The Ba­hamas gov­ern­ment says it will re­move all val­ue added tax (VAT) on foods cur­rent­ly at­tract­ing a five per cent VAT.

Prime Min­is­ter Phillip Davis, in a na­tion­wide broad­cast on Mon­day night, said that the new mea­sure will come in­to ef­fect on April 1 this year.

“Last year, we cut VAT on food from 10 to five per cent, and tonight, I’m an­nounc­ing the next step. Ef­fec­tive April 1st, all foods cur­rent­ly at five per cent VAT will be VAT free. Ze­ro VAT on those food items.”

Prime Min­is­ter Davis said that this will ap­ply to fresh fruits and veg­eta­bles, ba­by food, lunch snacks, frozen foods, and oth­er gro­ceries—every­thing ex­cept pre­pared meals sold hot or ready to eat.

“It is a sig­nif­i­cant step, and one we hope will re­al­ly help, along with our ef­forts to re­duce costs through en­er­gy re­form, the ad­di­tion of new trad­ing part­ners, and more home-grown food. ”

Davis said that the gov­ern­ment is al­so ex­pand­ing prop­er­ty tax re­lief and that own­er-oc­cu­pied du­plex­es and triplex­es are now el­i­gi­ble for the res­i­den­tial ex­emp­tion.

He said first-time home­own­er con­ces­sions have been ex­pand­ed and that “these are changes which will help more Ba­hami­an fam­i­lies build wealth.

“These new poli­cies—across ed­u­ca­tion, trade, tax­es, hous­ing, food se­cu­ri­ty, en­er­gy, and more—to­geth­er, add up to re­lief and progress. We re­spond­ed to times of cri­sis with great strength.

“Now we are us­ing those same strengths to move for­ward. Af­ter all, we didn’t sur­vive all the tragedy and hard times just to set­tle for the sta­tus quo. The world will keep chang­ing—but so will we, with con­fi­dence, and with­out leav­ing any­one be­hind,” Prime Min­is­ter Davis added.

He told the na­tion that in 2018, the pre­vi­ous gov­ern­ment raised VAT from 7.5 to 12 per cent, which was fol­lowed by a mas­sive US$2 bil­lion drop in lo­cal con­sumer spend­ing.

“Un­for­tu­nate­ly, that meant our fam­i­lies, our econ­o­my, and our fis­cal sit­u­a­tion were weak­er when we faced the ter­ri­ble tragedy of Do­ri­an, the Cat­e­go­ry 5 hur­ri­cane which fol­lowed Joaquin in 2015, Matthew in 2016, and Ir­ma in 2017. ”

He said that the In­ter Amer­i­can De­vel­op­ment Bank (IDB) not­ed that The Ba­hamas sus­tained eco­nom­ic loss­es of US$7.7 bil­lion in the last decade, be­cause of hur­ri­canes —ac­cord­ing to the In­ter-Amer­i­can De­vel­op­ment Bank.

“Then of course, there was the pan­dem­ic—and the ex­ten­sive dam­age of the end­less lock­downs, cur­fews, tourist visas, and emer­gency or­ders in place be­fore we came in,” he said, re­sult­ing in a fur­ther loss of US$9.5 bil­lion.

But he said the coun­try has been able to over­come these eco­nom­ic down­turns with the US-based rat­ing agency, Stan­dards and Poors (S&P) giv­ing “us the best out­look for our coun­try in 17 years.

“We have suc­ceed­ed in re­mov­ing our coun­try from the black­list—a crit­i­cal achieve­ment for our fi­nan­cial ser­vices in­dus­try. We’ve at­tract­ed more than US$10 bil­lion in new pri­vate sec­tor in­vest­ment —in­clud­ing from some of the most pres­ti­gious part­ners in the world” Prime Min­is­ter Davis said, not­ing “we are on the right track”.

“We ag­gres­sive­ly pro­mot­ed the coun­try abroad. That’s how we got a head start on our tourism com­pe­ti­tion—and we haven’t let up since, with record in­vest­ments across our is­lands, with pub­lic-pri­vate part­ner­ships for those 14 ex­pand­ed and new air­ports, with new and ex­pand­ed air­lift, and with in­no­v­a­tive pro­grammes to in­cen­tivise lo­cal part­ner­ships. ”

He said the gov­ern­ment al­so paid out mil­lions in stipends and ar­rears that had been on hold, to nurs­es, teach­ers, and thou­sands of oth­er Ba­hami­ans, while al­so sign­ing 60 labour agree­ments and rais­ing the min­i­mum wage.

