The International Monetary Fund (IMF) said the Bahamian government should prioritize “new revenue-enhancing and expenditure-optimizing measures” such as corporate and personal income taxes, the rationalization of tax expenditures, and an increase in the standard value-added tax (VAT) rate. These measures, according to the IMF, could significantly aid in reducing the country’s debt burden.
In its press statement following the February 4 release of its 2025 Article IV consultation with The Bahamas, the IMF identified a “solid recovery” in the Bahamian economy, attributing much of this resurgence to a post-pandemic boom in tourism, which has been underscored as a crucial contributor to economic growth and fiscal revenues for The Bahamas.
“Growth in 2025 has been supported by construction and cruise tourism, but the economic expansion is expected to slow somewhat in 2026, converging toward the estimated potential rate of 1.5 percent over the medium term,” according to an assessment by the IMF’s Executive Board.
“Risks are broadly balanced, with downside risks including a potential global slowdown and natural disasters, and upside risks entailing greater-than-expected effects of public and private infrastructure projects linked to tourism and electricity reform. Inflation remains low.
“Additional policy measures are necessary to achieve the authorities’ medium-term target for central government debt. A primary surplus was reached again in fiscal year 2024/25, and the fiscal year 2025/26 budget targets an overall surplus.
“While declining, public debt remains elevated. Going forward, new revenue-enhancing and expenditure-optimizing measures should be prioritized to achieve the authorities’ 50 percent of GDP (gross domestic product) target for central government debt. These measures can include introducing corporate and personal income taxes, rationalizing tax expenditures, raising the standard VAT rate, and reducing transfers to (state-owned enterprises) SOEs. These efforts can give space to invest more in priority areas, such as education and resilient infrastructure.
Last month, Prime Minister Philip Davis announced that the government will remove VAT on all food sold in food stores.
The Davis administration has increased the overall subvention allocation to SOEs and statutory agencies by $57 million in its 2025/26 budget.
The IMF said more work is needed to strengthen fiscal institutions and reduce fiscal risks.
“An immediate priority should be to improve fiscal reporting and enhance the institutional framework for public-private partnerships,” the IMF said. “It is also critical to accurately assess and mitigate fiscal risks arising from SOEs.
“The planned reform to civil service pensions should be supplemented with more holistic changes to address actuarial imbalances. Advancing plans to adopt an accrual-based accounting system for the budget would improve fiscal transparency. Efforts to reduce debt rollover risks should continue,”The IMF added.
