The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Hurricane Joaquin’s impact is likely to be “particularly bad” for Bahamian tourism, an ex-finance minister yesterday warning that the damage left in its wake will “deteriorate” the Government’s fiscal position.

James Smith, also a former Central Bank governor, said the tourism industry would “take it on both ends” as a result of Joaquin’s path, which will interfere with both immediate bookings and short-term travel plans in the Bahamas’ core US east coast market.

And, with travellers now eyeing their winter 2015-2016 bookings, Mr Smith warned that Joaquin’s arrival in the Bahamas could create “a dampening spirit” for those looking at a vacation here.

The CFAL chairman added that the Category Four hurricane, which may grow even stronger, could have a “devastating” impact on the Bahamian economy were it to score a direct hit on Nassau and/or Grand Bahama and Abaco.

While weather forecasters were last night still predicting that Joaquin would turn northwards and swing away from the Bahamas’ main population centre, many still remember 2004’s Hurricane Frances - which travelled the length of the Bahamian archipelago, inflicting $351 million worth of damage - equivalent to 7 per cent of national gross domestic product (GDP) at that time.

While Mr Smith indicated that Joaquin’s impact was likely to be less if it remained on its projected path, he agreed that it could throw the Government’s Budget and fiscal projections ‘out of whack’.

This is because Joaquin will likely force it to incur unplanned capital expenditure, via repairs to, or the replacement, of key infrastructure assets such as roads, docks, bridges and public buildings. And, with economic activity either slowing down or coming to a standstill, tax revenues will also be reduced.

“With a hurricane in the Bahamas, we take it on both ends,” Mr Smith told Tribune Business, because visitors booked to arrive over the next several days would almost certainly cancel.

Joaquin’s impact for resort bookings would linger into next week, he explained, because its projected ‘south to north’ path takes it towards the US east coast, impacting the Bahamas’ key source markets.

“This has been particularly bad in terms of impacting travel to the Bahamas,” Mr Smith said of Joaquin. “Because it’s coming from the south, people are not coming because they see it coming their way, and they’re not coming after it passes as it’s headed into their area.

“This is also the time, October/November, when you’re beginning to come out of the summer sump, and to have this kind of visitation from a hurricane in the beginning of October puts a dampening spirit on those looking this way.”

Mr Smith then told Tribune Business that Joaquin would almost inevitably cause a “deterioration” in the Government’s fiscal position, and throw its Budget projections out of line.

Business activity and sales cannot occur when they are closed for a storm, resulting in lower tax revenues. And the fall-off in incoming tourists eliminated the foreign exchange and “multiplier effect” of their spending.

“It will have a dampening effect on the fiscal numbers, and that results in a wider deficit,” Mr Smith said.

“We have to wait and see on the impact, but clearly there will be a slow down in expenditure over the next few days.”

The Government is projecting that its GFS fiscal deficit, which strips out debt principal redemption, will fall to $141 million or 1.5 per cent of GDP in 2015-2016, down from $198 million or 2.3 per cent in 2014-2015. This target has now been challenged by Joaquin.

Mr Smith added that the slow-moving storm would “have implications for macroeconomic costs and GDP for the period”, although it was difficult to estimate the precise dollar impact Joaquin will have on the Bahamian economy.

While insurance recoveries had to be deducted from the total costs and losses incurred, Mr Smith said there was little businesses could do to replace “man hours lost and down time” if forced to close by Joaquin.

And funds initially earmarked for savings might have to be switched by businesses and consumers towards savings as they prepared for the storm.

“It’s a kind of ripple effect that’s mostly negative for the economy,” Mr Smith told Tribune Business. “But if you’ve got to take all the punches, you might as well take them in the first round. We can only go up from here.”

He said the potential ‘saving grace’ for the Bahamas with Joaquin was that the storm, based on current forecasts, is largely projected to miss the islands containing “the bulk of the infrastructure” and population.

“It’s unlikely we will get a direct hit; that would be really devastating,” Mr Smith said of the storm last night. “It might impact some of the Family Islands in the south, but they’re lightly populated and have scanty infrastructure.

“If we get hit, we really will take it on the chin. We really don’t need it now. But we’ve been this way before. It goes with the territory.”