The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister’s ‘wearing of two hats’ is delivering an overly-optimistic economic outlook, as key indicators fail to justify his forecasts “just yet”.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, told Tribune Business yesterday that there was normally “a big difference” between the economic pronouncements of a Prime Minister and Minister of Finance.

While the former’s job was to boost confidence and private sector/consumer sentiment with upbeat, positive messages, Mr Bowe said it was often the latter’s task to bring everyone back to reality with more sober assessments.

Yet in the Bahamas, the jobs of Prime Minister and Minister of Finance had usually been combined by the former, inevitably leading to positive economic forecasts that were not always grounded in reality or matched by more realistic assessments. This, inevitably, leads to a bias towards the optimistic outlook.

“I believe there is a big difference between the message of the Prime Minister and the message of the Minister of the Finance,” Mr Bowe told Tribune Business.

“The Prime Minister is obligated to sell the optimism, the euphoria, a generating a positive sentiment. It’s then the job of the Minister of Finance to present the reality.

“The Prime Minister is right in his optimism. The challenge is that he is Minister of Finance as well.”

Mr Bowe recalled one of his British clients telling him that, in relation to the UK, telling him that it was the prime minister’s job to sell the positive, and the chancellor of the exchequer’s to “bring it back to reality”.

“All the economic indicators and numbers don’t match that optimism just yet,” Mr Bowe told Tribune Business with regard to Prime Minister Perry Christie’s Budget address.

“If we achieve all, it will be fantastic, but we have to tackle all these structural imbalances we have first.”

Many observers believe the Prime Minister’s 2015-2016 Budget address presented too rosy a picture of the Bahamian economy’s short and medium-term growth prospects, and failed to match the reality being felt on the ground by businesses and consumers.

Such suspicions have been further fuelled by the delayed Baha Mar opening, and moves by the International Monetary Fund (IMF) and Moody’s to slash their 2015 economic growth forecasts for the Bahamas.

The IMF has cut its projection by 0.5 percentage points, from 2.3 per cent to 1.8 per cent, while Moody’s shaved its own from 2 per cent to 1.7 per cent. Standard & Poor’s has also indicated it will cut its 2015 Bahamas growth forecast.

The Government’s own real GDP growth forecast for the 2015-2016 fiscal year is 2.6 per cent. Yet if the IMF and international rating agencies prove more accurate, the Christie administration may well undershoot its revenue forecasts and other key Budget projections, given that government income is highly correlated to economic activity and growth.

The IMF executive board, in its Article IV assessment on the Bahamas, warned: “Potential GDP growth is estimated at about 1.5 per cent over the medium term, insufficient to generate a significant reduction in the high unemployment rate.

“Absent structural reforms, including in the labour market and the energy sector, significantly higher growth than currently projected will be required to absorb new entrants to the labour force and reduce the unemployment rate to single digits over the medium term.”

An IMF report had previously projected that the Bahamas would need to achieve average annual real GDP growth of 5.5 per cent between 2013-2018 if it is to absorb all new labour force entrants over that time, and cut the existing 15.7 per cent jobless rate in half.

The Fund’s latest forecasts, though, appear to be pushing the Bahamas further away from that target than ever. The data released yesterday shows the IMF has cut the Bahamas’ 2015 projected GDP growth from 2.3 per cent to 1.8 per cent - a reduction of some $40 million.

It is, though, maintaining its 2.8 per cent forecast for 2016, presumably on the expectation that Baha Mar will open by then.

“Growth is expected to strengthen over 2015–2016 with the improvement in US activity and the opening of Baha Mar, but significant structural impediments remain,” the IMF said.

“The full opening of Baha Mar and two smaller projects, together with the strengthening US economy, could represent a major boost to exports in the near-term.

“Beyond 2016, growth would taper off as US growth decelerates, and the base effects from the opening of Baha Mar fade.”