The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas may be the least indebted tourism-based economy in the Caribbean, but a top International Monetary Fund (IMF) executive has warned its debt-to-GDP ratio is higher than “two-thirds” of other countries.

This was disclosed by Alejandro Werner, head of the Fund’s Western Hemisphere department, at last month’s Caribbean Forum 2014, in which he warned that the Bahamas and others in the region had to confront “a host of structural challenges” that were undermining economic competitiveness.

Mr Werner, in his analysis of the fiscal challenges facing the Caribbean, found that the Bahamas was performing best out of all the region’s tourism-dependent economies.

Yet, when the Bahamas was compared with the 177 country-strong world sample employed by Mr Werner, its debt-to-GDP ratio was among the ‘bottom third’.

“The least-indebted tourism-based Caribbean country still has a debt burden higher than two-thirds of the world sample,” Mr Werner told the Forum in relation to the Bahamas.

The Bahamas’ national debt, currently around $5.8 billion, will likely hit the $6 billion mark and potentially get worse, before there is any easing in the situation. Its debt-to-GDP ratio, already over 60 per cent, is rapidly approaching the 70 per cent benchmark regarded as a ‘danger threshold’ by the IMF.

While all this backs the Government’s decision to take corrective action before the problem spirals out of control, the Christie administration’s hopes appear to almost be entirely based on Value-Added Tax (VAT) as the panacea to the country’s ills.

Many in the private sector have argued that the Government is paying too little attention to its own spending or using economic growth to grow its way out of the fiscal crisis.

On the growth front, Mr Werner had slightly better news. The Bahamas’ 2.1 per cent GDP growth, projected for 2015, is only below growth forecasts of 3.2 per cent and 2.6 per cent for St Kitts and Nevis, and St Vincent and the Grenadines, respectively when measured against other Caribbean tourism economies.

Yet, while the Bahamas’ growth forecast is also in line with the region’s projected 2.1 per cent average, it is a long way from the five-year, 5.5 per cent average that the IMF said was necessary to both absorb new school leavers into the workforce and cut existing unemployment in half.

Mr Werner’s presentation showed the Bahamas was certainly not alone in its high unemployment levels, which were pegged at around 15 per cent overall, rising to around 30 per cent for youth workers - those between 16 to 24 years-old.

Youth unemployment in the Bahamas is below that of Jamaica, St Lucia and Grenada, although much higher than commodity exporting nations such as Trinidad & Tobago and Guyana.

Mr Werner, in further food for thought for Bahamian policymakers, also revealed that the Caribbean’s non-performing bank loans had peaked in prior years for all countries with two exceptions.

Only in the Bahamas and the Eastern Caribbean Currency Union (ECCU) are non-performing loans continuing to grow, further highlighting this nation’s economic weakness.

Ewart Williams, the former Trinidad & Tobago central bank governor, told the same forum that the Bahamian banking system had the highest ratio of capital to risk weighted loans in 2012, standing at around 26-27 per cent.

And, with the sector’s non-interest expenses as a percentage of total income standing at just below 40 per cent, only Jamaica was a better performer on this indicator.

Canadian-owned banks dominated the financial system in the Bahamas, their combined total assets equivalent to 115 per cent of GDP. Of the commercial banking sector’s total assets, equal to 150 per cent of GDP, Bahamian-owned banks accounted for 35 percentage points of that figure.

Meanwhile, the Inter-American Development Bank’s Ramon Espinasa said the Bahamas could see around 27 per cent savings on generation costs if it switched from fossil fuels to natural gas.

His presentation to the Caribbean Forum said using natural gas would drop the Bahamas’ system costs from just below $0.16 per kilowatt hour to around $0.11 per kilowatt hour, well within the 20-30 per cent savings range estimated by the IDB.

Mr Werner’s presentation backed this up, noting that while the Bahamas’ electricity costs were essentially ‘middle of the pack’ in the Caribbean, they were still around $0.40 per kilowatt hour.

He added that the Caribbean’s share of the world tourism market had fallen by 20 per cent since the 2008 recession, helping to fuel the sub-par growth.