**Sen. The Hon. James H. Smith, C.B.E.**
Addressing the 2004 Bahamas Business Outlook yesterday, Sen. The Hon. James Smith, Minister of State within the Ministry of Finance, provided “an overview of the performance of the Bahamian economy and the prospects for the near future”.
His presentation examined the major economic sectors of The Bahamas, as well as a selected number of the principal economic indicators which, he said, *”should ultimately give us some idea of where we are and where we might be going.”*
**The Bahamas: On A Sustainable Path of Development**
The Minister noted that the economic outlook for The Bahamas in 2004 and beyond is heavily dependent on the performance of the U.S. economy on one hand and the absence of any global catastrophes and natural disasters on the other. Nevertheless, major macro-economic indicators over the past year are, for the most part, on favourable positive trends.
Reportedly, major foreign direct investment projects are in various stages of implementation and if fully realised, The Bahamas can expect expanded opportunities for growth and employment in the local economy. *”We are hopeful that the many pending applications before The Bahamas Investment Authority and National Economic Council would soon be converted to concrete investment projects giving rise to increased employment opportunities for all Bahamian residents.”*
Looking at tourism, the number one industry, Minister Smith said there are reasons for optimism, given the recent turnaround in the U.S. economy – expected to result in an increase in disposable income by U.S. travellers. This notwithstanding, the nation must remain mindful of the ever-present threat of terrorism and the disruptive effects terrorist actions would have on the economy.
Internally, indications are for an increase in the stock of hotel rooms, more diversity to the tourism product and more effective marketing of The Bahamas as the destination of choice for the value-conscious traveller. *”In the absence of any natural or man-made disasters, we could look forward to healthy increases in both stopover and cruise-ship visitors,”* said the Minister.
**Financial Services Sector**
New laws in financial services, recognised as the second largest economic sector, provide for more transparency and accountability in the conduct of financial services from the jurisdiction. *”Indeed, The Bahamas is now committed to adhering to international standards to prevent the use of the financial services industry for the purposes of money laundering or terrorist financing. The country has also agreed to subject itself to periodic review by international agencies to assess its anti-money laundering regime.”*
Minister Smith pointed out that the sector has repositioned itself to compete effectively in the new environment of expanded regulatory and supervisory standards. Moreover, in the near future, it is expected that a new series of products and services would be offered by the sector. In particular, new legislation for the establishment of foundations, special purposes trusts, protected cells – among other things – should be introduced in Parliament over the next few months.
The sector is expected to resume growth on an upward path and continue to provide high-level job opportunities for qualified Bahamians.
Some other highlights of the Minister’s presentation:
·Money and Credit: The Bahamas Government’s foreign exchange position has improved considerably over 2002. At the end of November, 2003, the external reserves stood at approximately $506.9 million as compared with $357.7 million at the same point in time last year.
The fiscal deficit for the first three months of fiscal year 2003/04 has narrowed to $39 million as compared with $76 million over the same period in 2002/03. Effectively, the deficit has been contained up to now as a result of continued monetary and fiscal restraints.
·Construction: Construction activities make an important contribution to employment and output, and estimates suggest a stable trend reflecting a balance between increased investments in new projects and the conclusion of works carried over from 2002. Projections are for a renewed momentum in the construction sector during 2004 – including a strengthening of demand for second homes by non-Bahamians in New Providence, Grand Bahama and the Family Islands.
·Citing Balance of Payments statistics, the Minister said these showed that the local economy has stabilised over the past year, moderate growth has occurred and that the nation may be on a path of sustainable economic development. Supporting this optimism is the turn-around in the U.S. economy and the continued low inflation rate of about 2.5% in The Bahamas.
·Trade: Any future prospects for The Bahamas must necessarily be examined within the context of globalisation issues; e.g. the extent to which the local economy would have to be adjusted to reflect its participation in regional, hemispheric or world trade arrangements. These include the Caribbean Single Market and Economy (CSME); the Free Trade Area of the Americas (FTAA); and World Trade Organisation (WTO).
·Tax Regime: Even if The Bahamas were to opt not to join any of the trading groups, there is still a need for tax reform in this country. **Taxes on income are not considered to be an option**, and therefore The Bahamas may have to look closely at some form of sales or value-added tax – as an alternative to the existing structure of import tariffs, considered by some to be discriminatory and regressive. *”Over the next few years, the matter of restructuring our tax regime would be carefully studied with the assistance of international tax experts.”*
·E-Commerce: The 2003 Electronic Commerce Policy Statement attempts to articulate the Government’s strategy for transforming the Bahamian economy to a digital one. Minister Smith said this policy is intended to set the foundation for the Bahamian Digital Agenda and underscores The Bahamas’ commitment to be globally competitive and put in place the necessary information and communications infrastructure to sustain electronic business activity.
Additionally, *”We are convinced that a digital economy could reduce the cost of delivering public services while at the same time, improving transparency and efficiencies in our day-to-day activities.”*
·Government Debt: Last summer, for the first time, Bahamian Government debt instruments were issued to publicly list and trade on international markets. The Markets were quite favourable to The Bahamas’ Bond Issue and the nation was able to capitalise on the Moody A2 rating for Bahamas Debt. More recently, the Ministry of Finance has arranged for a similar rating by Standards and Poor (S&P). *”The significance of international listings of debt is that it imposes additional discipline on the conduct of fiscal affairs in The Bahamas.”*
By regional and international standards the foreign currency debt of The Bahamas remains relatively low. Debt service, which comprises principal and interest payments, is also low at 2.9% of total export of goods and services. In other words, The Bahamas can still comfortably service its foreign exchange obligations.
**Government’s Macro Objectives**
The Government recognises and accepts the need for thoughtful and prudent economic management of The Bahamian economy over the next few years. Its policies and programs must be designed to foster economic growth and development. In this connection, Minister Smith reported that a medium term strategy is currently being developed which will focus on the following four broad areas:
·Sustaining economic growth by promoting further private sector development;
·Promoting social development and equity particularly in the low-income areas of the country;
·More emphasis on environmental management and natural resources conservation; and,
·Implementation of a public sector reform programme
More than $100 million is expected to be allocated to implement these projects, setting the foundation for sustainable economic development of The Bahamas for “the rest of this decade.”
*”We believe firmly that we have the appropriate mix of policies and programs to place The Bahamas on a sustainable path of development well into the future,”* the Minister concluded.