Press Release No. 20/32

IMF Staff Concludes Visit to The Bahamas

February 4, 2020

• Our sympathies are with the victims of Hurricane Dorian. The IMF stands ready to support The Bahamas, including through its emergency financing facilities.
• Higher spending to support those affected by the disaster and to rebuild the infrastructure puts fiscal consolidation on hold. A timely return to the fiscal target remains key to ensure debt sustainability.
• Restoring financial resilience to natural disasters and strengthening physical and social resilience will be important to mitigate the impact of future events.

An International Monetary Fund (IMF) team led by Fabian Bornhorst visited The Bahamas during January 27-31, 2020 to take stock of economic developments after Hurricane Dorian and prepare for the 2020 Article IV Consultation (planned for March 2020). At the conclusion of the visit, Mr. Bornhorst made the following statement:

“Our heartfelt sympathies are with the victims of Hurricane Dorian, and with those who face the arduous task of rebuilding their livelihoods. We are confident that the people of The Bahamas will rebuild a stronger and more resilient economy. The IMF stands ready to support The Bahamas, including through its emergency financing facilities. Through the IMF’s Rapid Financing Instrument up to US$ 200 million could be available to The Bahamas at low cost and without policy conditionality.

“Hurricane Dorian devasted parts of Abaco and Grand Bahama, resulting in a sharp fall in tourists visiting these areas. Nevertheless, a gradual recovery is already underway, and tourism to other islands of the archipelago is holding up. The still-favorable economic outlook for tourism source countries will support the process. A mild economic contraction is projected in 2020; growth is expected to pick up once the infrastructure and tourism capacity is rebuilt. The pace of recovery will depend on the implementation of the reconstruction plan; critical elements include the rebuilding of infrastructure, the expeditious processing of construction permits, the availability of labor, and the availability of private and public financing.

“The government appropriately activated the escape clause under the Fiscal Responsibility Law following the hurricane. Having met the fiscal target for FY2018/19, this will allow a temporary deviation from the fiscal consolidation plan to accommodate policies to support the recovery, including through tax waivers and infrastructure reconstruction expenses. Strengthening social assistance programs as envisaged in the supplementary budget will support the most vulnerable in rebuilding their livelihoods and those who have lost their jobs.

“Public debt is projected to be higher in the medium term, underscoring the need for a timely return to the fiscal targets, and for accelerating the implementation of structural reforms to realize the economy’s growth potential.

“The financial resilience to natural disasters built in the recent past—a contingent credit line, sovereign insurance against natural disasters, and a natural disaster relief fund—has proven to be an important buffer. Together with substantial private insurance payouts, these flows underpin the robust increase of foreign exchange reserves ahead of an import-heavy reconstruction process. Gradually restoring the financial buffers and rebuilding the infrastructure in a more resilient way will be key to mitigate the impact of future disasters.

“The financial sector appears to have weathered the hurricane well, with limited exposures to uninsured assets. Adequate re-insurance of domestic insurance companies abroad cushioned the impact of the hurricane on the domestic insurance sector. However, insurance penetration, in particular in the residential segment, remains low, leaving many homeowners in dire straits. New approaches to extend insurance coverage as part of a broader disaster risk management strategy would increase resilience.

“The Central Bank of The Bahamas launched the Sand Dollar in Exuma to modernize the payment system and increase its resilience to natural disasters. The design of this central bank digital currency will allow for offline transactions, interoperability with the existing payment system and can boost financial inclusion by easing access to digital payments. The pilot project will allow the Central Bank to refine the design to further mitigate financial stability, financial integrity and cybersecurity risks.”

The team would like to thank the Bahamian authorities, private sector interlocutors, and civil society representatives for the productive discussions.