The Tribune

By RASHAD ROLLE

Tribune Senior Reporter

rrolle@tribunemedia.net

THE International Monetary Fund projects a 13.9 percent unemployment rate this year, still higher than the pre-pandemic rate but a notable decline compared to 2020 and 2021 when the rate was estimated to be 25.6 and 18.1 percent respectively.

To address revenue issues, the IMF recommends the government gradually bring value added tax rates “close to the regional average of 15 percent,” further reduce tax concessions and consider corporate and personal income taxes for large businesses and high earners.

The projections and recommendations are contained in the IMF’s Article IV Mission statement published at the end of the visit to a member country.

The body urged the government to reprioritise its public spending by addressing civil service pension reforms and improving efficiency among civil servants so it could spend more on health and education. The IMF said the country’s health and education spending is “well below regional peers.”

 The Bahamas’ GDP fell by 14.5 percent in 2020, one of the steepest declines in the region.

 “Coupled with an uptick in construction activity, output is estimated to have expanded by around five and a half percent last year. Real GDP growth is estimated at around six percent this year, although a full recovery to pre-pandemic levels is not expected before end-2023,” the IMF said.

 The pandemic has deepened the country’s medium-term growth challenges and public finances have deteriorated, according to the IMF.

 “Education gaps have increased given the varied quality and access to remote learning. Private investment and employment will take time to recover. Additionally, the economy will have to contend with lasting effects of the pandemic on travel preferences as well as broader shifts in technology and climate risks,” the report said.

 While the government has pledged to provide relief to people and businesses through increased investment and tax cuts, the IMF warned its fiscal space for this has been eroded, with public debt close to 100 percent of GDP.

 “A re-intensification of the pandemic cannot be discarded,” the IMF said. “With about 40 percent of the population fully vaccinated, the emergence of new COVID-19 variants could prolong the pandemic and induce renewed economic disruptions. Alternatively, rising cases in source countries could dissuade travel and lead to a renewed decline in tourism.

 “Higher food and oil prices, including because of the effects of the war in Ukraine, could erode consumer demand and impose a particularly heavy burden on the vulnerable. In addition, a sharp rise in global risk premia could limit the ability to place new debt and further strain public and private balance sheets. Natural disasters related to climate change are a continuous risk. On the upside, the global recovery could prove stronger than is currently anticipated, which would help support tourism.”

 The IMF said the government’s goal to achieve a one and a half percent of GDP fiscal surplus over the medium term is well-calibrated.

 “The authorities have invested considerable resources in strengthening tax administration with a goal of increasing the revenue-to-GDP ratio to 25 percent,” the IMF said. “Measures include the re-establishment of the Revenue-Enhancement Unit and an updated property tax roll. The envisaged overall surplus would be consistent with rebuilding fiscal buffers and putting public debt-GDP on a decisive downward path towards the debt target of 50 percent, as laid out in the Fiscal Responsibility Act.”

 When contacted for comment yesterday, Labour Minister Keith Bell said an unemployment rate of 13.9 percent would be reasonable considering the pandemic.

 “I think that would be reasonable given the circumstances we find ourselves in,” he said.

 However, he said he prefers that the country gets a more accurate perspective from the annual Labour Force Survey or other scientific analysis.

 “I don’t know how much you really could say because it’s like fishing in the dark. It seems fair, but it’s like fishing in the dark if you don’t know what the numbers actually are. It has to be scientific,” he said.