Despite estimating that The Bahamas lost 16.2 per cent in real gross domestic product growth in 2020, the International Monetary Fund predicts that the country will rebound with a 2.0 per cent growth this year.
“The COVID-19 pandemic has exacted a significant human, social, and economic toll on The Bahamas. The archipelago was just starting to recover from the severe damage caused by Hurricane Dorian in fall 2019, when the global outbreak of COVID-19 led to a sudden stop in tourism, the main source of its income and employment,” a release from the IMF’s executive board detailed.
While the IMF board describes the island grouping’s banking sector as “well capitalized”, it said, however, that “some banks and credit unions are vulnerable to pandemic-induced risks, including an erosion of asset quality once loan moratoria expire, with negative implications for profitability and capital adequacy”.
At the same time, the fund has predicted that public debt will skyrocket to almost 90 per cent of GDP by the end of this year and to remain more than 22 percentage points above its pre-pandemic level over the medium-term.
Notwithstanding, the IMF has commended the Government of The Bahamas for initiating a rapid emergency response to support the economy and vulnerable households, as well as implement strict containment measures.
“Directors commended the authorities for the timely measures to sustain public health, protect the vulnerable and cushion the impact of the pandemic on employment,” the release stated.
However, with limited testing and health resources, the IMF board warns the country’s economic recovery will face the risks of “uncertain evolution of the COVID-19 pandemic… and vulnerability to natural disasters”.
Given the economic impact of the pandemic and the inability to determine its end, the IMF has recommended that The Bahamas suspend public debt targets for another two years.
Rather, the authorities in that country should focus on reducing debt over the long term while “rebuilding buffers” against other events, the fund stated.
“Directors called for tax policy and administration reforms and expenditure prioritisation to ensure a robust and equitable consolidation once the pandemic abates,” the IMF release said.
Furthermore, while the board welcomed the Central Bank of The Bahamas steadfastness on reserve adequacy, and supports the introduction of digital currency, it also urged the central bank to ask banks for regular loan portfolio reviews and risk assessments.
In addition, the IMF board underscored the importance of further developing macroprudential tools and strengthening interagency coordination.