The Tribune

By RASHAD ROLLE

Tribune News Editor

rrolle@tribunemedia.net

INCREASING value-added tax, raising water rates for heavy users and collecting patient fees at the Public Hospitals Authority are among the International Monetary Fund’s recommendations to help the government meet its debt target of 50 percent of GDP by 2031.

However, last night, the Davis administration said it has no plans to increase VAT and noted that the IMF’s recommendations align with its previous ones.

The IMF, in its latest Article IV consultation statement on The Bahamas, said some combination of measures would help the government achieve its target, with other options including replacing business licence fees with a 15 percent profits tax on large domestic firms, introducing a personal income tax for top earners, and removing the ceiling on property tax.

The IMF described the government’s proposed pension reforms for civil servants — introducing contributions for new hires and raising the mandatory retirement age — as “constructive” but recommended aligning the minimum retirement age between the National Insurance Board and civil service systems and indexing retirement ages to life expectancy for both.

The IMF warned that improving tax collection and benefiting from lower interest payments alone will not be enough for the government to meet its debt target.

The IMF praised The Bahamas for a “remarkable recovery” from Hurricane Dorian in 2019 and the COVID-19 pandemic, noting that economic activity and employment have returned to pre-pandemic levels while inflation has fallen “below pre-pandemic levels.”

Despite these gains, the IMF highlighted persistent challenges facing the country.

“Income per capita continues to diverge from that in the US,” the report said. “At the same time, expensive electricity, a shortage of skilled labour, and obstacles to business formation and expansion continue to weigh on growth.”

The IMF also flagged high government debt levels and borrowing costs, which surged during the pandemic. Additionally, The Bahamas’ vulnerability to natural disasters and rising sea levels underscores the need for investments in climate resilience and building fiscal buffers to respond to shocks more effectively.

A year after saying the outlook risks for the country are skewed to the downside, the IMF this year said the risks are balanced.

“Upside risks,” its report said, “include the execution of announced infrastructure and hotel construction projects and a higher-than-expected boost from an expansion of short-term rentals. The main downsides stem from large public debt rollover needs and the ever-present risk of natural disasters.”

The IMF noted that the country’s fiscal deficit dropped to 1.3 percent of GDP in the fiscal year 2024, an improvement from the previous fiscal year, driven by increased revenues from better tax compliance, a cyclical economic rebound, and targeted policy measures. Expenditure containment, including reduced transfers to public corporations and under-execution of capital projects, also contributed to the adjustment.

In a statement last night, the Office of the Prime Minister said: “While there is much more work ahead, many more Bahamians are now working, and inflation is now below pre-pandemic levels. Public finances are improving, borrowing costs are declining, and the nation is on a stronger, more sustainable path forward.

“The Davis administration is implementing the nation’s first comprehensive energy reforms, including the first utility-scale solar farms, to reduce prices for homes and businesses and to strengthen our electricity grid.“