The IMF, whose executive board has just completed a consultation with the country, noted that Hurricane Matthew, which hit in October last year, significantly impacted tourism activity in 2016 and early 2017. However, completion of the mega resort Baha Mar and post-hurricane reconstruction activity provided a boost to job creation with the unemployment rate declining to 9.9 per cent in May 2017, down from 11.6 per cent in November 2016.
The IMF said that the opening of Baha Mar in April increased employment further by creating 2,000 new jobs in the three months to July. Inflation remains low and stable.
The Washington-based financial institution said that the central government fiscal deficit is estimated to have reached 5.7 per cent of GDP for the fiscal year ending in June, 2017, up from 3.5 per cent of GDP in the financial year 2016, due to sharp increases in the wage bill, post-hurricane clean-up and reconstruction spending, temporary tax reliefs, and disruptions in revenue collection.
The central government debt-to-GDP ratio is estimated to have increased to 73 per cent of GDP in financial year 2017.
The IMF said that commercial banks remain liquid and well capitalised, noting that as of March, 2017, the average capital adequacy ratio stood at 27.8 per cent, well above the regulatory requirement of 17 per cent and liquid assets represented 25.6 per cent of total assets.
“Nonperforming loans (NPLs) declined to 11.1 per cent of total loans, down from 14.2 per cent in 2015. However, banks have maintained a cautious lending attitude in an environment of low growth. Consequently, the total stock of credit to the private sector has remained flat,” the IMF said.
The IMF executive directors said they welcomed the expected pick up in near term growth, driven by a stronger United States economy and the phased opening of the mega resort Baha Mar. However, they noted that the economy continues to face significant challenges, including from structural bottlenecks and rising public debt.
They welcomed the government's strong commitment to fiscal discipline and agreed that continued strong fiscal consolidation and monetary and financial sector policies, as well as deeper structural reforms are necessary to generate stronger growth, improve competitiveness, tackle unemployment, and enhance resilience to natural disasters.
The IMF executive directors also emphasised that restoring fiscal sustainability is a top priority. They encouraged the authorities to adhere to their fiscal consolidation plan to reduce the public debt burden and strengthen external buffers.
They underscored that the consolidation effort should focus on cutting current expenditures, in particular, reducing the wage bill and making state owned enterprises self sufficient. They also underscored that reforming the National Insurance Board and the civil servants' pension system, should support fiscal adjustment and reduce long term fiscal risks.
“Directors commended the authorities' efforts to strengthen fiscal revenues. They highlighted that introducing a low rate income tax over the medium term would help make the system more progressive and protect the needed infrastructure and social spending.
“Directors advised against introducing exemptions from VAT and instead recommended taking advantage of the planned expenditure review to create space for better targeted tools to protect vulnerable households,” the IMF statement noted.
- Countries: Bahamas