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Sunday, February 01 2015 @ 05:06 PM AST


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VAT to help bring down The Bahamas deficit to 3% of GDP in 2015

Analyst: Vangie Bhagoo-Ramrattan, First Citizens Research & Analytics, January 30, 2015


There are positive signs that the Bahamian economy performed commendably during the third quarter of 2014, supported by an improvement in the stopover segment of the tourism sector as well as on-going foreign investment-related activity. The tourism sector was boosted by improvements in key source markets and increased airline capacity. Visitor arrivals rose by 3.6% with approximately one million visitors during the first two months of the third quarter. Construction activity remains robust, supported by ongoing foreign investment projects in the tourism sector (e.g. the Baha Mar project). Private sector construction though remained subdued, constrained by banks' more conservative lending practices amid high non-performing mortgages and unemployment. Tourism accounts for more than 50% of GDP and employs more than 50% of the labor force.


Inflation in the third quarter of 2014 was at 1.4% (year on year) lower than the 3.4% recorded in the same period of 2013. Inflation in The Bahamas historically has been low, averaging 2.1% in the past 10 years. The value added tax is expected to be introduced in January 2015, as such there will be uptick in inflation as a result. However, this should be tempered by the lower fuel prices, which is heavily weighted in the retail price index. Credit quality continues to deteriorate , reflecting the subdued domestic economic conditions. Growth in delinquencies has been led by the mortgage component.

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Trinidad & Tobago's external account seen weakening on low oil prices, production

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Constructive politics support credit in the near term in Jamaica

Policy Making. We came back from a brief trip to Jamaica impressed by the governmentís candid approach to policy making. It was refreshing to listen to the Minister of Finance bluntly describing how politically challenging the undergoing fiscal adjustment is. Particularly, he acknowledged that reform fatigue could become a problem given the fragile growth dividends seen so far.

Growth. Jamaica is well positioned to benefit from the unique situation of a recovering US growth (via remittances and tourism receipts) and lower oil prices, in our view.

IMF Program. Jamaica signed in 2013 an Extended Fund Facility (EEF) with the IMF. The programís ambitious adjustment aims, among other things, to reach the following targets:

1. Primary fiscal surplus of 7.5% of GDP and of 7% starting in FY 2017/18

2. Public sector wages of 9% of GDP by FY 2015/16 from current of 10+%

3. Public debt to GDP of 100.6% in FY 2019/20 from current of 140%.

Public Sector Wages. Of importance, public sector wages have been frozen for the last 3 years and in March the new accord should be signed (the fiscal year (FY) in Jamaica runs from 1 April to 31 March). Both public sector unions and the government have expressed their willingness to reach an agreement that satisfies all parties without endangering the IMF program.

Supportive Opposition. We also met with an opposition leader who reassured his partyís constructive attitude towards the IMF program and went even further saying that the government should be more aggressive in cutting red tape.

Financing. Financing needs in Jamaica are covered for 2015, met by the July 2014 US$ 800 million global bond.