The Bahamas, host of next year’s IADB meetings, will see a continued improvement in its finances this year with help from new tax revenue and completion of the Chinese-built Baha Mar resort, the largest in the Caribbean.
GDP grew by 1.3% last year, nearly double the 2013 rate of 0.7%, and the fiscal deficit narrowed to 3.3% from 5.4%.
“We see the economy continuing to expand and growth picking up,” finance minister Michael Halkitis told Emerging Markets. “We are looking for anything between 2.5% and 3% growth this year and next year.”
The Bahamas, like the rest of the Caribbean, is enjoying a lift from the improving US economy, which has meant more tourists and higher remittances. The United States accounts for around 75% of the country’s more than three million tourists who arrive either by air or on cruise ships.
“Growth is being driven by the recovery in the United States, which is our major trading partner,” said the minister.
The government also expects to get some help from the new 7.5% value added tax that kicked in on January 1. The goal for the first half of this year is $150m in revenue from the tax. The roll out has been successful.
A big source of growth could come from the $3.5bn Baha Mar tourism project, a huge investment for the economy, which was $8.4bn at the end of 2013, according to the World Bank.
The 1,000-acre complex of hotels, 18-hole golf course and the Caribbean’s largest casino should be ready in May, about two months late. It is being built by China Construction America with financing from China’s Ex-Im Bank.
“Baha Mar is the largest investment in the Caribbean right now. We are looking forward to the employment and other impacts it will bring,” said the minister.
Problems persist, however, and rating agencies are not overly bullish. Moody’s downgraded its senior unsecured rating in September and in November Standard & Poor’s ratified its negative rating.
Contributing to the decision is a rising debt, now just above 60% of GDP, and increasing inflation and unemployment. Inflation in January was 2.2% and unemployment ended last year close to 16%.
Moody’s expects the debt to peak in 2015 at 65%. The fiscal deficit is expected to reverse its downward trend this year, coming in at around 4.4%.
Wendell Samuel, who led an International Monetary Fund visit to the country in March, wrote that the country “faces several challenges in boosting its growth potential”. These include problems in creating jobs, allowing for the development of small and medium-sized enterprises and delays in concluding a national development plan.