NASSAU, BAHAMAS — The International Monetary Fund (IMF) has emphasized the need for further fiscal adjustments and comprehensive revenue measures, including new taxes and reforms, to achieve the government’s ambitious fiscal targets, reduce debt levels, and support economic stability over the next decade.
The IMF, in its Staff Concluding Statement of the 2024 Article IV Mission—a document outlining the preliminary findings of IMF staff at the end of an official country visit—acknowledged that the Bahamian economy has staged a remarkable recovery following Hurricane Dorian in 2019 and the COVID-19 pandemic.
“Activity and employment have recovered to their pre-pandemic levels, and inflation has fallen back below pre-pandemic levels. Public finances are improving, and borrowing costs have declined. Over the medium term, growth is expected to slow to its long-run potential (of 1½ percent) as capacity constraints in tourism become more binding. Barring global commodity price shocks, headline inflation is expected to converge to around 2 percent,” the IMF noted.
Still, it acknowledged that long-standing challenges remain. “Income per capita continues to diverge from that in the U.S. At the same time, expensive electricity, a shortage of skilled labor, and obstacles to business formation and expansion continue to weigh on growth. As in many other countries, government debt-GDP jumped during the pandemic, and borrowing costs remain uncomfortably high. The archipelago is also highly susceptible to natural disasters and rising sea levels, both of which argue for increased investments in resilience and building fiscal buffers to better respond to climate-related shocks.”
Highlighting the need to restore fiscal buffers, the IMF noted that the fiscal deficit was 1.3 percent of GDP in FY24, around 2½ percentage points of GDP lower than FY23. “The adjustment was driven by both revenue increases (better tax compliance, a cyclical rebound, and policy measures) and expenditure containment (lower transfers to public corporations and some under-execution of capital spending). Central government debt fell to 78.8 percent of GDP in FY24, but there has been an upswing in the reliance on central bank advances (now at 2 percent of GDP). Global factors have pushed down sovereign spreads on foreign currency debt, but domestic financing has increasingly relied on issuance at short maturities, raising near-term gross financing needs.”
The IMF noted that the government has set a goal to significantly improve its primary balance (the difference between revenue and non-interest spending) by 3.5 percentage points of GDP between fiscal years 2024–2026. It pointed out that achieving this is challenging, as such an increase has only been accomplished once in recent history, and even then, it required major changes such as raising the VAT (Value-Added Tax) rate and sharply cutting expenditures after Hurricane Matthew. The IMF suggested that the fiscal adjustment could be spread out over a longer timeline to reduce its immediate economic impact.
“The adjustment could be spread out over a moderately longer horizon, raising the primary balance to 5½ percent of GDP by FY26 and to 7 percent of GDP by FY29. This would still bring debt to 50 percent of GDP by FY31 and would allow the private sector a longer horizon to adjust to the withdrawal of fiscal resources,” the IMF noted. It added that such an adjustment could be achieved through a combination of measures, including replacing the business license fee with a 15 percent profits tax on large domestic firms, introducing a personal income tax for top earners, eliminating the ceiling on property tax, reducing tax expenditures, increasing the VAT rate, raising water rates for heavy users, and ensuring the collection of patient fees at the Public Hospital Authority.
The IMF outlined a range of measures to improve fiscal stability, strengthen public finances, and foster sustainable growth in The Bahamas. It emphasized that a mix of revenue mobilization and structural reforms is needed to meet debt reduction targets while enabling investments in education, social programs, and climate-resilient infrastructure.
Proposed civil service and national pension reforms aim to reduce imbalances by introducing contributions for new hires, raising the retirement age, and aligning policies across systems. Improved debt management, including competitive auctions, building cash buffers, and fully staffing the debt management office, was also highlighted.
Efforts to enhance financial stability include strengthening liquidity management tools, addressing systemic risks from public sector debt exposure, and advancing key reforms such as establishing the Bahamas Financial Stability Council and improving access to financial services through digital banking and innovative technologies.
The IMF praised progress in anti-money laundering (AML) and digital asset regulation but urged further actions, such as closing data gaps, enhancing oversight, and aligning with international standards. It also stressed the need to update national AML/CFT strategies based on ongoing risk assessments.
Boosting long-term growth requires investments in human capital, crime reduction, and tourism expansion beyond New Providence. Climate adaptation investments could significantly enhance GDP, with international support and private sector engagement crucial for funding. Disaster insurance for vulnerable populations and better coordination on climate policies were identified as priorities.
The IMF also pointed out that electricity sector reforms focused on renewables and modernizing infrastructure could reduce costs, improve energy security, and support growth, provided public-private partnerships are carefully managed and risks are clearly defined.
