The Bahamas announces income tax plan while finances improve

JAMAICA / BAHAMAS - Report 30 May 2023 by Keith Collister

A couple of months ago, toward the end of the first quarter, the technocrats at The Bahamas Ministry of Finance appeared “jubilant” as they now all believed they had escaped the need for an IMF program. This optimism appeared to be driven by the strong tourism-led economic recovery and its impact on revenue. At April’s Washington IMF meeting shortly after, Economy Minister Michael Halkitis was also very reassuring on fiscal consolidation.

The technocrats are most likely right, for now. At the end of September last year, according to a major Wall Street bank comparison, Bahamas debt was trading at over 1300 basis points above comparable US treasuries. If we review the bank’s comparison then, and arbitrarily assume a 15% premium over US treasuries as a reasonable definition of a potential “basket case”, a term used by Jamaica’s Finance Minister Dr. Nigel Clarke at the time to compare those countries with Jamaica, then in addition to the two countries at war (Ukraine and for sanction reasons Russia), Argentina, Sri Lanka, and Pakistan, who were all clearly in crisis based on their bond yields, with El Salvador and Ecuador looking very shaky, The Bahamas was the next worst.

The Bahamas' current problem with Wall Street is that although the long-term, experienced investors in the country now appear comfortable, there has been no new interest in their bonds currently. This is unsurprising, as Bahamas is still a high debt-to-GDP, low growth/low potential growth country, with no apparent economic reform program to provide a catalyst. In short, a high yield name like The Bahamas needs to have a plan for credit improvement, to be seen as “one that is doing the work” in the words of one analyst, in the new, higher-risk global environment. However, interestingly, The Bahamas now appears willing to make policy, and not just administrative, tax changes.

I continue to believe that The Bahamas will continue to muddle through, partly based on mild medium-term improvements in the fiscal picture, and partly as a consequence of a continuing dramatic recovery in tourism, which even a shallow US recession over the next 12 months is unlikely to impact very materially.

Now read on...

Register to sample a report