IMF predicts economic growth for Bahamas

An International Monetary Fund (IMF) mission ended a two-week visit to The Bahamas with a report that economic recovery in that country is gaining strength.

The mission, headed by Dr Gene Leon, said that real output grew by about one per cent in 2010 and is expected to grow by two per cent this year.

It noted that inflation is expected to rise temporarily on account of higher world prices for food and oil, and that the fiscal deficit in financial year 2010-2011 widened to about 4.75 per cent of gross domestic product (GDP).

The IMF said that total revenues increased, aided by higher-than-average stamp duties, but expenditures increased more, owing to higher spending on goods and services.

"Although the sale of 51 per cent of the shares of the Bahamas Telecommunications Company eased financing pressures, central government debt rose to almost 49 per cent of GDP," said Leon.

BTC was sold to Cable and Wireless Communication Plc for US$210 million.

He said the severe economic contraction during 2008-09 and high unemployment resulted in an increase in the ratio of non-performing loans, but stress tests have shown banks remained adequately capitalised.

"Higher spending on new government initiatives are expected to widen the central government deficit to about 5.25 per cent of GDP and raise central government debt to over 50 per cent of GDP in the financial year 2011-12."

Leon said that additional risks to the fiscal outlook arise from the continued weak performance of the non-financial public enterprises. Despite these prospects, the banking system is expected to remain sound.

"Going forward, the authorities intend to take fiscal measures to stabilise and reduce the debt-to-GDP ratio and support the economic recovery, while maintaining price and exchange-rate stability," he said.

"They also plan to reform and enhance tax administration, increase fiscal responsibility, and improve transparency for public enterprises."

Leon said that global developments, including high oil prices, pose risks to the outlook, but upside potential could offset these if projects under consideration materialise.

"The mission is confident that the determined pursuit of fiscal consolidation and an enabling investment climate will improve the macroeconomic environment and support sustained economic growth," he added.

- CMC