The Bahamas government has described as a “massive revision” a statement by the International Monetary Fund (IMF) that the country’s economy is projected to grow by 2.3 percent over its previous forecast.
“Previously they were estimating 1.8 per cent. Now they are estimating that the economy will grow in 2024 by 2.3 percent. That’s an increase of 0.5 percent. To go from 1.8 to 2.3 per cent they are raising their projected growth rate by 28 per cent. That’s a massive revision,” said Economic Affairs Minister, Michael Halkitis.
Earlier this week, the Washington-based financial institution issued a statement following a staff delegation visit, noting that the macro outlook for the Bahamas economy continued to rebound vigorously last year, with real gross domestic product (GDP) growth reaching 14.4 percent.
It said unemployment fell to 8.8 percent with a broad-based expansion that was especially strong for tourism.
However, the IMF staff report said labor force participation, particularly among men, remained below pre-pandemic levels.
The staff report, which will be presented to the IMF executive board for discussion and decision, said risks to the outlook are skewed to the downside, indicating that a fall in tourism demand, due to an economic slowdown in source markets could weigh negatively on the growth outlook.
In a statement, Halkitis said that the projection reflects that the economy of the Bahamas continues to grow and inflation is down.
He said the government’s fiscal strategy has surpassed many expectations, performing well on fiscal goals such as cutting the debt-to-GDP ratio, which exceeded 100 per cent two years ago and has now been reduced to 84 per cent.
“We have met or beat every single deficit projection that we have given over the last two years so we are very, very confident that our projections for 2024 will be realized,“ said Halkitis, noting that regarding the IMF estimates for the 2022/2023 deficit, it has consistently underestimated revenue performance.
“What you see is an opinion of the IMF that our revenue will not come in as well as we estimate that it will. We have a difference of opinion. Remember that since 2021, we have had the IMF and the rating agencies consistently underestimating how our revenue can perform.
“Our experience has shown that our revenue along with the growth in the economy has performed very well. We believe that will continue,” Halkitis added.
The government said that during the fiscal period 2022/2023, the actual deficit was US$42 million below projections.
“The reduction of inflation, from 7.1 percent in July 2022 to 2.2 percent in July 2023, has also complemented the Davis Administration’s broad revenue improvement strategy to grow the economy, improve revenue administration, and control spending. The Government has also prioritized outstanding tax collection, particularly real property tax on foreign-owned properties,” the government said.
However, the opposition Free National Movement (FNM) Shadow Minister of Finance, Kwasi Thompson, said the report by the IMF that the government spending this fiscal year will outpace revenue by almost three times its projections, underscores what the party has been saying about the government’s fiscal strategy.
“Again and again, the opposition has warned this PLP (Progressive Liberal Party) government that its reckless and wasteful spending will worsen the country’s fiscal position at a time when rising revenues from a recovering economy should be moving the country toward a balanced budget,” Thompson said in a statement.
“Now again, the IMF, in its statement…is now projecting that the government’s deficit for this fiscal year 2023/2024 will approach US$380 million, which is almost 300 percent higher than the US$131 million deficit in the government’s budget and medium-term fiscal strategy.
“This massive projected spike in the deficit is also projected by the rating agency Standards & Poor (S&P) in its September 2023 report on The Bahamas,” Thompson added.
In its report, the IMF notes that while the objectives of the authorities’ medium-term fiscal plan are laudable, the staff assesses that more policy measures will be needed to achieve this targeted adjustment.
“In particular, based on current policies, the fiscal deficit is expected to be 2.6 percent of GDP in 2023/24, considerably larger than that expected in the budget. Over the medium term, debt would fall to 78 percent of GDP by 2027/28 but gross financing needs would remain high for the next several years (at around 20 percent of GDP).
“Even though, under this path, debt is judged to be sustainable, a faster debt reduction would be valuable in lessening the risk of sovereign stress and, in so doing, would be rewarded through a lower interest burden for the public debt.”
The report said beyond reducing the fiscal deficit, a set of comprehensive tax reforms would be valuable in both raising revenues and improving progressivity.
Thompson said that the government has not been publishing monthly and quarterly budget and fiscal reports as the law requires, with the last two quarterly reports still outstanding, as are August, September and October reports.
“It would seem that the Davis administration has been and continues to keep away the lawful reports of the shaky state of the public finances from their employer, the Bahamian taxpayer,” he added.
Source-CMC
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