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The Bahamas: Economic Policy and Management
Country Study > Chapter 4 > Economy > Economic Policy and Management

ECONOMIC POLICY AND MANAGEMENT


Although government policy was overtly capitalist, state ownership was significant in the economy. In addition to the central government, the public sector also consisted of the National Insurance Board, which was responsible for administering the country's social insurance program, and six nonfinancial corporations: four in public utilities (Bahamas Electricity Corporation, Bahamas Water and Sewer Corporation, Bahamas Telecommunications Corporation, and the Broadcasting Corporation of the Bahamas) and two tourism-related firms (Bahamasair and the Hotel Corporation of the Bahamas). According to the World Bank, these public corporations performed well in the early 1980s; significant financial improvements occurred in 1983 and 1984 and were responsible in part for improvement of the overall financial position of the public sector. In particular, the electricity and hotel corporations registered operating balance surpluses by 1984 after several years of large capital expenditures.

Central government revenue increased steadily in the first half of the 1980s, from US$261 million in 1980 to US$350.3 million in 1984; estimates for revenue in 1985 and 1986 were US$424 and US$458 million, respectively. Expenditures also increased during the same period, from US$258.9 million in 1980 to an estimated US$458 million in 1986. During most of the period, the government recorded a fiscal deficit on its public accounts; a low of US$81.2 million was recorded in 1983 and was primarily the result of capital expenditures in the hotel sector of the tourist industry. In 1984 capital expenditures decreased and brought the fiscal deficit down to US$15.9 million. Projections for 1985 and 1986 were for small surpluses in the public accounts.

The income tax structure in the late 1980s was relatively inelastic because the Bahamas had no personal or corporate income taxes. Revenue was tied to indirect taxation on international trade, in the form of import, export, and stamp duties, and to direct taxes on tourist items, such as hotel rooms and casino gambling. Other direct taxes included a property tax, a motor vehicle tax, and a stamp tax. International trade taxes contributed the most to revenues, accounting for 70 percent of all tax revenues and 55 percent of total government revenues in 1984. In the first half of the 1980s, total tax revenue constituted up to 80 percent of total government revenues.

Nontax revenue included administrative fees and charges, income from government property, interest and dividends, and reimbursements. The largest of these were administrative fees and charges, which almost doubled in 1980; in 1984 they accounted for 40 percent of all nontax revenue and almost 9 percent of total revenue. Also in 1984, property revenue increased when the government signed a ten-year US$100 million agreement with the United States to lease submarine testing facilities on Andros Island. In the first half of the 1980s, nontax revenue generally accounted for approximately 20 to 27 percent of total revenue.

In the early 1980s, over 40 percent of government expenditures went to wages and salaries for public employees. Increases in capital expenditures in the 1981-83 period were responsible for much of the growth in total expenditures. In 1984, however, capital expenditures declined after completion of a major hotel, convention, and casino project. Much of the increase for this year went to current costs, principally salary increases. In the 1985 and 1986 budgets, the emphasis was on education, health, and police services.

A significant portion of total government outlays in the mid- 1980s was devoted to servicing the public debt. Debt servicing accounted for 18 percent of total expenditures in 1984; it was projected to reach 25 percent in 1985 before dropping to 23 percent in 1986. Ironically, the debt problem was a direct result of the high per capita income in the Bahamas. Income levels precluded the nation from obtaining soft loans from international financial institutions, including the World Bank; as a consequence, the government was forced to rely on Bahamian banks for credit.

Outstanding public sector external debt increased by almost US$130 million in 1981-82 as a result of two loans that financed projects for the hotel corporation. The total external debt of the public sector reached a high of US$237.9 million in 1983 but had dropped to US$209.3 million by late 1984. The decline was brought about by the completion of the hotel project and also by the significant principal repayments made by the public corporations, most notably the electricity corporation, which repaid US$15 million of principal ahead of schedule. Traditionally, the external debt service ratio of the public sector has been low, fluctuating between 3 and 6 percent of exports of goods and services and 8 and 10 percent of government revenues. These figures remained unchanged despite the large loans in 1981 and 1982. They were unlikely to increase because the government had concluded a 1986 refinancing package with a commercial bank syndicate to lengthen the amortization schedule of the original hotel corporation loan.

