The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas could expand its annual economic output by 9 percent over the “long-term” it if makes substantial multi-million investments in climate change adaptation and protecting its natural assets.

The International Monetary Fund (IMF), in a statement on its recently-concluded Article IV visit to The Bahamas, said investing in preserving mangroves and seagrass beds as well as infrastructure that is more resilient against hurricanes and sea level rises will be critical to securing this nation’s future.

“Investing in climate-resilient infrastructure will substantially decrease output losses from slow-moving aspects of climate change, for example sea level rises, and natural disasters,” the Fund asserted. “Public investments in adaptation and the preservation of natural capital could increase real GDP (gross domestic product) by up to 9 percent over the long-term.

“Adaptation investment needs in The Bahamas are substantial, and are likely to be larger than the estimates in the Nationally Determined Contribution (NDC). To align with the authorities’ medium-term fiscal plans, greater revenue mobilisation is needed to fund such adaptation investments.

“In addition, international and private sector support - particularly in the form of grants - will be important. Beyond the resources needed for such investments, it is likely that even further fiscal adjustment will be needed over the medium-term to build up a contingency fund for future natural disasters while adhering to the 50 percent debt target in fiscal year 2030-2031.”

Staying with the climate change-related theme, the IMF added: “Efforts to enhance disaster insurance coverage for vulnerable populations are a positive step, but should be complemented with measures to mitigate moral hazard. The Government and the private sector are designing a partially subsidised, natural disaster micro-insurance product for the most vulnerable.

“To avoid leakage and minimise fiscal costs, effective targeting of this insurance subsidy will be essential. Potential moral hazard - encouraging excess risk taking with respect to climate-related risks due to underpriced insurance - should be curtailed through integrating disaster risk management considerations into zoning regulations, strengthening the enforcement of robust building codes, and improving access to information on climate risks.”

Calling for an oversight mechanism with better co-ordination and accountability on climate objectives, the Fund said: “The Government is incorporating climate change considerations into planning, supported by development partners, including through expected updating of the 2005 National Policy for the Adaptation to Climate Change and developing a detailed national adaptation plan.

“Similar to the 2022 Disaster Risk Management Act, this could include a comprehensive legislation on adaptation to climate change which identifies responsibilities of line ministries and sets up mechanisms for accountability through an inter-ministerial commission that reports to the Parliament.

“Further recourse to climate financing would reduce borrowing costs..... Undertaking debt-for-nature swaps that have a third-party guarantor, as contemplated in the 2023-2024 Budget and initiated in November, could provide resources for specific investments in preservation of natural habitats.”

Finally, noting the Government’s energy industry reforms, the IMF said the framework governing public-private partnerships (PPPs) needs to be enhanced and “risk sharing” between the public and private sectors needs to be better defined.

“Such a shift in the energy matrix would, over the medium term, help narrow the current account deficit, reduce vulnerability to commodity price shocks and boost growth,” the IMF said.

“In implementing the Government’s plan, strengthening of the institutional framework for public-private partnerships (PPPs) will be an important pre-condition and, more broadly, there should be a clear definition of risk sharing between private and public sectors. Improving the operations, lowering costs and optimising the capital structure of Bahamas Power & Light (BPL) would help support these reform efforts.”