The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday said The Bahamas needs to target a “minimum” of two percent annual GDP growth as he called for “stronger inroads” into double-digit unemployment.

John Rolle argued that consistently achieving such economic expansion would ensure a “more favourable” long-term outcome for this nation, while warning that the benefits from essential structural reforms were unlikely to materialise within 18-24 months of implementation.

Speaking at the Central Bank’s first-ever quarterly press conference on the economy, Mr Rolle added that 2019’s projected 2.1 percent GDP growth rate remained within reach given that the $4.2bn Baha Mar development is now in its first full year of being totally operational.

“The prospect is still there for healthy growth by Bahamian standards in 2019, even with a lot of the downside risks which we continue to acknowledge,” the governor said, adding that this nation was still enjoying “transitional growth” as a result of Baha Mar’s move into the operational phase.

However, International Monetary Fund (IMF) forecasts show The Bahamas returning to its long-run average 1.5 percent GDP growth rate from 2020 onwards. Should that occur, this nation will be nowhere near to meeting the 5.5 percent growth that the IMF said was necessary to cut existing unemployment by 50 percent, as well as absorb all new workforce entrants, between 2013 to 2018.

“On a potential basis, the economy needs to transition above two percent,” Mr Rolle said. “I would say not to target above three percent, but a two percent minimum would start to make things evolve a bit more favourably over the long-term.”

He added that there was “nothing very complimentary” about The Bahamas’ medium to long-term growth as projected by the IMF, and said: “We need to look at reforms to the economy to generate the higher growth potential we need long-term”.

Describing these as “structural reforms”, the Central Bank governor warned that such adjustments - while much-needed - would not “materialise in an 18-24 month period” and pay dividends in the short-term. While he did not identify these structural changes, Mr Rolle was likely referring to energy reform and multiple “ease of doing business” improvements.

He warned that, barring “accelerated” foreign direct investment (FDI) inflows, The Bahamas will be almost totally reliant on tourism industry growth that is unlikely to create enough jobs to match the labour force expansion driven primarily by up to 6,000 annual high school leavers.

“In the absence of a more accelerated pace of FDI inflows, employment gains would remain substantially tied to tourism growth, and would require sustained, stronger inroads to keep up with labour force participation expansion,” Mr Rolle said.

“The economy’s strengthening, as data from the Department of Statistics show, generated higher employment, but not at a fast enough pace to reduce the unemployment rate. This is an important indicator in assessing the health of the lending environment, and prospects around the speed of non-performing loans (NPL) reduction.”

The Department of Statistics’ November labour force survey showed that The Bahamas’ national unemployment rate rose by 60 basis points, from 10.1 percent to 10.7 percent, over the six months from May 2018. The raw number of jobless Bahamians, around 25,000, was little changed from the figure two years earlier in November 2016.

Mr Rolle said FDI-financed construction projects were vital to absorbing labour, much of it semi-skilled and unskilled, with this sector as equally important as tourism when it came to impacting short-term unemployment.

He said that despite 2018’s $50.5m fall in the amount of bank credit classified as non-performing, meaning loans 90 days or more past due, there were still too many Bahamian borrowers struggling to meet their obligations.

“The fluctuation in short-term arrears throughout the year underscore that, at the margin, a sufficient number of borrowers still teeter on the brink of difficult financial circumstances,” the Central Bank governor added.

“Although the December data revealed some increase in arrears in the shorter-term category of overdue loan payments, non-performing loans or delinquencies of over 90 days continued to fall. In fact, for the year, the non-performing loans total fell by approximately $50.5m and non-performing loans decreased as a shared of total private loans to 9.1 percent from 9.9 percent at the end of 2017.

“It should be noted that, other than write-offs and debt restructuring, domestic banks are also protecting their balance sheets by continuing to increase their provisions for credit losses, which are now budgeted at 85 percent of all non-performing loans.”

Mr Rolle said there was scope for commercial banks to expand their lending “especially if the Government were able to achieve the targeted reduction in its own borrowing needs in line with its medium-term fiscal consolidation strategy”.

Private sector credit contracted by $104m in 2018, a lesser fall-off from the $161.3m decline in the prior year. Central Bank data showed that consumer credit fell by $79.6m, a more accelerated pace than 2017’s $49.9m drop. However, the decline in mortgage and business loans lessened to $15.1m and $9.4m, respectively, compared to $78.8m and $32.6m the year before.

Still, Mr Rolle said the Bahamian economy’s modest economic growth had persisted through year-end 2018. “A key indicator of the economy’s uptrend was the strongly elevated level of foreign currency inflows through the banking sector, and equally robust domestic demand for foreign exchange for payments for imported goods and services,” he added.

“The data show, for example, that gross foreign exchange inflows through commercial banks increased by about $1.1bn to $5.5bn during 2018, while outflows through banks kept strong pace, increasing at almost an identical rate.

“The elevated foreign exchange outflows spoke to supplies imported to support tourist operations, investment projects, and to higher spending by Bahamian households and businesses more generally.”

Mr Rolle said the VAT rate increase to 12 percent, and Bahamas Power & Light’s (BPL) heightened fuel surcharge, had increased consumer price inflation through September 2018 compared to the prior year.

He added that there were “no material negative threats to external reserves”, which ended 2018 at $1.198bn- some $211m lower than at year-end 2017. “The Central Bank anticipated this outcome. The public sector largely drew down liquidity which it created in 2017, through the external borrowing which occurred,” Mr Rolle said.

“External reserves, however, remained at healthy levels, and continued to experience a net positive contribution from the private sector in 2018.”