The International Monetary Fund (IMF) in its policy recommendations to the government following the approval of its $252 million Rapid Finance Instrument (RFI) has recommended government increase revenue collection, especially through property taxation; streamline tax expenditures as well as contain the wage bill and reduce transfers to state-owned enterprises (SOEs).
The IMF has suggested these measures be taken toward a significant and determined fiscal effort that would be needed to bring debt on a clear downward path once the present economic crisis subsides.
“Decisive and significant fiscal measures are needed to bring public debt on a clear downward path and achieve the fiscal targets under the FRA (Fiscal Responsibility Act). Staff calculations suggest that to achieve the FRA debt target by 2030/31, an average primary surplus of four percent would be needed starting in FY2024/2025, with significantly faster consolidation than in the current baseline already beginning in FY2022/23. The exact speed of this adjustment should be calibrated to the economic outlook, subject to scrutiny by the fiscal council and parliamentary approval,” the policy recommendations in the staff report recently obtained by Guardian Business state.
The report, which was prepared for the IMF executive board’s consideration on June 1, said, “Significant and determined fiscal effort will be needed to bring debt on a clear downward path and achieve the long-term targets under the FRA.”
Noting that the combined fallout from the COVID-19 pandemic and Hurricane Dorian last year is expected to take a heavy toll on the economy, the IMF stated that despite some already implemented monetary initiatives, it still sees some room for monetary easing.
“But the policy stance should take into account developments in the foreign exchange market, the IMF staff report notes.
“Against the backdrop of a collapse in economic activity and limited inflation pressures, there is some room to lower interest rates. The benefits of doing so have to be weighed against the potential erosion of international reserves and structural bottlenecks in the monetary transmission mechanism.
“While the recent CBOB (Central Bank of The Bahamas) interventions could help ensure an adequate level of international reserves, the repatriation of NIB (National Insurance Board) assets needs to be done in a controlled manner that avoids any potential fire-sale dynamics and preserves the NIB’s financial position.”
Additionally, the IMF stated that steps should be taken to enhance resilience to natural disasters by putting in place mandatory hurricane insurance.
“Introducing mandatory hurricane insurance would strengthen private sector resilience. Improving data collection, sharing and management among agencies would enhance the resilience of the social safety net,” the IMF notes.
In June, the IMF approved a request by the government for an RFI in the amount of $252 million, stating that the unprecedented economic fallout from the COVID-19 pandemic and the urgent balance of payments needed justified the government’s request for emergency financial assistance from the fund through an RFI.