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IMF concerned over import bill, vulnerability

The International Monetary Fund (IMF) has expressed concern over this nation’s high import bill and vulnerability to external events, indicating the need to rebuild fiscal buffers, following a recent meeting with officials in Nassau.

However, overall the Washington, D.C.-based multilateral institution responded “positively” to the government’s budget and multi-year plan to reduce the deficit and its borrowing requirements in a meeting in Nassau last week, according to Minister of State for Finance Michael Halkitis.

“They reiterated to us that being an open economy we are open to many outside forces, natural disasters, spikes in oil prices, and so on, and so what we have to do as we pursue our strategy is to build up our reserves and that cushion that will help us should anything like that happen.

“They also stressed to us that our import bill is extremely high. We import most of what we consume, so we have to put a lot of emphasis on diversifying the economy. Not only diversifying away from tourism but within the tourism industry (and) the importance of diversifying to other islands, having real strong linkages to the tourism industry.

“We need businesses that are really providing services, goods, etcetera, so we can cut down on our import bill.”

Overall, Halkitis said that the meeting with the IMF went “very well”.

The IMF staff met with the Ministry of Finance, The Central Bank of The Bahamas and officials from the Ministry of Tourism and the private sector.

“They were able to see what we have done in the budget, some of the adjustments we’ve made and some of the forecasts we have for what we call our medium term fiscal consolidation plan, our multi-year plan to reduce the deficit and reduce the amount of money that we need to borrow.

“We think it was largely a positive meeting. Certainly we’re not out of the woods yet. We’re still very vulnerable to external occurrences, spikes in oil prices, natural disasters, anything that would negatively affect the economy of the U.S., so we still have to bear that in mind but we think we are gradually on track to get us to a better fiscal situation. We need to just be disciplined in our approach on expenditure restraint and revenue administration,” said Halkitis.

Halkitis said the government has stressed its commitment to containing expenditures, improving revenue administration and identifying new sources of revenue.

“Using all of these in combination over three or four years we can sort of right the ship so to speak. So there was general endorsement of that overall strategy.”

In the Quarterly Economic Review for January to March, The Central Bank of The Bahamas said that the government deficit increased by 54 percent during this period.

Halkitis said that the deficit growth “wasn’t unexpected”.

“What happened is a couple of things. We were forecasting 2.5 per cent growth in the economy. It came in at 1.8 percent, so it was lower than we anticipated and that affected the revenues. So it was a function of revenue being down and expenses being fixed. We recognized that the revenues were down, so we made an adjustment in our expenditure patterns and we asked ministries to make some cuts in their budgets. When it got to the end of the year, we were able to keep the deficit in the range of what we had originally forecast, which I think was about 6.2 percent of GDP.”

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