IMF Recommends Crucial Changes to The Bahamas

• The International Monetary Fund (IMF) is recommending that The Bahamas consider implementing a corporate income tax coupled with a personal income tax targeting high earners. In its Staff Concluding Statement of the 2023 Article IV Mission, the IMF also noted that there is an opportunity to meaningfully streamline current preferences, loopholes, and exemptions within the tax system.
• “Beyond reducing the fiscal deficit, a set of comprehensive tax reforms would be valuable in both raising revenues and improving progressivity. In particular, the implementation of the OECD global minimum corporate tax by trading partners provides an opportunity for The Bahamas to introduce a well-designed corporate income tax accompanied by a personal income tax on the highest earners. There is also scope to significantly rationalize existing preferences, loopholes, and exemptions in the tax system,” the IMF stated.
• The IMF noted that after peaking at 7.1% in July 2022, inflation has fallen steadily to 2.3% in July 2023, largely driven by the fall in global energy prices.
• Nonetheless, the Fund noted that a fall in tourism demand due to an economic slowdown in source markets could weigh negatively on the growth outlook. Furthermore, renewed pressures on global food and oil prices could burden lower-income households pressure on the balance of payments. Any associated fiscal measures to dampen the pass-through of global prices to the domestic economy would have to be well-targeted to mitigate further strain on the fiscal position. Finally, The Bahamas is highly exposed to risks emanating from climate change and natural disasters. In the event that risks are realised, domestic financing challenges could increase.
• According to the Fund, efficiency gains in spending programs and improvements in the financial management of state-owned enterprises will be needed to offset some of the budgetary pressures arising from an ageing population. To improve longer-run growth and strengthen social inclusion, there will be a need to reorient spending priorities toward education, healthcare-targeted social transfers, and infrastructure (particularly those that will increase resilience to the effects of climate change).
• The IMF also pointed out that enhancing debt management practices is crucial for mitigating the vulnerabilities stemming from The Bahamas’ high debt rollover requirements. It said that recent reforms aimed at fortifying both primary and secondary debt markets are expected to enhance the liquidity of government bonds, encouraging increased domestic holdings of longer-term securities.

 (Sources: IMF & Eyewitness News)