THE BAHAMAS Key Conditions and Try’S Development Trajectory

Vulnerability to climate change and global health risk jeopardize the coun- THE BAHAMAS Key conditions and try’s development trajectory. Sea-level challenges rise associated with increasing tempera- tures threatens The Bahamas’ low-lying islands. In addition to the severe impacts Table 1 2020 The Bahamas is a high-income service of Hurricane Dorian in 2019, the country Population, million 0.4 economy heavily dependent on tourism faces an average annual loss from wind- GDP, current US$ billion 1 0.8 and financial services. Its GDP has risen storms of US$850 million—over 6 per- GDP per capita, current US$ 27521 .8 steadily over the past 3 decades, with an- cent of GDP. School enrollment, primary (% gross)a 81 .4 nual growth averaging 1.4 percent. None- The job losses resulting from COVID-19 Life expectancy at birth, yearsa 73.8 theless, the country’s economic position have been particularly felt by the vulnera- remains vulnerable due to its small size, ble populations, such as low-income Source: WDI, M acro Poverty Outlook, and official data. Notes: lack of economic diversification and vul- households, informal workers, and wom- (a) M ost recent WDI value (2018). nerability to natural disasters. The Baha- en. This will erase some of the progress in mas relies significantly on foreign invest- recent years in terms of human develop- ment, especially related to tourism. Tour- ment and will increase poverty and ine- ism, together with tourism-driven con- quality, underlining the need for the re- struction and manufacturing, accounts for covery efforts to support these groups approximately 60 percent of GDP and, decisively and allow a more diversified GDP is estimated to have contracted by directly or indirectly, employs half of the portfolio of income sources. 14.8 percent in 2020 due to the impact of country's workforce. Recovery will depend on the roll out of the COVID-19 pandemic on tourism, the Economic growth in recent decades has vaccination in the country and in its main not been distributed broadly among all tourism-source markets—United States country’s main economic activity and segments of the population. According and Canada. New contagion waves and source of revenue. With over 50 percent of to the last Household Expenditure Sur- restrictive measures could further post- the labor force employed in this sector, vey collected in 2013, around 13 percent pone economic recovery. unemployment is on the rise, particularly of the population lived below the nation- al poverty line. Moreover, inequality affecting the most vulnerable. Poverty is was high, with a Gini index of 41.4. The expected to rise well above 13 percent. bottom 40 percent of the population dis- Recent developments The pandemic interrupted the reconstruc- tribution only accounted for 16 percent tion efforts following Hurricane Dorian of total consumption, while the top 10 The Bahamas successfully kept COVID-19 and the structural fiscal reforms aimed to percent accounted for 31 percent. While cases to a minimum until July 1 when it no official poverty indicators have been reopened its borders to tourism. Daily improve and diversify revenues and to produced since 2013, the country has new cases peaked at 123 on October 21, strengthen financial stability and the shown steady improvement in the Hu- 2020. Cumulative cases increased from business environment. man Development Index (HDI), particu- 104 to over 6,000 over that period. New larly in the education and life expectan- cases have remained somewhat stable cy components. since, at an average daily rate of 10.

FIGURE 1 The Bahamas / Real GDP growth and contributions FIGURE 2 The Bahamas / Fiscal balances and public debt to real GDP growth

Percent, percentage points Percent of GDP Percent of GDP 10 100 2 88.7 90 82.6 84.9 81.5 5 0 80 0 70 62.6 -2 61.8 60 -5 -4 50 -10 40 -6

-15 30 -8 20 -10 -20 10 2018 2019 2020 e 2021 f 2022 f 2023 f 0 -12 Private Consumption Government Consumption 2018 2019 2020 e 2021 f 2022 f 2023 f Investment Net trade Real GDP Growth Debt (lhs) Fiscal balance Primary balance

Sources: Government of The Bahamas; IMF and World Bank staff estimates. Sources: Government of The Bahamas; IMF and World Bank staff estimates.

