The Tribune

The Bahamas’ unemployment rate will jump by as much as two percentage points due to the 2,000 Baha Mar lay-offs, the Inter-American Development Bank (IDB) is predicting, virtually eliminating the May 2015 decrease.

The bank, in its latest Caribbean quarterly bulletin, said the Bahamas was “struggling to regain its footing” following the Baha Mar impasse, with the national debt now standing at a high 74 per cent of gross domestic product (GDP).

And, while the official unemployment rate had dropped from 15.7 per cent in November 2014 to 12 per cent in May, the IDB warned this trend will likely be short-lived when the November jobs figures are eventually released by the Department of Statistics.

It added that apart from Baha Mar hirings, gains which will now be reversed, the May unemployment rate decline was aided by temporary hirings related to Bahamas Junkanoo Carnival and sporting events (the IAAF World Relays etc).

“The May 2015 release of the Labour Force and Household Income survey indicated a decline in the unemployment rate to 12 per cent from 15.7 per cent in November 2014,” the IDB said.

“However, the drop reflects mostly temporary hiring for cultural and sporting events during the first half of the year. The Baha Mar Chapter 11 filing, however, has resulted in workforce reductions of approximately 2,000 employees, with an additional 400 lay-offs pending (total staff stood at 2,500). These lay-offs are likely to add an estimated 1–2 per cent to unemployment figures.”

Should the IDB’s estimates come true, the May unemployment decline will be almost totally reversed.

It is unclear whether Baha Mar’s remaining 350 staff, who have been retained to preserve the property and its assets, will also be let go and join their previously-terminated 2,000 former colleagues.

However, there can be little disputing the IDB’s assessment concerning the Bahamas’ economic stupor, and the further blow to jobs, confidence and growth that has been dealt by the Baha Mar debacle.

“Economic activity in the Bahamian economy remains mild as the country struggles to regain footing after the recent fallout from the $3.5 billion Baha Mar hotel, resort, and casino development,”the IDB said.

“The investment was expected to account for roughly 12–15 per cent of GDP over the next five years, but once Baha Mar is fully operational, visitor expenditure is expected to increase by about 7–8 per cent.

“Total investment is expected to rise by 3.3 per cent over the next few years.”

The IDB also agreed with the Central Bank of the Bahamas’ figures for this nation’s total national debt, which currently exceeds the IMF’s so-called 70 per cent ‘danger threshold’ - above which nations can lose sovereign control over their economic affairs, as they fall into a ‘debt spiral’ of borrowing to cover existing interest payments.

Debt levels, by March 2015, remained high but steady, at 65 per cent for central government debt and 74 per cent for total debt,” the IDB said, the latter figure matching that given by the Central Bank for the 2014 year-end.

The bank then called for the Christie administration to undertake “a more expansive debt management strategy that clearly identifies the mix of foreign versus local debt, and clearly schedules debt service payments, amortisation and refinancing”.

The IDB said the Government had traditionally kept foreign currency borrowings low as a percentage of its total debt, keeping the latter at less than $400 million - out of a total $3 billion - prior to the 2008 financial crisis.

“This profile has changed drastically over the last six years, with current central government debt exceeding $5 billion and external debt exceeding US$1 billion,” the IDB said.

“The change in the balance of domestic versus external borrowing reflects international developments. With lower interest rates in the international markets, local officials have seized the opportunity to take on more foreign currency debt and accumulate US dollars. Given the Bahamian economy’s reliance on imports, the US debt allowed for accumulation of foreign currency stocks.”

The IDB said the Bahamas had followed other countries in this move, adding: “This is a sharp change in strategy, which has been concentrated on international bond placements versus debt financing.

“Save for a $300 million placement in 2014, the Government of the Bahamas has not made any new bond issuances since 2009, shortly after the commencement of the global financial crisis.

“The diversification of the Bahamian portfolio has resulted in lower interest payments. Based on calculations of interest payments to average debt levels, the cost of international borrowing has been steadily declining in recent years, taking advantage of the lower interest rates in the US market. This strategy has been particularly important to the Bahamas, with a foreign currency debt largely comprised of US currency.”

Some 88.5 per cent of the Bahamas’ foreign currency debt is understood to be denominated in US dollars.

The IDB, though, noted that the Central Bank of the Bahamas had been criticised for not reducing its discount rate lower than the current 4.5 per cent, given the weak local economy.

Its last rate cut occurred in 2011, when the discount rate was dropped by 75 basis points from its then-5.25 per cent.