The Fund notes that since 2001 economic growth in the Bahamas has slowed, and the fiscal position has weakened, under the impact of the global economic slowdown and the lingering security concerns.
While the economy is expected to strengthen gradually in 2003 and 2004, it says, the vulnerability remains.
The IMF recommends focusing economic policy on raising international reserves, regaining room for fiscal manoeuvre, and diversifying the economic base to maintain confidence and reduce economic vulnerabilities. It also emphasises the importance of structural reforms to improve competitiveness over the medium term.
Directors stressed the need to consolidate the fiscal position in order to reduce the debt-to-GDP ratio and ensure fiscal sustainability, although there was support for allowing the full play of automatic stabilisers in view of the sluggish economic growth.
While the IMF board considered that the fixed exchange-rate peg to the US dollar has served the Bahamas well, and welcomed the strong commitment of the authorities to the peg, it noted the real effective appreciation of the currency over the last two years, and stressed that maintenance of the peg would require sound fiscal, wage, and structural policies to protect external competitiveness.
It also encouraged action to reverse the recent decline in the tax ratio, calling for tax reform to broaden the tax base and eliminate distortions in the tax system. Improvements in revenue administration, it said, should be given high priority.
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