, social protection and hardening infrastructure for natural disasters,” the IMF argued. “Upgrading fiscal institutions is critical to mitigate fiscal risks.

“Efforts to reduce debt rollover risks, including by mobilising domestic financing at longer maturities, should continue. It will be key to accurately assess and mitigate fiscal risks arising from SOEs through enhanced monitoring and regular publication of SOEs’ audited financial statements.”

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, while reiterating that The Bahamas is under no obligation to adopt or follow any of the IMF’s recommendations described the latest Article IV report as largely a “regurgitation” of prior years.

He added: “I think the reality is the positive in that is they’ve not seen any radical change, but the negative equally is that they’ve not seen any radical change.” Mr Bowe also warned Bahamians against a tendency to “cherry pick” elements of the IMF statement to advance a particular cause or narrative, adding that the contents were largely headline-type points that did not provide an implementation road map.

The IMF, meanwhile, also called for The Bahamas to make progress in addressing unfunded multi-billion dollar civil service pension liabilities as well as adopt accrual-based accounting with the public finances. The latter reform would shift the Government away from cash-based accounting, and is seen as creating a more accurate picture of its financial position because it will record spending commitments and liabilities when they are incurred and agreed - not when they are spent.

“The planned reform to civil service pensions should be supplemented with more holistic changes that can lessen the actuarial imbalance of the civil service pension system. Advancing plans to adopt an accrual-based accounting system for the Budget would be important to improve fiscal transparency and decision-making,” the Fund added.

It also suggested “better regulations” to cover rental contracts and landlord-tenant relationships as one way to ease The Bahamas’ housing affordability woes. However, increased construction costs and stagnant wages may mean the problem worsens before it gets better.

“Housing affordability is a social and economic challenge. Access to mortgage loans is relatively limited and new housing construction has been weak in recent years,” the IMF argued.

“Stronger supervisory efforts are needed to accelerate the reduction in legacy mortgage non-performing loans, and to identify other unwarranted constraints for residential mortgage supply, particularly for low and middle income households.

“The authorities could create fiscal space to invest more in affordable social housing. Better regulations to govern rental contracts and landlord-tenant relationships may help incentivise increased supply of rental properties. However, elevated construction costs and modest rates of wage growth could deepen affordability pressures in the near term.”

Citing labour market reforms as critical, the IMF added: “Policies should aim to increase labor productivity and foster investment in human and physical capital….. The authorities’ work to upgrade airport infrastructure, along with several private sector projects to enhance hotel infrastructure and develop new cruise destinations, should help alleviate capacity constraints in the tourism sector.

“Addressing challenges in the labour market is essential. Strong reliance on the service sector, often characterised by high labor intensity, seasonality and the need for work beyond standard hours, can create conditions for relatively unstable jobs. Meanwhile, self-employed workers, including in the construction sector, face heightened vulnerability and exposure to informality.

“These labour market patterns can undermine productivity growth. Moreover, firm surveys identify skill shortages as a main obstacle for business and innovation. Policy priorities include streamlining business registration requirements, creating a supportive environment for start-ups, strengthening the education system, expanding vocational training, and improving job-matching services and upskilling opportunities (including through lifetime learning).” The Government has already moved on a number of these issues.

As for The Bahamas’ financial sector, the IMF said that while systemic risks to financial stability are “moderate” there needs to be continual monitoring of the sector’s exposure and risks stemming from holdings of Bahamian government debt.

“More work is needed to improve oversight of the non-banks and address data gaps. Ongoing actions to strengthen credit union governance are welcome. Closing data gaps remains a priority to upgrade the oversight of non-banks - for example, to comprehensively assess climate risks, including in the insurance sector,” the Fund added.

“Supervisors should adopt a time-bound plan for operationalising loan-level data from bank and non-bank lenders and real estate price indices, particularly as construction activity continues to grow - mainly in the commercial real estate segment.”

Backing ongoing reform efforts to improve deposit protection and the process for addressing troubled banks, the IMF said: “Enacting these legal changes should help tackle shortcomings in crisis preparedness and safety nets.

“It is essential to maintain efforts to implement the 2024 Digital Assets and Registered Exchanges (DARE) Act, which upgraded the regulatory framework for digital assets. Work is still needed to lower the ceiling on Central Bank advances to the government.

“Efforts to expand financial inclusion through agency banking, the Sand Dollar and digital payments are advancing. The Central Bank has completed a consultation on agency banking to allow licensed non-bank providers to deliver services on behalf of banks and credit union,” the Fund added.

“These licensed entities would have to ensure full operability of the Sand Dollar, which is helping improve access to financial services for underserved communities. Initiatives to implement fast payment systems are also underway. To match these efforts, it is necessary to continue investing in financial literacy and, especially, to enhance telecom and electricity infrastructure.”