The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas was the only Caribbean nation in early April to escape pressure on its bond yields amid the COVID-19 pandemic, an Inter-American Development Bank (IDB) report revealed yesterday.

The IDB, in its 2020 first quarter “bulletin” on the region, said the likes of Jamaica, Barbados and Trinidad & Tobago have all started to experience an increase in their yield coupons in secondary market trading in a sign that access to foreign currency borrowing may become more expensive and difficult.

“One indicator that suggests that access to external finance is tightening is the fact that bond yields have increased on secondary markets for the Caribbean countries, with the exception of The Bahamas,” the IDB said.

This nation’s secondary market bond yields remained stable at below five percent for the month to April 2, 2020. That, though, was one week before Moody’s placed this nation on “review” for a further credit rating downgrade that would place The Bahamas at “junk” status and cost it ‘investment grade’ standing.

The potential of such a reduction in creditworthiness will likely place pressure on The Bahamas’ bond yields, although K Peter Turnquest, deputy prime minister, told Tribune Business earlier this week that the country was some way away from having to tap the international capital markets to boost its foreign exchange reserves.

Still, the IDB noted that the fixed exchange rate regimes employed by The Bahamas and other Caribbean states limits their ability to employ monetary policy as a stimulus to counter the COVID-2019 economic fall-out. And, with the tourism shutdown cutting off the country’s main source of foreign exchange replenishment, the IDB report warned of looming balance of payments pressures.

Noting that The Bahamas’ international currency reserves were the lowest of the six Caribbean nations assessed, based on percentage of GDP, the report added: “All six countries examined in this issue are open economies that depend crucially on imports for consumption, intermediate inputs and for capital goods.

“Of particular concern is the dependence on imported food. As noted in a report by the Food and Agriculture Organisation: ‘Almost all CARICOM countries import more than 60 percent of the food they consume, with half of them importing more than 80 percent of the food they consume’.

“Foreign currency is needed to purchase imports and to service external liabilities....In brief, the tourism shock this year could imply one of the largest declines in foreign currency earnings ever experienced by the tourism-dependent economies. Balance of payments financing could become critical.”

The Government has already projected that the $2.03bn in foreign currency reserves at end-February could fall by $900m by year-end 2020, and that was based on the loss of 75 percent of this nation’s stopover visitor market - not a complete shutdown.

Meanwhile The IDB, adding that The Bahamas’ “fiscal buffers are limited” due to already high deficits and debt-to-GDP ratios, said this country’s ability to manoevere is further restricted by the $3.4bn worth of losses and damage inflicted by Hurricane Dorian in September 2019.

It maintained previous projections that The Bahamas’ will lose 10.5 percent of GDP (economic output) from tourism alone if recovery from COVID-19 is drawn out, although this could shrink to 3.5 percent if there is a full rebound by the 2020 fourth quarter. And the report also warned that reduced global oil prices will only produce a modest economic offset.

“Although low international oil prices will provide relief at the international reserve level (as The Bahamas is a net importer of oil), the positive economic impact will be marginal given the overall stall of economic activity,” the IDB said.

“Other key sectors for the economy could also be negatively affected by a global economic slowdown. For example, real estate activities (accounting for 18 percent of GDP in 2018) are driven by luxury properties and vacation rentals that are mostly used by foreigners.

“The wholesale and retail sector (with accounted for 12 percent of GDP in 2018) could also be negatively affected by lower tourism arrivals and curfews. Foreign direct investment (FDI) could decline, as key source markets such as China and the United States could face economic downturns of their own following the surge of cases in those countries,” it added.

“Finally, reduced labour mobility and the potential compromise of food security - considering that approximately 90 percent of food is imported in The Bahamas - could also have indirect negative externalities on growth.”