The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The deputy prime minister yesterday warned "there is no restart button" for fully relaunching a Bahamian economy that Moody's is projecting will grow by 2 percent next year.

K Peter Turnquest told Tribune Business that the eventual post-COVID 19 reopening of the economy would have to occur via a "very well thought-out, detailed process" to guard against the possibility that the virus could re-ignite.

He acknowledged that the Government will "have to add some fuel to the fire to ensure the engine goes", although he declined to provide a figure for just how much financial support it will have to provide to help jump-start both the private sector and consumer demand once the COVID-19 threat has passed.

Mr Turnquest spoke after Moody's, in a "credit opinion" that accompanied its decision to place The Bahamas "under review" for potential downgrade to so-called "junk" status, forecast that this nation would recover some of its lost growth in 2021 - provided that both it and the US bring the virus under control within the next 10-12 weeks.

"We forecast The Bahamas to register an 8 percent contraction in economic activity in 2020, followed by 2 percent growth in 2021," the rating agency said. "The main assumptions underpinning our forecasts are at least a 35 percent annual reduction in tourism flows, itself driven by our expectation that both The Bahamas and the US (which accounts for just over 80 percent of all air arrivals) have successfully contained the pandemic in the second quarter of 2020.

"In 2021, we expect the US economy to recover with growth of over 2 percent which, coupled with the fact that, unlike natural disasters, the coronavirus does not destroy installed capacity, should bring The Bahamas’ GDP growth to 2 percent. Medium-term growth prospects remain tied to the tourism sector's performance and a pipeline of foreign direct investment-related infrastructure projects."

While Moody's forecast provides some hope that better economic times lie ahead for The Bahamas and its citizens, an awful lot still has to go right for its forecast to be achieved. While there are some signs that this nation and the US can bring COVID-19 under control by its end-June 2020 target, this is by no means guaranteed.

And the rating agency's 2 percent growth forecast for 2021 also shows that it will likely take some time for the Bahamian economy to recover the substantial ground it has lost in output, jobs and incomes due to the pandemic.

Moody's projection that Bahamian GDP will contract by 8 percent this year means that economic output, based on 2018 national accounts data from the Department of Statistics, will shrink by almost $1bn in current prices or $861m using the “real” measurement. The latter strips out the impact of inflation on GDP growth figures.

This means that Bahamian GDP will drop from 2018's $12.424bn to around $11.431bn in current prices this year (2019 data is not yet available). Should Moody's 2 percent growth projection be met, Bahamian GDP in 2021 will reach around $11.66bn - a $235m increase upon this year's outturn, but still $764m below 2018's economic output.

Using "real" prices, Bahamian GDP falls from $10.763bn to $9.902bn. Moody's 2021 growth projection, of achieved, will increase real GDP by $197m to $10.099bn. Yet the latter figure is still some $664m short of 2018's GDP output.

This suggests that it may take the Bahamian economy some four to five years to recover, and replace, what has been lost as a result of COVID-19 - and that assumes GDP growth that will not be interrupted by further pandemics or major natural disasters, such as a hurricane.

Moody's, meanwhile, also forecast that The Bahamas' direct government debt-to-GDP ratio will keep rising to around 72-73 percent by the 2021-2022 fiscal year rather than stabilising at around 66 percent as it had predicted in Hurricane Dorian's aftermath.

The rating agency added that the deficit for the current fiscal year ending on June 30, 2020, will expand beyond the Government's February projection of 5.3 percent to hit 5.5 percent of GDP. This would take the deficit from the revised $677.5m to just over $700m based on Tribune Business calculations.

And Moody's also projected that the 2020-2021 fiscal deficit will strike 4.6 percent of GDP, a sum equivalent to 600.967m, as opposed to the post-Dorian forecast of 3.8 percent of GDP or some $498.9m.

That represents an increase of more than $100m in "red ink", and many observers are likely to believe this gap will be much more given the widely-held view that the Government may have to provide a nine-figure capital injection to get the Bahamian economy moving again.

"Since 2017, the Government had been successful in its fiscal consolidation efforts, which brought the deficit down to an estimated 1.7 percent of GDP in 2018-2019 from 5.5 percent in 2016-2017," Moody's said.

"However, reconstruction efforts following Hurricane Dorian and the loss in revenue meant that targets were relaxed last year. As a result, we revised our expectations for debt to stabilise around 66 percent of GDP instead of 60 percent previously.

"The coronavirus crisis has led to both lower growth and a set of fiscal measures, ranging from unemployment insurance to tax relief, designed to buttress the economy. Both these developments will negatively impact fiscal and debt metrics," Moody's warned.

"The fiscal impact is likely to extend at least into the fiscal year that ends in June 2021. We have revised our forecasts accordingly and now expect a deficit of 5.5 percent of GDP in 2019-2020 and 4.6 percent in 2020-2021, but note that we will only have more clarity about the Government’s expected policies once the 2020-2021 Budget is tabled in May."

Mr Turnquest yesterday described that planning process for that upcoming Budget as "trying to hit a moving target", given that the impact and dynamics associated with the COVID-19 pandemic were changing on an almost daily basis.

He added that the Ministry of Finance was "trying to get a read" on multiple potential outcomes, ranging from the best to worst, adjusting the Government's Budget accordingly and attempting to "hit the target in the middle".

"It's not an easy science at the moment," the deputy prime minister explained. "We're consulting widely with many stakeholders, and will hopefully come up with the best possible scenario given all the uncertainties.

"We've got all these moving balls we're trying to put in order, and it's not an easy thing. It's a 50/50 chance we'll get it right, and whichever way we go somebody is not going to be happy."

Mr Turnquest said COVID-19, coupled with Hurricane Dorian's impact, had reversed the "such good progress" that the Minnis administration had made on fiscal consolidation during its first two years in office.

"It's unfortunate, but we don't get to control the universe," he added. "Fortunately, we did put ourselves in a better position than we came to office, but not enough to put ourselves in the position we'd like to be in."

The deputy prime minister added that Moody's could increase The Bahamas' borrowing costs on the international capital markets should it follow through with downgrading this nation's sovereign creditworthiness from its present 'investment grade' rating to so-called "junk" status.

However, pointing out that a downgrade had not occurred yet, Mr Turnquest argued that much depends on how long the COVID-19 pandemic and associated lockdown - both in The Bahamas and internationally - last.

Acknowledging that the virus will "cause a problem" if it becomes a long-term issue, he added that the Government was "far away at the moment" from needing to borrow to support The Bahamas' foreign currency reserves.

Yet he cautioned: "We will continue to monitor these things. It doesn't take a rocket scientist to understand that if the virus goes on for a long period of time there are other considerations to be made. At the moment we are OK."

Similarly, Mr Turnquest also warned that restarting the Bahamian economy once the lockdown has ended will not be as easy as flipping a switch or turning on a tap. "There is no restart button," he told Tribune Business.

"This is going to be a very thought-out, very detailed process that takes into account the virus and the need to ensure we don't have a new surge or second wave. The business structures and support that are necessary to ensure we have a successful relaunch for larger firms and SMEs - making sure the infrastructure is there, and has the kind of capital support it needs to provide the services and products needed to make the entire economy come back together - is essential.

"We recognise the Government has to be a significant partner in the eventual relaunch of the economy," Mr Turnquest added. "The private sector has an equal role to play, and hopefully we can come up with a strategy to ease the burden as much as possible and gradually come back into our full economy.

"We recognise that we're going to have to add some fuel to the fire to ensure the engine goes. We have to plan for that, and plan for a major part of our economy [tourism] being offline for a while and what that means in terms of social costs and the rest of it."