IMF di­rects Ba­hamas to strengthen rev­enues

The Pak Banker - - COMPANIES/BOSS -

An In­ter­na­tional Mone­tary Fund (IMF) team led by Jarkko Tu­runen vis­ited The Ba­hamas from March 10-23 to con­duct dis­cus­sions for the 2016 Ar­ti­cle IV con­sul­ta­tion.

Mr. Tu­runen at the end of his visit said Ba­hamas eco­nomic growth is es­ti­mated to have slowed down in 2015, as con­tin­ued growth in air travel ar­rivals was off­set by weaker do­mes­tic de­mand, ow­ing in part to un­cer­tainty over the open­ing of the Baha Mar re­sort. Credit to the pri­vate sec­tor con­tin­ues to be re­strained by the el­e­vated share of non-per­form­ing loans (at 14.2 per­cent of to­tal in De­cem­ber 2015). In­fla­tion re­mains mod­est, at 1.6 per­cent in Oc­to­ber, de­spite a tem­po­rary in­crease ow­ing to VAT in­tro­duc­tion in Jan­uary 2015. Un­em­ploy­ment, af­ter a brief dip ear­lier in the year, rose to 14.8 per­cent in Novem­ber. Lower oil prices and the wind­ing down of Baha Mar's con­struc­tion have helped nar­row the still size­able cur­rent ac­count deficit. In­ter­na­tional re­serves stood at $841 mil­lion in Jan­uary 2016, equiv­a­lent to about 2.5 months of next years' pro­jected im­ports of goods and ser­vices. Look­ing for­ward, real GDP growth is pro­jected to in­crease to about 1.5 per­cent in 2016, sup­ported by the con­tin­ued rise in tourism ar­rivals, and to re­ceive an ad­di­tional boost when Baha Mar opens.

Staff com­mend the au­thor­i­ties for the suc­cess­ful VAT in­tro­duc­tion, which has made an im­por­tant con­tri­bu­tion to main­tain­ing macroe­co­nomic sta­bil­ity and strength­en­ing pol­icy cred­i­bil­ity. A sim­ple and ef­fec­tive tax pol­icy frame­work, strong project man­age­ment and a ro­bust elec­tronic sys­tem for reg­is­tra­tion, fil­ing and pay­ment cre­ated the right con­di­tions for a smooth VAT launch. As part of the re­form, the au­thor­i­ties elim­i­nated the ho­tel room tax, re­duced im­port tar­iffs and ad­justed other do­mes­tic tax rates. VAT rev­enue over the first 12 months (at $536 mil­lion, or about 6 per­cent of GDP) has ex­ceeded ex­pec­ta­tions, con­tribut­ing to a de­cline in the FY2014/15 cen­tral gov­ern­ment deficit to 4.4 per­cent of GDP (from 5.7 per­cent in FY2013/14). The cen­tral gov­ern­ment debt nev­er­the­less reached close to 68 per­cent of GDP in De­cem­ber 2015. Look­ing for­ward, strong VAT rev­enue is ex­pected to sup­port fur­ther fis­cal con­sol­i­da­tion and, when com­bined with ef­forts to con­strain spend­ing, to help sta­bi­lize cen­tral govern- ment debt. Con­tin­ued fis­cal con­sol­i­da­tion is crit­i­cal for re­build­ing fis­cal and ex­ter­nal pol­icy buf­fers and boost­ing in­vestor con­fi­dence. Pol­icy pri­or­i­ties in­clude:

Res­o­lute im­ple­men­ta­tion of the cur­rent VAT regime with few ex­emp­tions. The au­thor­i­ties should re­sist pres­sures to weaken the VAT regime's ef­fi­ciency through the in­tro­duc­tion of ex­emp­tions.

Fur­ther ef­forts to strengthen rev­enues. Staff wel­comes re­cent progress in im­prov­ing rev­enue ad­min­is­tra­tion. Fur­ther steps to en­sure con­tin­ued suc­cess in VAT im­ple­men­ta­tion in­clude strength­en­ing ad­min­is­tra­tion and es­tab­lish­ing a com­pli­ance au­dit pro­gram. Ef­forts should fo­cus on mov­ing fur­ther to­wards a fully-fledged cen­tral rev­enue agency, with a wellde­fined in­sti­tu­tional and or­ga­ni­za­tional struc­ture, and con­tin­ued mod­ern­iza­tion of cus­toms and prop­erty tax ad­min­is­tra­tion. The au­thor­i­ties should also re­view the ef­fi­ciency of tax ex­emp­tions and con­ces­sions, in­clud­ing to the tourism sec­tor, and con­sider sim­pli­fy­ing do­mes­tic taxes that are not busi­ness-friendly. Spend­ing ra­tion­al­iza­tion in the con­text of a medium-term bud­get frame­work. More em­pha­sis on ex­pen­di­ture re­straint would help pre­serve the hard-won ben­e­fits of the VAT.

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