Bahamas Article 4 IMF review supports our view that Bahamas economic situation is better than the global markets seem to believe

JAMAICA / BAHAMAS - In Brief 09 May 2022 by Keith Collister

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I have been reviewing The Bahamas economic situation for a number of weeks. I hope to issue a full report soon but a review of the IMF article 4 report will now take priority. I am not going to go through every aspect now, but the bottom line is that the IMF report supports my view that The Bahamas economic situation is significantly better than global financial markets currently seem to believe, based on current bond prices. Talk about debt default is highly premature. The Bahamas however now needs to engineer a positive confidence shock, as Jamaica did in 2004, which if they do, could be quite profitable for current bondholders. Fortunately, The Bahamas seems to have most of the required pieces of the puzzle to achieve this, if they have the will to do so. We will outline some of these pieces in my upcoming note. The apparent near collapse of confidence in their bond prices appears to be driven partly by communication issues eg post election talk of reprofiling debt, the announcement of the implementation of the promise to reduce the rate of VAT, concerns about the sustainability of the reopening trade (Omicron etc), and concerns about the ability of the Bahamas to raise revenue as a low tax jurisdiction. Obviously, the milestone of the debt to GDP rising to 100% was also unhelpful, as was the current emerging market outlook, particularly for oil dependent sovereigns such as The Bahamas. Addressing these concerns, in retrospect, and even at the time, the Government was likely just asking the question out loud of how to better manage their relatively high gross amortisation needs (similar musings have often occurred in the Caribbean when new Prime Minister's come to p...