The Bahamas is making strides in transforming its electricity sector to bolster resilience against climate change. The initiative aims to modernize electricity grids and increase the use of solar energy and liquified natural gas (LNG), which could bring significant macroeconomic benefits. This shift may reduce fossil fuel imports, decrease vulnerability to global fuel price fluctuations, cut CO2 emissions, and enhance national output, potentially raising long-term growth potential from 1.5 percent to 2 percent.
The government announced plans in June 2024 to collaborate with the private sector on modernizing electricity infrastructure and increasing renewable energy's share in power generation. The target is to boost solar energy usage to 30 percent by 2030, taking advantage of the country's abundant solar resources. Although diesel will still be used for a small portion of electricity production, much will be replaced with cleaner LNG.
This transformation requires substantial investment, expected to be financed by private partnerships while managing fiscal risks due to high public debt. Despite these efforts, climate change remains a threat. IMF analysis indicates that rising sea levels could affect up to 41 percent of The Bahamas' land and 22 percent of its population by century's end. Moreover, the nation is vulnerable to hurricanes due to its location within the Atlantic hurricane belt.
Investing in climate resilience is crucial for preserving national output and adapting to environmental changes. This includes diversifying economic activities away from vulnerable sectors and investing in protective measures like breakwater construction and coral reef preservation.
While financing needs for climate resilience exceed those for energy transformation, successful reform can serve as a model for partnering with private businesses on climate adaptation projects. Innovative financing solutions could help free up public resources for conservation efforts.
Zamid Aligishiev and Shane Lowe are economists at the IMF’s Western Hemisphere Department. Beatriz Garcia-Nunes serves as a research analyst within the same department.