“Low Growth, High Debt” – What’s It to Bahamians?

Last week’s annual IMF-World Bank meetings yielded various positive breakthroughs among stakeholders, signaling optimism for the future of the global economy. Amidst this positive energy, concerns have been raised about the emergence of a “low growth-high debt” dilemma. This refers to stagnant economic growth (primarily reflected in GDP) coupled with rising debt for a country. Notably, IMF Managing Director Kristalina Georgieva highlighted this dilemma, stating: “The global economy is in danger of getting stuck on a low-growth, high-debt path. That means lower incomes and fewer jobs. It also means lower government revenues, so less investment to support families and tackle long-term challenges like climate change.” Thus, the dilemma remains a key concern for the global economy.

Closer to home, the 2024 Regional Economic Outlook for the Western Hemisphere reported that real GDP growth for all Caribbean tourism-dependent economies is projected to slow in 2024 and 2025. In the same report, the real GDP of The Bahamas is also projected to continue its slowdown, as shown below:

The Bahamas’ Real GDP from 2022- 2025

2022 - 10.8%

2023 - 2.6%

2024 - 1.9%

2025 - 1.7%

Source: IMF Regional Economic Outlook for Western Hemisphere, 2025

To understand the significance of these numbers, we must first investigate the circumstances that led to them. Like many countries, The Bahamas experienced a surge in GDP following the end of the COVID-19 pandemic. As the COVID-19 recession was artificial, consumer demand for goods and services was pent up, accompanied by an influx of stimulus checks meant to sustain economic activity. At home, this translated into higher tourist arrivals (mostly from North America), which led to increased consumer spending and government revenue. This surge in consumer spending revitalized the Bahamian economy, with gains in GDP growth offsetting losses incurred from Hurricane Dorian and the COVID-19 pandemic.

However, heightened consumer spending correlated with higher inflation, especially in countries like the United States, prompting central banks like the Federal Reserve to raise interest rates. At a macroeconomic level, this led to a gradual decrease in consumer demand as people had less disposable income for desired goods and services. It became more expensive to borrow or take out loans from commercial banks. On a microeconomic level, North American consumers became less inclined to book vacations overseas to save money. This broad explanation illustrates why there is a trend of declining real GDP growth.

While it’s easy to engage in fear-mongering or partisan debates, slowing GDP and higher debt are not necessarily negative outcomes. The GDP and the broader economy are cyclical, meaning there will be periods of expansion and contraction. Higher debt, particularly in the short term, can bring positive benefits if the borrowed funds are used to invest in areas of national development, such as health, education, and infrastructure. However, considering the inherent challenges faced by Caribbean Small Island Developing States (SIDS) like The Bahamas—chronic fiscal imbalances, chronic youth unemployment, external economic shocks, limited sectoral diversification, and climate change, local businesses, consumers and the everyday Bahamian are bound to be negatively impacted if this dilemma is left unaddressed. Thus, it's up to policymakers to adopt innovative approaches that effectively integrate budgetary and monetary policies.

Fiscal strategies include continually investing in development projects alongside fostering stronger inter-industry linkages between tourism and largely untouched, yet lucrative sectors within the Bahamian economy. Monetary strategies encompass relaxing monetary policy indicators (e.g., exchange rates, interest rates, inflation targets, etc.) when necessary, to ensure that funding can be provided for these projects while also ensuring that our financial system remains robust and stable.

These measures could mitigate the negative effects associated with the “low growth-high debt” dynamic and pave the way for a Bahamian economy ready to withstand the storms ahead.

The views expressed in the article are entirely my own and do not necessarily reflect the opinions of any employers and affiliated organizations.