The 2003 Staff Report of the Bi-Annual Consultation of the International Monetary Fund with the Bahamian Government is a substantive document. It includes 61 statements on 18-pages, four one-page analyses, nine full-page tables and four appendices.
The IMF starts its Report by confirming its high regard for the Bahamas. It cites its “long track record of prudent macroeconomic management and financial stability”, the strength of its democratic institutions and its favorable social indicators. The latter is backed up with data that shows how favorable the country stands relative to the average Latin America and the Caribbean country with respect to health, nutrition and education.
As in the past the IMF recommended the maintenance of a prudent monetary and fiscal stance and structural reforms to preserve growth and competitiveness.
However, the big difference between this and prior Reports is that the recommendations are far more pointed and the policy disagreements with the Bahamian Government more pronounced.
The IMF observed that fiscal revenues fell markedly in 2002 with the economic slowdown while expenditures rose due to the 5-year wage agreement signed with civil service unions in 1999. This led to a sizable widening of the fiscal deficit and a marked increase in the debt-to-GDP ratio. The current budget will reduce the fiscal deficit but the debt-to-GDP ratio is expected to increase and the deficit will be financed with foreign debt.
The Government expects that wage restraint and tax measures will stabilize the present fiscal imbalance. It committed only to “seek the postponement of the wage increase scheduled for FY 2003/04 in the context of the 1999 wage agreement, and to exert significant restraint in granting merit increases.” The Government expects an economic recovery and a rebound in tax receipts and thus “found it premature to implement stronger adjustment measures at this time.”
The IMF disagrees. It believes that the revenue effort will not produce a gradual reduction in the debt burden and that the outlook for a gradually improving fiscal balance is subject to significant down side risks. It states the following: