The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has the second lowest fiscal consolidation success rate in the Caribbean, a working paper for the International Monetary Fund (IMF) has revealed, suggesting that its prospects of reversing the ongoing slide are not promising.

In their paper, ‘The Challenges of Fiscal Consolidation and Debt Reduction in the Caribbean’, the authors state that between 1980 and 2011, the Bahamas attempted fiscal consolidation five times - in 1992, 1994, 1996, 1998 and 2003-2004.

But only the third effort proved successful, with this nation attempting fiscal consolidation the fewest times in the Caribbean region.

The IMF working paper acknowledged that this might reflect its relative fiscal prudence of the past, and noted: In particular, the Bahamas and Dominican Republic have the lowest rates of consolidation, 20.9 per cent and 21.8 per cent, respectively.

“The rate is high for Antigua and Barbuda, 40 per cent, Dominica, 38.5 per cent, Grenada, 36.4 per cent, and Belize 34.3 per cent. The prevailing economic conditions in each country, which indicate the need for fiscal adjustment, would account for the differences in the rates. “

As for the success rate when it came to fiscal consolidation, the working paper said: “Available data further suggests that consolidation efforts have not been successful in St Lucia, while four other countries also recorded low successes, including the Bahamas, 20 per cent; Barbados, 25 per cent; Dominica, 40 per cent; and Grenada, 37.5 per cent.

“The historically low public debt-to-GDP ratios of St Lucia and the Bahamas could explain why fiscal consolidation as defined in the study failed to achieve significant debt reductions in those countries.”

To stabilise the Bahamas’ debt-to-GDP ratio from 2011, the IMF working paper suggested the country needed to undergo a fiscal adjustment equivalent to 2.7 per cent of gross domestic product - a sum between $200-$250 million. It also needed to run a surplus on its primary balance equivalent to 0.4 per cent of GDP.

The report also noted that the Bahamas had the lowest tax revenue ratio, as a percentage of GDP, out of all Caribbean countries, placing it at 16-17 per cent compared to Barbados’s 26 per cent.

And it said the Bahamas had used up more than half its fiscal flexibility, ranking it in the region’s mid-pack.

The Bahamas’ debt-to-GDP ratio had risen from 25.2 per cent in 2001 to 45.5 per cent in 2009, with an almost 13 percentage point increase having taken place between 2007 and 2009 - the period when the global recession started.

The Bahamas primary fiscal deficit increased to an average of 2 per cent of GDP in 2008-2011, having stayed below 1 per cent for the previous decade.

The IMF working paper said the Bahamas’ primary balance had “continuously deteriorated” over that period, which had also seen the greatest jump - and rate of increase - in the Government’s overall debt-to-GDP ratio.