IMF Raises Bahamas’ Growth, Calls for Income Tax, 15% VAT

  • The IMF upgraded The Bahamas’ 2025 growth outlook to 2.8%, up from 2.2% projected in mid-October 2025, representing a 60-basis-point increase and roughly $90Mn in additional economic output, while slightly raising its 2026 forecast to 2%.
  • Despite the improved growth outlook, the IMF again called for fiscal austerity, including new and higher taxes and spending reforms, to achieve the Government’s 50% debt-to-GDP target by FY2030/31. The Fund specifically reiterated proposals for a personal income tax and a 15% VAT rate, which the Government has said it is not considering.
  • Economic conditions are expected to remain broadly stable, with unemployment staying just below 10% through 2026 and inflation below 1% in 2025, while growth is expected to decelerate after 2025 toward a long-run average of 5%–2.0% without meaningful reforms.
  • Public finances have strengthened since the pandemic, but the IMF projects overall fiscal deficits of about 0.5% of GDP for this year and next, and notes that central government debt remains high at about 74% of GDP, requiring additional consolidation to meet medium-term targets.
  • Key IMF policy recommendations include broad tax and expenditure reforms, such as introducing a progressive personal income tax, raising VAT to 15%, replacing the Business Licence fee with corporate income tax, removing the real property tax cap, reducing VAT and customs exemptions, and cutting transfers to state-owned enterprises, particularly the Public Hospitals Authority and Water & Sewerage Corporation.
  • The IMF also urged wider structural and institutional reforms, including civil service pension reform, adoption of accrual-based accounting, improved housing affordability measures, labour market and skills reforms, stronger financial sector oversight, enhanced digital assets regulation, and continued efforts to expand financial inclusion through agency banking, digital payments, and the Sand Dollar1.

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1SandDollar is the digital version of the Bahamian dollar.