May 10, 2022
The Bahamas introduced a rules-based fiscal framework with a budget balance operational target and debt anchor in 2018. Since then, the pandemic and Hurricane Dorian have significantly widened the distance between the debt ratio and the envisaged anchor. This paper describes the current fiscal situation and prospects from the viewpoint of the existing fiscal rules and provides some options for the upcoming mandatory review of the framework in 2023. The main findings include: (i) the debt ceiling under the current rules remains appropriate, (ii) the current operational target does not ensure sufficient convergence of the debt ratio towards the target, (iii) the authorities’ envisaged medium term budget surplus could ensure convergence to the debt ceiling within a decade if supported by well designed and growth friendly fiscal consolidation measures, and (iv) an automatic adjustment mechanism could strengthen the credibility of the framework.
1BHSEA2022002