The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Bahamas will be challenged to hit its 2.7 per cent GDP growth projection for 2013 if it fails to produce an “above average” second half, the Central Bank of the Bahamas’ governor has warned.

Wendy Craigg said consumer spending had shown no buoyancy, although foreign direct investment (FDI) led construction activity continued to be a “bright spot”.

“We’ve just moved into the second half of the year, and anecdotally it appears that the first six months has been challenging,” she said. “Information for the tourism sector suggests the performance of the key stopover segment has not kept pace with 2012, as borne out in the evolution of external reserves over the same period, and consumers are still facing significant challenges in meeting their debt obligations.

“Hence spending, which is needed to drive domestic activity, has not displayed any buoyancy. However, the bright spot continues to be the sustained growth in foreign investment-led construction activity, fuelled by a number of varied-scale projects, the largest of which is, of course, Baha Mar.

“These projects are poised to provide important job opportunities within an 18-month period, which should support a much-needed recovery in consumer spending and the broader private sector demand.”

Responding to questions by Tribune Business, Mrs Craigg added: “When you consider all of the factors affecting the economy over the first six months of 2013, and what we know to be the trend performance of the second half, I suspect that, in the absence of an above-average second half outcome, it could be a challenge to achieve the current projected growth rate of 2.7 per cent.”

Mrs Craigg said the Bahamas’ foreign exchange reserves remained at “relatively healthy levels”. This was because “we have been able to offset the weakness in foreign income from real sector activities with a series of significant one-off foreign currency inflows over the last five years, and Government’s external borrowings.

“At the same time, the weakness in private sector demand has reduced the pressure on reserves for import payments, with fuel imports being the one notable exception. Presently, the external reserves are at $792 million, equivalent to just over three months of imports, which is considered to be the international benchmark,” Mrs Craigg said.

Addressing the establishment of a financial crisis plan, Mrs Craigg added: “A project team was established by the Central Bank, Securities Commission and Insurance Commission, in February of this year, to spear-head the development of the financial crisis management plan.

“To date, the team has gathered information to assess the current crisis management tool-kits, meaning the legal intervention provisions, funding and communication strategies, and monitoring tools available for each regulator against the Financial Stability Board’s Key Attributes for Resolution Regimes. The goal is to identify any gaps and propose remedies, such as new legislation or supervisory procedures, as appropriate.”

Mrs Craigg said this plan “will allow us to provide timely, effective and coordinated responses to any crisis that may arise, and to the extent that we are able to achieve this goal, we will minimise the economic and social costs that normally accompany crises, and by having such a plan in place, promote market discipline and limit moral hazard.”