NASSAU, BAHAMAS — The Fiscal Responsibility Council (FRC) is raising concerns over the Government’s decision to slash Value-Added Tax (VAT) on unprepared food from 10 percent to 5 percent, cautioning that the move—though intended to ease the high cost of living—was not accompanied by any projection of the resulting revenue loss in the mid-year budget, leaving its impact on the country’s fiscal position unclear.
In its March 31st report reviewing the Mid-Year Budget, the FRC warned that persistent inflationary risks and the absence of revenue forecasting around the VAT cut could compromise transparency and fiscal planning. “The FRC notes that the growing uncertainty around the future trajectory of inflation leaves room for the possibility of a resumption of inflationary pressures,” the Council stated. “While the policy response of reducing VAT on unprepared food aims to ease the burden on households, no supporting projection for the forgone revenue was provided. In the absence of such forecasting, the impact on VAT collections—specifically and more generally the fiscal balance, given the importance of VAT revenue—is unclear.”
Inflation in The Bahamas has eased significantly since peaking in 2022. For 2024, the estimate was revised downward from 2.4 percent in the 2024 Fiscal Strategy Report to 1.1 percent in the Mid-Year Budget Performance. However, the FRC noted that the cost of living remains notably high. With the possibility of a trade war involving the United States and other major economies looming, the potential impact of inflation on national budgetary estimates remains uncertain.
As of April 1st, 2025, the VAT cut on unprepared food took effect. Economic Affairs Minister Michael Halkitis has previously stated publically that the Government is expected to forgo approximately $30 million in revenue due to the tax reduction.
Established under the Fiscal Responsibility Act, 2018 and reconstituted under the Public Finance Management Act, 2023, the FRC is mandated to monitor the Government’s adherence to responsible fiscal practices. It reviews fiscal publications including the Fiscal Strategy Report, Annual Budget, Mid-Year Review, and Government Accounts. The Council consists of five members appointed by the Governor General: Chairman Christel Sands-Feaste, Dr. Gezel Farrington, Stefan Knowles, Rupert Pinder, and Pedro Rolle.
In its review, the FRC highlighted a number of fiscal developments. The primary balance produced a deficit of $62.6 million for the first six months of the fiscal year, compared to the Government’s target of a $586.9 million surplus. The Ministry of Finance attributed this gap in part to increased interest payments tied to a debt conversion project for marine conservation. While the Government remains optimistic about closing the fiscal gap, the FRC stressed that meeting the target would require revenues to exceed expenditures by $328.3 million in the second half of the fiscal year—an outcome it believes demands clearer justifications from the Ministry.
Public debt also came under scrutiny. As of end-December 2024, central government debt stood at $11.75 billion—an increase of $434.9 million compared to the end of the previous fiscal year. The Government projects a decline in debt to $11.46 billion by the end of this fiscal year, and a further drop to $10.1 billion or 60.4 percent of GDP by FY2027/28, supported by expected surpluses of 2.7 to 2.9 percent of GDP. However, the debt-to-GDP estimates are slightly higher than earlier forecasts due to a downward revision of nominal GDP.
The FRC emphasized the need for the Government to outline planned debt operations and align its fiscal strategies with its long-term debt reduction goals. It urged the inclusion of cost projections for all major policy shifts, including the recent VAT cut, in future fiscal reports.
The Council concluded that while the Government’s fiscal targets for FY2024/25 are acceptable, they carry considerable downside risk, particularly related to potential underperformance in tax revenue during the second half of the year. It also pointed to growing geopolitical tensions and the possibility of a global trade war—signaled by the U.S. imposition of a 10 percent tariff on Bahamian exports—as factors that could further complicate the fiscal outlook.
Despite these concerns, the FRC commended the Government for progress made in modernizing tax administration and unlocking new revenue streams. Notably, it highlighted the introduction of a 15 percent Qualified Domestic Minimum Top-Up Tax (QDMTT) on large multinational corporations, expected to generate revenue equal to 1 percent of GDP annually from FY2025/26 onward. Efforts to commercialize blue carbon credits and secure climate financing were also welcomed.
Looking ahead, the FRC recommended the introduction of a Mid-Year Fiscal Strategy Report to accompany the Mid-Year Budget, along with enhanced forecasting tools to better track and assess fiscal performance. Such steps, it said, would strengthen fiscal transparency and support long-term sustainability.
