NASSAU, Bahamas, Tuesday July 28, 2015 – The International Monetary Fund (IMF) says while the Bahamas economy is recovering, the outlook remains challenging. And even with the United States’ recovery and the opening of the Baha Mar mega resort, growth is expected to remain below pre-global crisis levels.
Against this backdrop, the Washington-based financial institution has called for structural reforms to strengthen competitiveness, raise potential growth, and lower unemployment; and for continued efforts to strengthen the fiscal position.
The advice was contained in the IMF Board’s full report, released yesterday, following the Article IV consultation with the Bahamas last month.
Real gross domestic product (GDP) expanded by an estimated one per cent in 2014 on the back of increased tourist arrivals. Potential GDP growth is estimated at about 1.5 per cent over the medium term, which the IMF said was insufficient to generate a significant reduction in the high unemployment rate.
“Absent structural reforms, including in the labour market and the energy sector, significantly higher growth than currently projected will be required to absorb new entrants to the labour force and reduce the unemployment rate to single digits over the medium term,” it said.
“The full opening of Baha Mar and two smaller projects, together with the strengthening US economy could represent a major boost to exports in the near-term,” the IMF added, although stressing that, beyond 2016, growth would taper off as US growth decelerates and the base effects from the opening of Baha Mar fade.
The IMF directors therefore underscored the importance of finalizing and implementing the National Development Programme to accelerate medium-to-long-term economic and social development.
The Fund said that over the medium term, enhancing the efficiency of labour market regulations and institutions and greater investment in human capital would be essential to increasing productivity and competitiveness.
It also stressed the importance of stepping up reforms of the state-owned enterprises, in particular in the energy sector.
As they commended the authorities for the substantial progress on fiscal consolidation, and successful introduction of the VAT, the IMF directors urged government to steadfastly implement the planned fiscal consolidation in order to rebuild buffers and place public debt on a declining path.
“In this regard, they stressed the need for continued revenue reforms, including strengthening tax administration. They also recommended rationalization of current expenditures in the context of a medium-term budget framework,” the directors stated in a press release.
They also agreed that the exchange rate peg has continued to serve the Bahamas well. To support it going forward, they stressed the importance of structural reforms to improve competitiveness, noting that this would also avoid placing an excessive burden on fiscal policy.