Fiscal tightening needed to help Bahamanian economy reach growth potential

• Pages: 220

Page 220

After two years of low growth stemming from a drop off in tourism, the Bahamian economy rebounded in 2003-04. According to the IMF's economic review, Bahamas' balance of payments strengthened markedly in 2004, and net international reserves rose substantially. A widening of the trade deficit, owing mainly to a higher oil import bill, was offset by an expansion of tourism receipts and reinsurance-related inflows following two hurricanes. The recovery also led to a decline in the unemployment rate in 2004, to just over 10 percent.

[ TABLE ARE NOT INCLUDED ]

Low inflation, a sound banking system, and generally prudent fiscal policies have set the stage for private-sector-led growth, supporting a broadly favorable medium-term outlook. Nevertheless, challenges remain. The government deficit rose sharply during the economic slowdown of 2001-02 and remained above 3 percent of GDP through fiscal year 2003/04 and above the authorities' 2 1/2 percent of GDP target for 2003/04. Although current outlays on nonwage goods and services and capital expenditures were compressed, tax revenues remained depressed, and public sector wages continued to rise. The government deficit in 2004/05 is estimated to have declined to 2 1/2 percent of GDP, but the debtto- GDP ratio continued to rise, to...