The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian economy must grow at an average annual rate of 5.5 per cent between 2013-2018 to slash the unemployment rate in half, the International Monetary Fund (IMF) has warned.

The grim economic reality facing this nation was underscored by the Fund’s Western Hemisphere Department, which suggested the Bahamas needs to more than double its current real GDP growth rate to make a significant dent in the 14.7 per cent jobless rate.

The IMF gave this projection in a presentation to the recent High Level Forum on the Caribbean held at the Atlantis resort, also noting that the Bahamas was the poorest Caribbean performer when it came to labour productivity.

And, possibly even more concerning, the IMF ranked the Bahamas last out of 30 Latin American and Caribbean nations for real GDP growth between 2002-2011. The Bahamas generated average growth of just 0.4 per cent per annum over that period, ranking lower than the likes of heavily indebted Jamaica and Barbados.

All of which suggests the Bahamas faces major challenges in turning around its fiscal and overall economic performance. The IMF study suggests that while this nation’s economy is currently forecast to generate average real GDP growth of 2.5 per cent between 2013-2018, this will simply not be good enough.

The Fund is projecting that Bahamian real GDP will have to grow by an annual average of almost 4 per cent over the next five years if the economy is to successfully absorb all new entrants to the workforce – chiefly the 5,000 graduates that come out of high school every year.

And, if is to achieve both this and a 50 per cent reduction in the unemployment rate, the IMF has predicted that the economy will have to achieve real GDP growth rates of 5.5 per cent – more than double, or twice, what it is currently achieving.

Such forecasts explain why the Government is pinning so much of its hopes on the $2.6 billion Baha Mar project, and developments such as Albany, Baker’s Bay and Bimini Bay (Genting), to drive an economic turnaround and sustained job growth.

Aside from the political fallout, there are social and economic imperatives for why the Government is so keen to reduce the stubbornly high unemployment rate. Department of Statistics data from fall 2012 showed some 41,000 Bahamians were either unemployed or had given up looking for work.

Analysis by Tribune Business showed then that if the so-called 12,955 ‘discouraged’ workers were added to the 28,125 Bahamians deemed unemployed, over 41,000 have either given up looking for work or cannot find it - a huge problem for this nation.

And, if those discouraged workers were added to the 191,455 persons said by the Department of Statistics to be in the labour force, the percentage of Bahamians either unemployed or given up seeking a job would have been just over 20 per cent.

The situation was said to have improved somewhat since then, but the official unemployment rate is still around 14 per cent – almost twice what it has been traditionally.

But, just last week, former finance minister and Central Bank governor, James Smith, told Tribune Business that the Bahamas was unlikely to hit its 2.7 per cent GDP growth projection for 2013. He described that forecast as an “optimistic scenario” that required a lot of things to go right.

The IMF presentation to the Atlantis conference showed that labour/workforce productivity was also holding back the Bahamian economy.

While acknowledging that “growth in labour productivity has been weak” throughout most of the Caribbean, the Fund study showed the Bahamas had fared worst, with workforce productivity declining by 1 per cent between 2000 and 2011.

The Fund study, which would likely have been seen by Bahamian Cabinet ministers and government officials, identified “excess wage growth” and an exodus of highly-skilled workers as two key labour force issues for this nation.

The first is likely to be interpreted by some as a ‘shot across the bows’ of the trade unions, while the IMF noted that close to 60 per cent of Bahamian tertiary education (college and university) graduates migrated to OECD countries seeking work.

The Fund’s report also suggested that there was a correlation between the Bahamas’ relatively high unemployment rate and high score (20) on its Skills Mismatch Index. It indicated similar with the Bahamas’ relatively low ratio of minimum wage to value added per worker.

Other presentations proved just as instructive on the dilemmas the Bahamas now finds itself in. A study on ‘Tax Policy Reforms’ in the Caribbean, by the Inter-American Development Bank’s (IDB) Gerardo Reyes-Tagle and Valerie Mercer-Blackman, suggested the recession had cost the Bahamas total tax revenues equivalent to 2.8 per cent of GDP (around $240-$270 million) between 2007 and 2011.

Only Trinidad & Tobago, Barbados and Jamaica had fared worse, and the IDB presentation noted that the Bahamas’ tax revenues, standing at around 15 per cent, were the lowest in the Caribbean as a percentage of GDP.

Hence the IDB duo’s conclusion that the Bahamas has “room for raising tax revenues”, which it plans to do through Value-Added Tax (VAT) – an option championed by the IDB. The presentation noted that between 40-50 per cent of the Bahamian government’s annual spending went on two fixed costs, namely salaries and social security, plus interest (debt servicing charges).

Other presentation showed that the Bahamas’ projected electricity capacity needs would more than double in the next 14 years, rising from around 600 Mega Watts (MW) currently to close to 1,500 MW come 2027.

And this nation was also said to be operating around 50 per cent below its trade (export) potential.