The Tribune

* Watchdogs warn debt-to-GDP 'upwards of 90%'

* As Bahamas faces '6-8 months of COVID hell'

* Import outflows down 24%, $108m in October

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fiscal watchdogs yesterday warned The Bahamas' debt-to-GDP ratio must "be upwards of 90 percent" after Central Bank data revealed the Government's direct debt rose by $1.5bn in just 12 months.

Robert Myers, the Organisation for Responsible Governance's (ORG) principal, told Tribune Business that this and other key economic indicators were only likely to worsen as The Bahamas faces "at least another six to eight months of hell" due to the COVID-19 pandemic.

Despite rising hopes a vaccine will soon become available, he argued that "there's no way we're out of the woods" yet given the skyrocketing COVID-19 infection rates in the US - this country's major tourism source market - where more than 270,000 Americans have died and there have been some 13.5m total cases.

Mr Myers argued that The Bahamas' latest debt figures were "very, very concerning" given that there was little tangible sign of the Government moving to stimulate activity, adding that it appeared to be "stuck like a deer in the headlights" rather than proactively trying to kickstart both domestic and foreign direct investment (FDI) projects.

He spoke out after data at the back of the Central Bank's monthly economic report for October 2020 revealed that the Government's "total direct debt" had risen by almost 20 percent or $1.5bn over the prior 12 months, jumping from $7.638bn at end-October 2019 to $9.159bn due to the twin deficit blowouts produced by Hurricane Dorian and COVID-19.

While the Central Bank's quarterly review for the three months to end-June pegged the national debt as equivalent to 74 percent of Bahamian gross domestic product (GDP), it is unclear whether this ratio accounted for 2020's economic output shrinking by a projected 20 percent - as forecast by the Central Bank, credit rating agencies and International Monetary Fund (IMF).

Taking the $12.055bn nominal GDP figure for 2019-2020, as set out in May's Budget estimates, a 20 percent decline would slice some $2.411bn off economic output. This would drop it to $9.644bn, creating a debt-to-GDP ratio of almost 95 percent based on the end-October 2020 figure provided by the Central Bank.

Using real GDP figures, which strip out the impact of inflation on economic output, would likely result in a debt-to-GDP ratio of 100 percent or greater - something that would mean The Bahamas' debt is larger than the size of its economy. John Rolle, the Central Bank's governor, earlier this week reassured that the Government will still be able to service the country's debt.

However, based on the Central Bank data, Mr Myers warned: "It's got to be approaching 100 percent debt-to-GDP. We've got to be upwards of 90 percent debt-to-GDP, and there's no way we're out of the woods. We've still got at least another six to eight months of this, COVID-19, and dealing with the fall-out.

"It's so bad in the US that many people are not travelling and this tourism season is going to be extremely low. I'd be surprised if we had 30-40 percent of the tourism numbers we had in 2019 [for Christmas and New Year]. We've got at least another six to eight months of hell."

The Government-appointed Economic Recovery Committee (ERC) recommended focusing on foreign direct investment (FDI), and ensuring viable projects in the so-called 'pipeline' were rapidly approved, as the quickest means of attracting significant foreign currency inflows in the short-term amid the wait for tourism to revive.

However, Mr Myers said he had seen precious little activity in this area to-date. "The Government is not doing anything to stimulate foreign direct investment, and that's the only thing that is going to have an immediate effect on employment, dollar stability and GDP," he added.

"It's very concerning given that we have not heard anything about how they're going to tangibly stimulate the economy. It's very, very concerning. It's like it's any other day at the office. We're not seeing any massive increases in investment, and no improvement in the ease of doing business.

"All that matters is attracting foreign direct investment and we're not doing it. We're stuck like a deer in the headlights. It's not happening. The longer this thing lasts, the slower the rebound will be. Let's hope the US economy holds its own through the winter months. What Biden does is going to be significant. It's a very uncertain time."

The Central Bank's report also provided further evidence of the fall-off in economic activity, and the decline in jobs and incomes, via the 24 percent year-over-year decline in foreign currency sales that financed import purchases.

"Provisional data on foreign currency sales for current account transactions showed a $108m decline in outflows to $342.3m in October, relative to the same period of 2019, owing to decreases across almost all categories," the Central Bank said.

"Specifically, 'other' current items — primarily purchases of foreign goods and services by credit and debit card transactions— reduced by $39.8m, while oil imports and travel related payments fell by $27.5m and $22.5m, respectively.

"In addition, foreign currency sales were lower for factor income payments ($13.6m) and non-oil imports ($8.1m). Providing a modest offset, foreign currency sales for transfer payments rose by $3.4m."

Rupert Pinder, economics lecturer at the University of The Bahamas (UoB), told Tribune Business he was "not surprised" by the magnitude of this decline given the impact COVID-19 lockdowns, curfews and other restrictions have had on economic activity during the past nine months.

"It's reflecting what's happening with aggregate demand," he added, "because consumption is a significant part of GDP. If we were to look at something as simple as traffic on the road, and traffic at the Mall, it kind of suggests to me that going into Christmas things are going to pick up, which bodes well for the economy, but come January and February you are going to have that correction.

"It's going to be a long time before we see any recovery to pre-2020 numbers. For me it's not just in terms of what you're going to see in the first quarter of 2021 and maybe the second quarter. It's beyond that. It's going to take some persons some time to recover. It's going to take some time."