The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) last night implied that the Bahamas will not achieve the short-term GDP growth rates needed to make a significant dent in its 15.7 per cent unemployment rate, warning that this nation “faces several challenges” to boosting its economy.

Wendell Samuel, who headed an IMF team that visited Nassau last week for the annual Article IV consultation, indicated in a statement that the Bahamas’ GDP growth rate was projected to peak at 2.8 per cent in 2016.

This economic expansion rate would “moderate” to 1.5 per cent by 2020, notwithstanding the $3.5 billion Baha Mar project’s impact, with both figures well short of the average 5.5 per cent growth rate that the Fund itself said was needed to both cut unemployment by 50 per cent and absorb all school leavers into the workforce.

“GDP growth is expected to pick up over 2015-2016 as the US economy strengthens, tourist arrivals rebound, and Baha Mar and other smaller projects open, reaching 2.8 per cent in 2016 before moderating to around 1.5 per cent by 2020,” Mr Samuel said.

“The Bahamas faces several challenges in boosting its growth potential. First, it needs to attract sufficient tourist demand to fill the large impending increase in capacity. Second, evidence of significant structural unemployment suggests the existence of impediments to job creation and proper functioning of the labour market.

“Third, small and medium-sized enterprises (SMEs) face significant impediments to their growth. Fourth, as noted by the 2015 World Bank Doing Business Indicators, general constraints to investment persist.”

Mr Samuel and the IMF appear to have placed special emphasis on the National Development Plan (NDP) initiative, calling on the Government to “finalise and implement “ this with help from the Inter-American Development Bank (IDB).

“The NDP would assess the country’s macroeconomic performance, institutions and governance, and propose strategies to accelerate economic, institutional and social development over the medium-term and long run,” Mr Samuel said.

“Pending finalisation of the NDP, steadfast and more coordinated implementation of ongoing reforms to enhance the structural competitiveness of the economy will be needed. Especially important are initiatives to strengthen the business environment, address high electricity costs, enhance the efficiency of labour market regulations and institutions, and to improve educational standards and foster human capital development.”

All are areas that the Government, the private sector and wider Bahamian society know require significant reform.

“Economic activity strengthened slowly in 2014. Real GDP growth is estimated at 1.3 per cent, higher than the 0.7 per cent achieved in 2013, but well below pre-global crisis levels,” Mr Samuel added of the Bahamas.

“Supported, in part, by rising US economic activity, air travel arrivals grew by almost 5 per cent in 2014. Unemployment, however, remains high, and stood at 15.7 percent in November 2014.

“Inflation rose to 2.2 per cent in January 2015 (1.2 per cent in December 2014), as the imposition of the Value Added Tax (VAT) offset the effects of declining oil prices.”