Fiscal First Aid Sustainable Debt Trajectory
A debt to GDP ratio can be considered high when it rises above 77 percent according to a study done by The World Bank, because after that point any increase would negatively impact real growth.1 A high debt to GDP ratio indicates that a country may not be producing and selling enough goods or services to pay back its existing debt without requiring even more debt. This research paper will explore how The Bahamas can lower its debt to GDP ratio through the use of fiscal policy, specifically through altering government spending. Throughout 2020, The Bahamas’ debt to GDP ratio has had a significant increase of 35 percent because the tourism industry had shut down due to the global pandemic along with the other industries.2 With the economy’s most profitable industry not operating, GDP has shrunk thus increasing the debt to GDP ratio. This does not bode well for any economy, as it can negatively impact economic growth.
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