Jun 2015 Financial News

IMF warns of challenging economic outlook for Bahamas. Low growth of 1.5% expected

Jun 12, 2015

NASSAU, Bahamas (CMC) — The International Monetary Fund (IMF) is predicting marginal growth for the Bahamas this year after indicating that the local economy had expanded by one per cent last year.

The IMF said that the economy is recovering but the outlook remains challenging.

"Potential GDP growth is estimated at about 1.5 per cent over the medium term, insufficient to generate a significant reduction in the high unemployment rate. Absent structural reforms, including in the labour market and the energy sector, significantly higher growth than currently projected will be required to absorb new entrants to the labour force and reduce the unemployment rate to single digits over the medium term."

The IMF said despite the US recovery and the imminent opening of the Baha Mar resort, growth is expected to remain below pre-global crisis levels, and the current account deficit remains elevated.

Against this backdrop, the IMF said it is calling for structural reforms to strengthen competitiveness, raise potential growth, and lower unemployment; and for continued efforts to strengthen the fiscal position.

An IMF delegation has just ended a visit to Nassau and, according to a statement issued afterwards, the economic growth of 2014 came "on the back of increased tourist arrivals, but growth remains well below pre-global crisis levels'.

"Supported, in part, by rising US economic activity, air arrivals grew by almost five per cent in 2014 and applied room rates improved by seven per cent," the IMF said, noting that domestic demand has been weighed down by the weak macroeconomic outlook, high household indebtedness, and high unemployment which stood at 15.7 per cent in November 2014.

It said inflation rose to 2.2 per cent in January 2015, up from 1.2 per cent in December 2014, as the imposition of the value added tax (VAT) offset the effects of declining oil prices.

The IMF said the fiscal deficit in the financial year 2013/14 is estimated to have narrowed to 3.3 per cent of gross domestic product (GDP) from 5.4 per cent in financial year 2012/13.

Revenue was lower than budgeted, but a substantial reduction in current spending resulted in an overall fiscal deficit below the budget target. The debt-GDP ratio is estimated to have reached 61 per cent in financial year 2013/14 from 56 per cent in financial year 2012/13, the IMF said.

It said the external current account continues to record sizable deficits, 22 per cent of GDP in 2014, reflecting the large import component of the Baha Mar resort project.

International reserves totalled US$839 million at year end March 2015, equivalent to 2.3 months of next year's projected imports of goods and services.

The IMF said growth is expected to strengthen over 2015-16 with the improvement in US activity and the opening of Baha Mar, but significant structural impediments remain.

The IMF said the full opening of Baha Mar and two smaller projects, together with the strengthening US economy, could represent a major boost to exports in the near term.

"Beyond 2016, growth would taper off as US growth decelerates, and the base effects from the opening of Baha Mar fade. Inflation is expected to remain low, but VAT implementation early this year would add an estimated 2.5 percentage points to the CPI.

"Over the medium term, the external current account deficit would return to single digits as construction-related outflows are anticipated to be replaced by a rise in travel services receipt.

"Risks to the outlook continue to be tilted to the downside, necessitating continued fiscal consolidation and implementation of structural measures to strengthen competitiveness, raise potential growth and lower unemployment," the IMF said.

 

Source:
Jamaica Observer
Friday June 12, 2015

http://www.jamaicaobserver.com/business/IMF-warns-of-challenging-economic-outlook-for-Bahamas_19120445