Press Release No. 16/557

IMF Mission Concludes Visit to the Bahamas

December 13, 2016

• Despite significant damage by Hurricane Matthew, growth is expected to resume next year, supported by construction activity and work toward completion of Baha Mar resort
• Further fiscal consolidation, including more determined efforts to rationalize spending, remains critical for rebuilding fiscal and external buffers.
• High unemployment and the high volume of non-performing loans continues to dampen private sector credit and economic activity

An International Monetary Fund (IMF) team led by Jarkko Turunen visited The Bahamas from December 7-13, 2016, to update the economic and financial outlook following Hurricane Matthew.

At the conclusion of the staff visit Mr. Turunen issued the following statement:

“A close-to-direct hit from category four Hurricane Matthew has caused significant damage to housing, businesses, and infrastructure, and is expected to have a negative impact on near-term growth, as well as on fiscal and external accounts. Real GDP growth is nevertheless expected to resume next year, supported by construction activity related to the repair of Hurricane damage and work towards completion of the Baha Mar resort. The Baha Mar resort is expected to provide an important boost to growth and employment over the next few years. However, structural impediments continue to constrain growth over the medium term.

“Preliminary data for the fiscal year ending in June 2016 suggests that the fiscal deficit declined to about 3.5 percent of GDP, down from 4.4 percent in the previous fiscal year. Although the current account deficit has declined, benefiting from lower oil prices, it remains at double-digits. Foreign reserves stood at US$913 million (end-September), equivalent to about 2.6 months of imports of goods and services. Altogether, modest fiscal and external buffers make the economy vulnerable to shocks, including natural disasters.

“Available indicators continue to point to a sound domestic banking system as a whole. However, together with high unemployment, the persistent overhang of non-performing loans (at more than 13 percent of total loans at end-September 2016) continues to dampen private sector credit and economic activity. While the loss of correspondent banking relationships by some domestic and international banks has not resulted in major disruptions so far, a further deterioration remains an important challenge to economic development and financial stability.

“Further fiscal consolidation, including more determined efforts to rationalize spending, remains critical for rebuilding fiscal and external buffers. To support stronger growth and job creation, policies should focus on implementing structural reforms to improve productivity and competitiveness and shoring up the economy’s resilience to natural disasters. Steps to address financial sector challenges include policies aimed at increasing credit growth and responding to global “de-risking” trends.

“The mission met with the Honorable Michael Halkitis, Minister of State for Finance, Mr. John Rolle, Governor of the Central Bank of The Bahamas, other senior government officials and representatives of the private sector. The mission would like to thank the authorities and technical staff for their cooperation and hospitality.”