IMF projects real 2.25% real GDP growth in 2019; 2.5% in 2018

The Nassau Guardian:  

The International Monetary Fund (IMF) continues to tout positive outcomes for the Bahamian economy, adding the projection of 2.25 percent in real gross domestic product (GDP) growth in 2019 to its previous projection of 2.5 percent for 2018.

The IMF released an extended version of its recent 2018 Article IV consultation with The Bahamas, on a lapse of time basis (a proposal considered without convening formal discussions), and explained that positive growth of the Bahamian economy continues due to strong growth in the United States, the phased opening of Baha Mar, and an uptick in foreign direct investment.

Though the IMF admits the economy has “turned the corner” it warned that “bold policy action to unlock medium-term growth” is still needed and the country’s deficit still needs to be brought down to a “desirable level”, while not risking a suppression in capital spending.

“Public debt ratios have declined on the back of a sizable upward revision to nominal GDP, but fiscal deficits remain above debt-stabilizing levels,” the IMF states.

“External reserve buffers have improved, however the external position is weaker than the level suggested by fundamentals and desirable policy settings.”

The IMF continues to suggest that government trim the wage bill, work toward making state-owned enterprises self-sufficient, and “reform the unsustainable civil servants pension system”.

“Addressing imbalances at the National Insurance Board should reduce fiscal contingent liabilities,” the IMF pointed out.

The IMF also commented on Bank of The Bahamas, which has strengthened its capital position, but “still requires a sustainable business model, free from political interference, to keep fiscal contingent liabilities contained”.

The IMF also wants to see government implement a progressive tax system, especially given the impending reduction in import duties when the country accedes to the World Trade Organization. It also suggested government should avoid lowering value-added tax on some items to assist low-income households.

The IMF expects the current account deficit to shrink over the medium term due to “larger tourism receipts and lower imports due to the completion of Baha Mar and fiscal consolidation”.

It also expects banks to increase lending as the economy improves and unemployment declines.

“Banks have the balance sheet space to support a pickup in credit demand,” the IMF noted.