Caribbean Islands 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 (see table 7, Appendix A).
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 (see table 8, Appendix A).
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
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