The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ economic output per person declined by a total 11.2 per cent, or almost $3,000, between 2007-2011, Standard & Poor’s (S&P) warning that this “lags the growth rates” of countries with similar sovereign credit ratings.

The Wall Street credit rating agency, in its full assessment of the Bahamian economy published on Friday, said that while the Bahamas’ per capita GDP was projected to resume growth again this year to hit $23,307, it had performed worse during the recession than nations that shared its ‘BBB’ sovereign credit rating.

“The Bahamian economy contracted an average of 0.4 per cent per year on a per capita basis from 2000-2010 as a result of its narrow economy and close economic ties to the US,” S&P said.

“More recently, from 2007-2011, per capita GDP contracted 2 per cent per year, on average, lagging the growth rate of its peers.” S&P added that “the worse performance” by the Bahamas resulted from its dependence on the US tourist market, the global recession and increased competition from rival destinations.

Figures produced by S&P revealed that the Bahamas’ per capita GDP fell from $25,049 in 2007 to a low of $22,250 in 2011. That was a decline of almost $3,000 per person, or 11.2 per cent, over the five-year period when the recession hit its peak.

The Wall Street credit rater, though, expects the Bahamas to fully recover the per capita GDP decline by 2014, hitting $25,118 that year - slightly higher than the 2007 figure. Another way of assessing this, though, is that Bahamian economic output per person will have remained stagnant for seven years.

While S&P has fallen into line with International Monetary Fund (IMF) estimates, projecting that the Bahamian economy’s GDP will grow at 2.5 per cent this year, and at the same rate for both 2013 and 2014, it also agrees that high unemployment is likely to persist in this nation for many years to come.

Indeed, given that the May 2012 official unemployment measure was 14.7 per cent, it appears S&P believes the Bahamas will be unable to make further progress in reducing the jobless rate for two years.

It is estimating that Bahamian unemployment will hit 15 per cent next year, higher than the latest measure, and reduce only slightly to 14.5 per cent in 2014, although it is unclear if 2014 takes into account the Baha Mar impact.

As for the Bahamas’ all-important foreign direct investment levels (FDI), S&P is projecting that net FDI as a percentage of gross domestic product (GDP) will fall from 10.3 per cent this year to 9.8 per cent in 2013, then 8.3 per cent in 2014.

Anticipating that the Bahamas’ current account deficit (CAD) is set to remain around the historical 14 per cent mark, S&P added: “Traditionally, FDI has financed a large part of the CAD.

“From 2005-2009, FDI financed around 70 per cent of the CAD. In 2011, about 60 per cent of net FDI of $667 million covered the CAD of $1.09 billion. In our forecast, FDI will not fully finance the deficit, but with FDI at around $800 million it will cover about two-thirds of that.

“FDI projects that appear to have staying power are those that serve high-end customers or a niche group of tourists, as well as those that will provide residential tourism products, besides the development of Baha Mar.”

Weak consumer demand, coupled with reduced investment, construction and oil prices reduced the Bahamas’ trade deficit to 23-24 per cent in 2009-2010, compared to 27 per cent in 2008. But rising oil prices and a modest economic revival had pushed it back up to the latter figure last year, and it is expected to remain there for the next three years.

While FDI had “more than covered” the Bahamas current account deficit in 2010, S&P said it expected this nation’s foreign currency reserves to decline over upcoming years since investment capital inflows would no longer be sufficient to do this.

The Wall Street credit rating agency added that the Bahamas’ balance of payments data also contained “persistently large errors and omissions”, which it attributed largely to under-reported FDI and tourism inflows.