- The Bahamian economy continues to recover, with real GDP growth projected to reach 2.3 percent in 2018 and 2.1 percent in 2019.
- The Fiscal Responsibility Law (FRL) will support the government’s efforts to secure fiscal sustainability and put debt on a downward path.
An International Monetary Fund (IMF) team, led by Fabian Bornhorst, visited The Bahamas during December 3-7, 2018 to review latest economic developments and prepare for the 2019 Article IV consultation (planned for April 2019). During the visit, discussions focused on the outlook and risks, fiscal developments, and the financial sector. At the conclusion of the visit Mr. Bornhorst issued the following statement:
“The Bahamian economy continues to recover, with real GDP growth projected to reach 2.3 percent in 2018 and 2.1 percent in 2019. Growth is driven by an increase in tourist arrivals, paired with an expansion of hotel room and airlift capacity, and against the backdrop of the continued expansion of the U.S. economy. This calls for maintaining strong fiscal and financial policies to bolster the Bahamian economy’s resilience and build buffers should external conditions become less favorable, and for advancing reforms to achieve more inclusive growth over the medium term.
“The enactment of the Fiscal Responsibility Law (FRL) is a welcome development that supports the government’s efforts to secure fiscal sustainability and put debt on a downward path. Implementation of the FRL framework will also increase transparency and enhance policy credibility. The government’s plan to establish a disaster relief fund as part of a broader strategy for preparedness and risk reduction policies is a welcomed step.
“The government has narrowed the fiscal deficit from 5.5 percent of GDP in FY 2017 to an estimated 3.3 percent in FY 2018. In the budget for FY 2019 the government committed to further fiscal consolidation, targeting an overall deficit of 1.8 percent of GDP. This is supported by various revenue mobilization measures. As noted during the 2018 Article IV consultation, fiscal consolidation should also include decisive measures to contain expenditure growth in the short and medium term. The team welcomed the government’s transparent recognition of accumulated arrears and the budgetary provisions to clearing them, as well as the plans to put in place robust expenditure control systems.
“The banking system as a whole has strong capital and liquidity ratios, and banks have made progress towards improving asset quality. As of June 2018, the average capital to risk-weighted assets ratio across domestic institutions was 34 percent, above the regulatory target ratio of 17 percent, and non-performing loans declined to 9.6 percent of total loans, from 12.3 percent a year earlier. The mission recommended the speedy establishment of the credit bureau to enhance credit market efficiency, increase credit growth, and help financial inclusion.
“The Central Bank of The Bahamas is preparing to pilot a digital central bank currency. The team recognized the role new financial technologies can play in fostering financial inclusion, and concurred that a gradual approach will help mitigate potential risks to the economy.
“The mission welcomed the government’s firm commitment to a well-regulated international financial and business sector, and recognized the significant steps taken to increase compliance with international standards on Anti-Money Laundering and Combating the Financing of Terrorism. The team made the case for sustaining efforts to fully implement the Action Plan agreed with the Financial Action Task Force, including to mitigate financial risks associated with the withdrawal of correspondent banking relationships.
“The mission met with the Honorable K. Peter Turnquest, Deputy Prime Minister and Minister of Finance, Mr. John Rolle, Governor of the Central Bank of The Bahamas, other senior government officials, and representatives of the private sector. The mission would like to thank the authorities and other interlocutors for the open and productive discussions.”