Bahamas’ Growth Projection Slashed by IMF
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Once a strong grower in the Caribbean, the International Monetary Fund (IMF) has slashed the Bahamas’ 2016 growth forecast by 0.7 percentage points, dropping it to just 1.5 percent. The IMF has also projected Bahamian growth to barely reach one percent in 2015—a steep drop from an earlier estimate of 2.3 percent.
Once a strong grower in the Caribbean, the International Monetary Fund (IMF) has slashed the Bahamas’ 2016 growth forecast by 0.7 percentage points, dropping it to just 1.5 percent. The IMF has also projected Bahamian growth to barely reach one percent in 2015—a steep drop from an earlier estimate of 2.3 percent.
The latest slashes, announced by the IMF on Friday, equate to a drop of about $56 million of the Bahamas’ roughly $8 billion per year economy. The downward revision by the IMF does not surprise many analysts who felt earlier projections were far too rosy to square with the country’s weak macroeconomic environment and poorly administered government.
Unfortunately, to reach IMF goals of halving the Bahamian unemployment rate and absorbing new entrants to the Bahamas’ workforce, the country would need to achieve an average growth rate of approximately 7.5 percent between now and 2018. That figure seems increasingly like a pipe dream that the country will never achieve. In fact, the nation has hit a low point in its financial reserves, with just 2.2 months’ worth of imports available.
According to Reuters, the IMF’s mission head to the Bahamas Jarkko Turunen said of the situation: “GDP growth remains modest, projected to have been around 1 percent in 2015 and, following the further delay in the opening of the Baha Mar resort, growth is now projected to rise only to 1.5 per cent in 2016.”
Baha Mar offers an attractive resort that expects to provide a significant boost to the Bahamas’ economy when construction finishes. Unfortunately, uncertainty surrounds when the resort will open, depriving the Caribbean nation of that expected revenue stream. The result has been high unemployment, moderate inflation, and shrinking growth rates.
On a more positive note, the IMF’s report also highlighted the fairly successful deployment of a Value-Added Tax (VAT). The January 2015 introduction of the broad-based VAT, which features a low standard rate and few exemptions, has provided a measure of economic growth, with revenues actually exceeding expectations.
To combat further shrinking of the Bahamas’ growth, the IMF report recommended structural reforms designed to support strong and inclusive medium-term growth and competitiveness. The report also proposed rebuilding fiscal and external buffers. In addition, creating a number of new policies designed to preserve financial sector stability.