The Ba­hami­an econ­o­my has staged a re­mark­able re­cov­ery since the pan­dem­ic, fu­elled by a strong re­bound in tourism. With eco­nom­ic ac­tiv­i­ty back to pre-Hur­ri­cane Do­ri­an lev­els, growth is slow­ing—ex­pand­ing by 1.8 per cent in H1 2024—con­strained in part by lim­it­ed ho­tel ca­pac­i­ty. In­fla­tion is now mod­est­ly neg­a­tive, but the cost of liv­ing re­mains high. (The IMF’s last Ar­ti­cle IV Con­sul­ta­tion with The Ba­hamas was in Jan­u­ary 2025)

The fis­cal po­si­tion im­proved in FY24, dri­ven by strong rev­enue per­for­mance and ex­pen­di­ture cuts. The fis­cal deficit nar­rowed to 1.3 per cent of GDP from 3.8 per cent of GDP in FY23, while gov­ern­ment debt fell to 78.8 per cent of GDP. Fi­nanc­ing costs have de­clined, dri­ven by glob­al fac­tors, but gross fi­nanc­ing needs re­main high.

Growth is ex­pect­ed to con­verge to its long-run po­ten­tial of 1½ per cent over the medi­um-term and risks to the out­look are bal­anced. Ca­pac­i­ty con­straints in the tourism sec­tor are ex­pect­ed to be­come more bind­ing, but there are up­side risks from po­ten­tial new ho­tel con­struc­tion or a faster-than-an­tic­i­pat­ed ex­pan­sion in the short-term rental mar­ket. Fis­cal vul­ner­a­bil­i­ties, par­tic­u­lar­ly due to high gross fis­cal fi­nanc­ing needs, and the ever-present risk from nat­ur­al dis­as­ters re­main con­stant threats.

Ex­ec­u­tive di­rec­tors agreed with the thrust of the staff ap­praisal. They wel­comed the re­mark­able re­cov­ery in tourism and eco­nom­ic ac­tiv­i­ty fol­low­ing Hur­ri­cane Do­ri­an in 2019 and the COVID-19 pan­dem­ic. How­ev­er, Di­rec­tors ob­served that el­e­vat­ed pub­lic debt, struc­tur­al bot­tle­necks to growth, and high ex­po­sure to nat­ur­al dis­as­ters con­tin­ue to pose sig­nif­i­cant chal­lenges and called for sus­tained ef­forts to ad­dress these chal­lenges.

Di­rec­tors wel­comed the au­thor­i­ties’ com­mit­ment to re­duce gov­ern­ment debt to 50 per cent of GDP by FY31 and re­cent steps to in­crease rev­enues. How­ev­er, they con­curred that more mea­sures will be need­ed to achieve that tar­get, in­clud­ing by in­tro­duc­ing tax­es on cor­po­rate and per­son­al in­come. These mea­sures would al­so cre­ate space for pri­or­i­ty spend­ing on in­fra­struc­ture, ed­u­ca­tion, and tar­get­ed so­cial pro­grams. In ad­di­tion, pen­sion and SOE re­forms would be im­por­tant to con­tain ex­pen­di­ture pres­sures.

Di­rec­tors wel­comed ef­forts to im­prove fis­cal ac­count­abil­i­ty and the trans­paren­cy and ef­fec­tive­ness of debt man­age­ment op­er­a­tions. They rec­om­mend­ed that the re­con­sti­tut­ed.

Fis­cal Re­spon­si­bil­i­ty Coun­cil and the Pub­lic Sec­tor Au­dit Com­mit­tee should be in­de­pen­dent­ly se­lect­ed.

Di­rec­tors em­pha­sised the need to lim­it cen­tral bank fi­nanc­ing to the gov­ern­ment to help re­duce sys­temic liq­uid­i­ty and strength­en the cred­i­bil­i­ty of the cur­ren­cy peg. They con­curred that the fi­nan­cial sec­tor is re­silient with large liq­uid­i­ty and cap­i­tal buffers and wel­comed the progress with the im­ple­men­ta­tion of the 2019 FS­AP rec­om­men­da­tions.

Di­rec­tors en­cour­aged con­tin­ued ef­forts to strength­en the AML/CFT frame­work, as well as fur­ther steps to ex­pand fi­nan­cial ac­cess such as im­prov­ing da­ta avail­abil­i­ty, in­vest­ing in fi­nan­cial lit­er­a­cy, and fos­ter­ing fi­nan­cial tech­nol­o­gy in­no­va­tion.

Di­rec­tors em­pha­sised that ef­forts to boost long term growth should cen­tre on struc­tur­al re­forms to im­prove hu­man cap­i­tal, close dig­i­tal­i­sa­tion and da­ta gaps, re­lieve ca­pac­i­ty con­straints in tourism, re­duce labour mar­ket in­for­mal­i­ty, and fight crime. They en­cour­aged in­ten­si­fied ef­forts to strength­en cli­mate re­silience, which would sub­stan­tial­ly de­crease out­put loss­es from sea lev­el ris­es and nat­ur­al dis­as­ters.

Di­rec­tors wel­comed the planned re­forms to the elec­tric­i­ty sec­tor giv­en the ex­pect­ed pos­i­tive medi­um term ef­fects on growth and oth­er macro­eco­nom­ic in­di­ca­tors. How­ev­er, they stressed that a clear de­lin­eation of risk shar­ing be­tween the pri­vate and pub­lic sec­tors is nec­es­sary to sup­port these ef­forts. (CMC)