The country's central financial institution was the Central Bank of the Bahamas. Established in 1974, it was charged with safeguarding the value of the Bahamian dollar, regulating credit and note issue, administering exchange control regulations, managing bank and trust legislation, and compiling financial statistics. The government's adoption of a code of conduct for the banking and finance industry in 1985 increased the Central Bank's supervisory role over that industry. The Central Bank adhered to a policy of strict discipline to create monetary stability and a strong balance of payments.

The Bahamian dollar has been kept at par with the United States dollar since 1973. The Central Bank maintained an informal policy on interest rates, generally keeping local rates in line with movements in the United States. In April 1986 the Central Bank lowered its discount rate to 7.5 percent; commercial banks followed and cut their prime lending rate to 9 percent. Although the Central Bank had encouraged commercial banks to lend to productive sectors of the economy rather than to consumers, banks were reluctant to adhere to that recommendation. Indeed, the percentage of private sector loans devoted to personal consumer use increased from 42.4 percent in 1977 to 61 percent in 1984.

In the mid-1980s, the Bahamas generally enjoyed a favorable balance of payments position. Large negative trade balances were counteracted by large inflows in the net services account. Despite these large inflows, however, the current account ran a deficit from 1981 through 1985. The net capital account registered surpluses in 1981-82 but went into deficit after 1983-85 in response to a reduction in public sector inflows following the completion of the hotel corporation's hotel and casino project. Net international reserves continually registered surpluses in the early 1980s; in 1984 especially, net reserves improved substantially to US$38 million and were expected to register a US$31 million surplus in 1985.

In the 1980s, the country's major nonpetroleum exports were pharmaceuticals, chemicals, rum, crawfish, salt, and aragonite. Major imports, including oil for domestic consumption, were foodstuffs, tobacco, beverages, machinery and transport equipment, automobiles, and finished manufactured goods, including furniture, clothing, footwear, toys, and jewelry. The United States was the most important trading partner in both exports and imports.

Transportation infrastructure on the islands was good. There were 3,350 kilometers of roads, of which 1,350 kilometers were paved and 1,250 were gravel. New Providence and Grand Bahama were the islands with the most extensive road systems, but good roads also were found on Cat Island, Long Island, Eleuthera, and on sections of Andros Island, Great Abaco Island, and Great Exuma Island. In 1985 there were 67,848 motor vehicles registered, 70 percent of which were concentrated in New Providence. Of the total number of vehicles, approximately 77 percent were private automobiles. The urban centers of Nassau and Freeport did not have major public transportation systems, relying instead on a plentiful supply of metered taxis; New Providence had a system of small minibuses known as jitneys. No railroads or inland waterway systems existed on the islands. Interisland transportation was served by charter, commercial, and private aircraft. The country had forty- nine government-run or private airfields, including two international airports (Nassau and Freeport) and one airfield run by the United States Air Force (Grand Bahama); nineteen of the airfields served as official ports of entry. Interisland travel was also covered by private boats and by a government mailboat system; approximately twenty mailboats departed Nassau for the Family Islands each week. The country had twenty-three ports, including the main harbors at Nassau and Freeport.

For a developing nation, the Bahamas possessed advanced telecommunications and international communications systems. An automatic telephone system provided service to 62,000 telephones. Both Nassau and Freeport had twenty-four-hour international telephone and telegraph service, whereas the Family Islands were generally served by only daytime service. The system was aided by a tropospheric scatter link station in Nassau and a Bahamas-Florida submarine cable that provided excellent reception and eliminated problems of atmospheric interference. Radio and television broadcasting was operated by the Broadcasting Corporation of the Bahamas. It ran three radio stations; ZNS-1 and ZNS-2 operated from Nassau, and ZNS-3 operated in Freeport to serve the northern islands. One color television station, ZNS-13, operated out of Nassau. It opened officially in 1977 and served an area within a 209-kilometer radius of Nassau.

Data as of November 1987




Last Updated: November 1987


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for The Bahamas was first published in 1987. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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