MPO 90 Apr 21 GDP contraction for 2020 is estimated at 2020 (IADB, 2020). Additionally, only 2 in expected to grow 8.5 percent in 2022. 14.8 percent. The policy response, of al- 5 households report having some savings Poverty rates are expected to gradually most 4 percent of GDP was directed to- to manage with the shock. decline in line with recovering economic wards health expenditures, including the During the first three quarters of 2020, the activity over the medium term. However, expansion of infrastructure, employment current account deficit recorded US$1.5 to avoid long term effects on social mo- support, and social assistance. VAT reve- billion, compared to a US$224.5 million bility and inequality, policies that foster nues almost halved. Preliminary data surplus in the same period in 2019, reflect- an inclusive recovery and support the show that the fiscal deficit for the first ing the effects of the pandemic on tourism. vulnerable groups, such as women, will quarter of FY20/21 amounted to B$336.3 The service balance was the most hit, as be important. million compared to just B$48.8 million in tourism receipts contracted by over 90 The primary balance is expected to deteri- the previous fiscal year. percent in the second quarter of 2020. The orate to a deficit of 3.8 percent of GDP in After the COVID-19 pandemic struck, impact was partially offset by a 42 percent FY2020/21 and 9.1 percent in FY2021/2022, tourist arrivals virtually halted. In January decrease in non-oil merchandise imports, due to lower revenues from tourism, -October 2020 they dropped to 1.75 mil- reflecting a reduction in consumption. trade, and domestic consumption, com- lion, compared to 5.92 million in 2019. The Meanwhile, central bank reserves stood at bined with government spending to con- contraction was felt harder during Q2 US$2.1 billion, compared to US$1.6 billion tain the impact of coronavirus and post- when the initial measures to contain the in September 2019, mainly on account of Hurricane Dorian reconstruction efforts. pandemic were imposed. foreign currency inflows from borrowing In turn, the fiscal deficit is expected to According to the Inter-American Develop- by the government. Total public sector reach 6.6 percent of GDP in FY2020/21 and ment Bank’s rapid survey, the incidence of debt was estimated at 75.4 percent in Sep- 12.3 percent in FY2021/2022. job losses has been more prevalent among tember 2020, up from 56.5 in 2019. The current account balance is projected to the bottom of the distribution: around 80 reach a deficit of 21.5 percent of GDP in of low-income households reported job 2021 and then narrow to 14.8 percent in losses compared to 35 percent of high- 2022. Tourism related FDI inflows are pro- income households. In addition, female Outlook jected to halve in 2021 and external financ- and informal workers have been particu- ing needs to peak at 23.7 percent of GDP. larly affected. 2021 GDP growth is projected at 2.0 per- Meanwhile the expected deterioration of Around fifty percent of households in The cent, as tourist flows are expected to re- the fiscal accounts in FY2020/21 and Bahamas reported income below the mini- bound by the end of Q3. With the relaxa- FY2021/22 will translate into higher fiscal mum wage right after the pandemic hit, tion of domestic containment measures financing requirements of 10.7 percent of an increase from 16.1 percent in January and the resumption of travel, real GDP is GDP and 17 percent of GDP, respectively.

TABLE 2 The Bahamas / Macro poverty outlook indicators (annual percent change unless indicated otherwise)

2018 2019 2020 e 2021 f 2022 f 2023 f Real GDP growth, at constant market prices 3.0 1.2 -16.2 2.0 8.5 4.0 Real GDP growth, at constant factor prices 3.1 1.2 -16.2 2.0 8.5 4.0 Agriculture -10.6 -11.9 -6.9 1.7 1.3 1.1 Industry -8.5 4.6 -4.7 8.7 2.6 2.8 Services 5.3 0.8 -18.1 0.8 9.7 4.2 Inflation (Consumer Price Index) 2.3 2.5 1.8 2.1 2.4 2.2 Current Account Balance (% of GDP) -12.1 0.7 -17.4 -21.5 -14.8 -11.1 Net Foreign Direct Investment (% of GDP) 3.8 1.9 2.0 2.3 2.5 2.8 Fiscal Balance (% of GDP)a -3.4 -1.7 -6.6 -12.3 -8.9 -4.6 Debt (% of GDP)a 62.6 61.8 69.1 89.0 88.4 86.4 Primary Balance (% of GDP)a -0.8 0.7 -3.8 -9.1 -5.7 -1.3

Source: World Bank, Poverty & Equity and M acroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. NA (a) Fiscal balances are reported in fiscal years (July 1st -June 30th).

MPO 91 Apr 21