The International Monetary Fund (IMF) has released a concluding statement following its 2024 Article IV mission to The Bahamas. This statement outlines the preliminary findings of IMF staff after their visit, which is part of regular consultations under Article IV of the IMF's Articles of Agreement.
According to the statement, "the Bahamian economy has staged a remarkable recovery following Hurricane Dorian in 2019 and the Covid-19 pandemic." Economic activity and employment have returned to pre-pandemic levels, while inflation has decreased below those levels. Public finances are improving, with borrowing costs on the decline. However, growth is expected to slow over the medium term due to capacity constraints in tourism.
Despite these positive developments, challenges persist. Income per capita continues to diverge from that in the U.S., and issues such as expensive electricity and a shortage of skilled labor remain obstacles to growth. Government debt-GDP ratios increased during the pandemic, maintaining high borrowing costs. The archipelago's vulnerability to natural disasters and rising sea levels highlights the need for investments in resilience.
The fiscal deficit was reduced by 1.3 percent of GDP in FY24 due to revenue increases and expenditure containment. Central government debt fell but reliance on central bank advances increased. The authorities aim for a debt target of 50 percent of GDP by FY31, with improved tax administration contributing towards this goal.
Reforms include introducing a qualified domestic minimum top-up tax on large multinational corporations, expected to generate new revenues equivalent to 1 percent of GDP. Additional legislation is needed for investment incentives and offshore property transfers into the tax net.
Efforts are also underway to enhance financial stability and inclusion through new liquidity management tools and reductions in central bank advances. Systemic financial stability risks are moderate despite banks' high exposure to public sector debt.
Long-term growth strategies focus on investing in human capital, addressing digitalization gaps, relieving tourism capacity constraints, reducing labor market informality, and combating crime.
Climate-resilient infrastructure investments could mitigate output losses from climate change impacts like sea level rise. Public investments could increase real GDP significantly over time but require greater revenue mobilization and international support.
Electricity sector reforms aim at modernizing infrastructure and increasing renewable energy use—an effort expected to reduce commodity price shock vulnerabilities while boosting growth.
The IMF staff expressed gratitude towards Bahamian authorities for their cooperation during discussions.