Sen. the Hon. James Smith, C.B.E. Minister of State for Finance

The Hon. Minister of State for Finance presented opening remarks at this week's Bahamas Business Outlook. The one-day conference was hosted by The Counsellors Ltd. under the theme,"Re-engineering the Bahamian Economy".

Minister Smith pointed out that the national economy has been engineered by successive Governments of The Bahamas, with the support of the Bahamian people. National assets have been used to develop a primarily service oriented economy. Such assets, he said, include political stability, commitment to macroeconomic prudence, wide spread access to education and a judicious use of the nation's climate and environment. In this context, The Bahamas has concentrated on developing its services industry, especially Tourism and Financial Services and, over the years, has recorded impressive levels of economic growth and development -- consistently achieving amongst the highest per capita GDP in this hemisphere.

A challenge going forward, according to the Finance Minister, is how best to maintain that leadership position in the face of the "globalisation" movement which calls for freer markets, increased use of information technology and the reduction of constraints on capital and labour mobility.

The transformation to a more knowledge based economy is considered key response to this challenge, achieved through collaboration by the Government and the private sector in joint efforts to improve and expand the level of services offered in the country.

"I believe that the reformation or re-engineering of the Bahamian economy demands that we continue to build on the major pillars - tourism and financial services - which have served us so well in the past. Given the increase in competition and the challenges posed by globalisation, we can only maintain or increase our advantage by the increased use of information and communications technology. We must truly become a knowledge economy and we must take whatever steps are necessary to improve all aspects of our society."

Reform Measures

Minister Smith pointed out that the Government continues to modernise and upgrade its revenue machinery in order to generate the necessary resources to deliver the wide range of services demanded by the growing economy. "A comprehensive review and subsequent reform of our tax system is regarded by many reputable international agencies as an indispensable element in the equation to transform the Bahamian economy and provide the base for sustainable economic development," he said.

Other projects being considered that will help reform or re-engineer the Bahamian economy were cited as deepening and widening the local capital market; the launching of venture capital funds; and the improvement of the quality of economic data.

Economic Position and Projections

Macro-economic indicators over the past year, for the most part, reflect favourable positive trends. Major foreign direct investment projects are in various stages of implementation and if brought fully to fruition, The Bahamas can expect expanded opportunities for growth and employment in the local economy.

In spite of the setback caused by two hurricanes in September, the tourism sector recovered quickly and experienced significant growth with arrivals ending for the year 2004 at 10.8% above 2003. The tourism sector is experiencing significant growth rates, the Minister said. "We could expect more gains to our Tourism Sector in the near future as a result of upbeat projections for the United States economy. It should also be noted that the declining U.S. dollar would mean that a Bahamian vacation is more affordable to Europe vacationers and therefore the increase in European visitors projected by the Ministry of Tourism is likely to be achieved."

The significant increases in tourism activity resulted in the foreign exchange position being improved considerably over 2003, and this substantial performance coupled with a tight monetary policy also improved liquidity in the system.

Balance of payments accounts indicate that moderate economic growth has occurred in the local economy over the past year, with signs that the nation is on a path of sustainable growth and development. This outlook is supported by the expected continued growth in the U.S. economy by about 4%, as well as the continuation of the low inflationary climate with a rate of about 1.69% in The Bahamas.

Government debt has remained relatively stable, as a result of prudence fiscal management. The Markets have remained favorable to Government debt and The Bahamas has been able to maintain its high level "A" ratings with both Moody’s and Standard and Poor's (S&P).

Other Key Sectors

The financial services sector is positioned to compete effectively in the new global environment of expanded regulatory and supervisory standards. It has accomplished this feat through the introduction of a series of new products and services – including legislation for foundations, special purposes trusts, and segregated accounts companies. "This sector is expected to continue to grow on an upward path and to continue to provide high-level job opportunities for qualified Bahamians," maintained Minister Smith.

Construction activities, which account for about 10% of GDP, have always made an important contribution to employment and output. Latest construction estimates suggest a stable trend reflecting a balance between increased investments in new projects and the conclusion of works carried over from 2003. Ongoing and expected construction projects include the Kerzner International Phase Three; the Container Port expansion in Freeport; and a number of major tourism projects in Nassau and the Family Islands.

Recognising and accepting unequivocally that there is a need for thoughtful and prudent economic management of The Bahamian economy over the next few years, the Government is committed to designing policies and programmes to foster economic growth and development.

Economic Freedom

Minister Smith pointed to the Heritage Foundation's 2005 Index of Economic Freedom, released at the beginning of January. Using ten (10) categories to evaluate countries including fiscal, monetary and trade policies, the Index ranked The Bahamas 25th out of 155 countries and first among CARICOM countries.

"I firmly believe that we have the appropriate mix of policies and programmes to meet our economic targets and by so doing, place The Bahamas on a sustainable path of economic growth and development well into the future,"concluded Minister Smith.