Photo by Luis espinoza

5 February 2021, Volume 43 Issue 3

The IMF has said that economic recovery to pre-pandemic levels in the Bahamas ‘will likely take years’ and that the ‘downside risks loom large’.

In a statement following the conclusion of its annual Article IV consultation, the Fund’s Executive Board noted that the archipelago had just begun to recover from the severe damage caused by Hurricane Dorian in 2019, when COVID-19 led to a sudden stop in tourism, the islands, main source of income and employment.

Although Government put into place strict containment measures and a rapid emergency response to support the economy and vulnerable households, the IMF observed that limited testing and health resources in the country meant that reopening the economy remained challenging.

While observing that Government had made near-term pandemic control a priority to save lives and livelihoods, and has appropriately delayed the achievement of its public debt target, the IMF warned that placing the country’s debt on a clear downward path in the medium term and rebuilding reserves will require a ‘significant fiscal effort’. This, the IMF suggested, meant that a ‘credible medium-term tax policy’ was required.

Public debt, it reported, is expected to jump to almost 90% of GDP by 2021 and to remain more than 22% above its pre- pandemic level over the medium-term. It projected that real GDP would contract by 16.2% in 2020,

followed by a modest rebound of 2% in 2021, and only reach pre-pandemic levels by 2024.

Addressing the Central Bank’s focus on reserve adequacy the report observed that COVID-19 related capital flow management measures were ‘appropriate for now’ but said that they should be phased out when the pandemic recedes.

The IMF observed that although the country’s banking sector remained well capitalised, ‘some banks and credit unions are vulnerable to pandemic induced risks …. with negative implications for profitability and capital adequacy’. Although supporting the recent nation-wide introduction by the Central Bank of a digital currency, the Sand Dollar, the IMF stressed ‘that there are significant risks to financial intermediation, integrity, and cybersecurity that require careful monitoring’.

More generally, the IMF indicated that the banking sector remained vulnerable to pandemic-induced risks and urged the Central Bank to ask banks for regular loan portfolio reviews and risk assessments. They also recommended the establishment of an asset registry and real estate price index to improve information flows and analysis.

In addition, the annual report indicated that there was continuing need modernise the business climate, rationalise state owned enterprises, reduce labour market frictions, and better target social programmes. The IMF also recommended that Government gradually restore the country’s disaster relief fund which was depleted following Hurricane Dorian.

Referencing The Bahamas’ ‘successful exit’ from the enhanced monitoring imposed by the Paris based inter-governmental Financial Action Task Force, the Fund emphasised ‘the criticality of continuous and effective anti-money laundering/combatting the financing of terrorism (AML/CFT) implementation.

The full report can be read via https://www.imf.org/en/Publications/CR/Issues/2021/01/27/The-Bahamas-2020-Article-IV- Consultation-Press-Release-Staff-Report-and-Statement-by-the-50044

This is a lead article from Caribbean Insight, The Caribbean Council’s flagship fortnightly publication. From The Bahamas to French Guiana, each edition consists of country-by-country analysis of the leading news stories of consequence, distilling business and political developments across the Caribbean into a single must-read publication. Please follow the links on the right-hand side of this page to subscribe, or access a free trial.