On June 3, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with The Bahamas.1 The discussion included the Financial System Stability Assessment (FSSA) of The Bahamas.
Real GDP expanded by 1.6 percent in 2018, up from 0.1 percent in 2017. Economic activity was supported by tourism, while foreign investment projects continued to provide the impetus for construction sector activity. The consumer price index (CPI) increased by 2.2 percent on average in 2018 due mainly to the Value Added Tax (VAT) rate increase from 7.5 to 12 percent in July 2018. Unemployment remains high, at 10.7 percent in November 2018, as employment creation has lagged labor force growth. The current account deficit widened to 16.4 percent of GDP in 2018, reflecting higher oil prices and imports associated with the conclusion of a large FDI project. The budget deficit narrowed to 3.4 percent of GDP in FY2017/18, down from 5.5 percent a year earlier. Central government debt increased to 63.3 percent of GDP in FY2017/18 from 54.4 percent in FY2016/17.
The banking system is well capitalized, but credit to the private sector continued to contract in 2018, even if at a more moderate rate. Banks have improved their balance sheet quality and average non-performing loans (NPLs) declined from its peak of 15.4 percent in 2013 to 9.1 percent in 2018. The financial system is resilient to current stability threats.
Growth is projected to reach 1.8 percent in 2019 before converging to its potential of 1½ percent in the medium term. The increase in inflation is projected to have been temporary. Domestic bottlenecks and lagging economic diversification constrain medium-term growth, and unemployment is projected to decline only gradually. External accounts are expected to strengthen over the medium-term, backed by high tourism receipts, fiscal consolidation and lower oil prices, and the current account deficit is projected to converge to 5 percent of GDP.
Risks to global growth, particularly in key trading partners, have increased. Slowing external demand or a tightening of financial conditions in key advanced economies could adversely affect growth prospects. Vulnerability to hurricanes and climate change remains high. Domestically, reform momentum could stall delaying fiscal consolidation and the implementation of competitiveness-enhancing reforms. In the international sector, reputational risks could intensify despite the recent strengthening of regulatory and transparency standards, possibly challenging existing business models.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Deputy Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.