Hon. James H. Smith
Minister of State for Finance

Presenting a “State of the Economy” Address tonight, Minister Smith pointed out that any meaningful examination of The Bahamas economy must take account of the two major sectors, i.e. Tourism and Financial Services. Additionally, consideration must be given to the prospect for growth of the U. S. economy.

Tourism and Financial Services, he said, provide the foreign exchange which the economy needs, with income and employment in the two sectors generating multiplier effects to create income and employment in the rest of our economy. *”Given the importance of these sectors, our primary concern must be to ensure the vitality and health of these crucial areas of our economy,”* said Minister Smith.

E-commerce was recognised as another important sector, with the potential to become another major economic activity in The Bahamas. According to the Minister, *”We must adopt the same watchfulness and sense of purpose to ensure the growth of this sector since it has the potential to provide additional employment and income for Bahamians.”*

**Financial Services**

The regulatory infrastructure for the financial services sector conforms to the global anti-money laundering and anti-terrorism environment.

The financial services sector is re-orientating itself towards marketing new products and services, said the Finance Minister of State, and to attracting new types of businesses.

**Tourism Sector**

The performance of the tourism sector traditionally has been closely linked with the performance of the North American economies, particularly the US economy. As such, a favourable outlook for U.S. economic growth over the next twelve or eighteen months is likely to have a positive impact on The Bahamas’ tourism sector.

Despite the weakening of the US and global economies, The Bahamas has been successful in continuing to attract large numbers of North American visitors, and the Minister expects this trend to continue over the next year or two.

He pointed out that at this juncture it would appear international terrorism is being dealt with successfully, and the geopolitical uncertainties arising from the Iraq crisis have eased. *”In this more stabilised environment, the major economies, particularly the US, will now be concerned with restoring the global economy on a positive growth path.”*

An initial resurgence of interest in tourism can be expected, according to the Minister, followed some time later by a renewed inflow of investment into tourism facilities in The Bahamas. This combination of increased tourism expenditure and renewed inflows of productive capital investment is expected to enhance employment opportunities, personal income and government revenues.

**Impact On Revenue & Counter Measures Taken**

The slowdown of the U.S. economy prior to the Iraqi war did have an adverse effect on the local economy, especially in the area of government revenue. Reportedly, counter measures were introduced to deal with this problem, including legislative and administrative programmes to bring about improvements in the administrative procedures of revenue collection. At the same time, the government sought to provide the stimulus for economic growth in the country. The latter included Stamp Act amendments, intended to encourage persons to become homeowners and increase economic activity in the construction and related industries; amendments to the Real Property Tax Act to provide encouragement to the second-home market, and at the same time giving relief to the middle and low-income homeowners; and reduction of the tax rate on owner-occupied homes.

Developments in the Family Islands were stimulated with the extension of the Family Islands Development Encouragement Act, and plans for a new Family Island Economic Enterprises Zones Act to be brought into effect in July 2003. The new Act is expected to give wider concessions to the less developed islands of The Bahamas in an effort to attract both domestic and foreign investments into those areas.

The containment of the country’s national debt is considered one of the major challenges facing the Government. In fiscal years 2001/2 and 2002/03 there was a large increase in the level of Government borrowing to cover the revenue shortfall occasioned by the terrorist events of September 11th. Minister Smith said that in order to safeguard the present prosperity and ensure its continuation into the future, the rate of growth of the national debt must be controlled. *”Good management demands it, and no government should ever depart from the path of prudent economic and fiscal management.”* In a Radio Talk Show over the weekend, Prime Minister Perry Christie referenced statements by the International Monetary Fund, which recently completed a review of The Bahamas’ economy. Reportedly, the IMF praised the government for its fiscal prudence.

It is anticipated that details of the measures that will be taken to bring about the required “better balance between government revenue and expenditure” will be explained by the Prime Minister in the forthcoming Budget Communication, at the end of May, 2003. In the meantime, the Minister firmly believes that this balance will be improved as the economy begins to gather momentum.

Some revenue initiatives are expected to be introduced to achieve the desired progress in the forthcoming 2003/04 fiscal year (and in the following years to achieve fiscal balance within the next 3 to 4 years) but indications are that these will be modest. *”Indeed”*, said Minister Smith, *”it is not altogether impossible that we could eliminate the imbalance between revenue and expenditure in the years ahead without any major changes in our revenue structure.”*

With expectations of improvement in the global economy in the next 12 to 18 months, and a concomitant strengthening of The Bahamian economy, the Minister concluded that he truly believes The Bahamas will have an opportunity to successfully adjust its public finances and, by so doing, ensure that all Bahamians have an opportunity for a secure and bright future.