The Tribune

• Lost GDP not recovered until 2024

• Economy to shrink 16.2% this year

• 2021’s 2% ‘anything but v-shaped’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamas faces “anything but a V-shaped recovery” from COVID-19 with the International Monetary Fund (IMF) yesterday warning a four-year haul to regain economic output lost in 2020 lies ahead.

The Washington DC based fund, in a statement on its annual Article IV consultation with The Bahamas, also further slashed its projections for the Bahamian economy’s performance this year and in 2021 as it branded this nation “one of the hardest hit countries in the Caribbean” due to more than 7,500 COVID-19 infections.

Its latest forecast increased the severity of The Bahamas’ real gross domestic product (GDP) shrinkage to -16.2 percent for 2020, as opposed to its last -14.8 percent contraction estimate, while further slashing 2021’s economic growth forecast to a relatively tepid two percent.

The latter revision represents a further cut, after the IMF previously revised its projections for next year’s Bahamian GDP growth from 6.7 percent to 4.6 percent as recently as October. With The Bahamas’ short-term rebound prospects more than halved, and a further $269m slashed from 2021’s forecast economic output, this nation faces a longer and harder recovery than initially thought.

The IMF yesterday forecast that Bahamian GDP will only recover to pre-COVID-19 levels come 2024, meaning that this nation likely faces a four-year climb at least to dig itself out of the hole created by the worldwide pandemic. That is more conservative than the one given by Central Bank governor, John Rolle, who earlier this week estimated 2023 for a full tourism and economic rebound.

“Real GDP is projected to decline by 16.2 percent in 2020, followed by a modest rebound of two percent in 2021, and to converge back to its pre-pandemic level only by 2024,” the IMF said of The Bahamas’ yesterday.

“The current account balance is projected at a deficit of 17.4 percent of GDP in 2020, and will improve only gradually, consistent with the projected pick up in tourism in 2022. Foreign reserves reached a record level of $2.3bn in October and should remain well above the minimum suggested threshold of three months of imports over the medium-term.

“Risks around the baseline are high, reflecting the uncertain evolution of the COVID-19 pandemic and vulnerability to weather-related natural disasters.”

Using 2018 real GDP data, as the 2019 figures are not yet available, the IMF’s forecast would see Bahamian economic output shrink from $10.763bn to around $9.02bn - a drop of $1.743bn, which represents what has been lost due to COVID-19.

Applying the IMF’s revised two percent GDP growth estimate for 2021 to the $9.02bn figure results in Bahamian GDP rebounding by some $198m to $9.2bn, a figure that is still some $1.563bn below 2018’s economic output, and which gives an insight into the severity of the losses and devastation inflicted by COVID-19.

Rupert Pinder, an economist who lectures at the University of The Bahamas, told Tribune Business that the IMF’s projections align with his own views and effectively rule out any prospect of this nation enjoying a rapid v-shaped recovery from the pandemic.

“The thing about it is that’s a very anemic sort of recovery given the loss of 16 percent this year,” he said. “You’re talking about two percent next year. That puts you in line to return to previous levels of GDP four to five years out. I thought it would take at least five years to return to pre-COVID numbers. When you look at this, this projects anything but a v-shaped recovery for The Bahamas.”

Mr Pinder added that both the IMF’s economic contraction estimates and recovery timeline were in line with those provided by the Central Bank and Mr Rolle, as he warned that reducing an unemployment rate many estimated rose to between 40-50 percent at the pandemic’s height will be among the government’s greatest policy challenges.

Noting that reduced unemployment, and the creation of new jobs and hirings, always lagged behind economic growth, he added: “The most stubborn numbers in this sort of thing are the unemployment numbers.

“Even when you show signs of recovery, unemployment is the hardest thing to move. From a policy standpoint that should be one of the greatest areas of concern. There’s going to have to be a balancing act.

“One of the things the government is going to have to do during the period of recovery is bring forward infrastructure projects and private-public partnerships to deal with things like this. The unemployment numbers are going to be the most troublesome to move even during periods of recovery. We saw that following the financial crisis (2008-2009).”

The IMF somewhat agreed, adding in yesterday’s Article IV statement: “The continuation of the various COVID-19 related measures to support the vulnerable, employment and the health sector in the 2020-2021 budget is appropriate. The planned capital projects - hospitals, roads, and infrastructure rehabilitations - should be put through rigorous appraisal and selection processes.”

The government, which last night announced the placing of another $225m worth of foreign currency bonds with the international capital markets (see other article on Page 1B), in its official response to the IMF statement focused not surprisingly on the positive things said by the Fund. In particular, it focused on the IMF’s praise for “the rapid emergency response to support the economy”.

“Despite the human, social and economic toll of the two unprecedented shocks hitting The Bahamas in recent times,” the government replied, referring to Hurricane Dorian as well as COVID-19, “The Bahamas continues to receive international recognition for its overarching policy priorities to save lives, preserve livelihoods and lay a solid foundation for a robust recovery.

“Further, the country’s ongoing commitment to implementing fiscally responsible plans continue to be recognised as critical components to enhancing growth and resilience.”

Marlon Johnson, the Ministry of Finance’s acting financial secretary, told Tribune Business that “by and large the government is aligned with the assessment made by the IMF”. He added that the 2020 Fiscal Strategy Report, likely to be tabled in Parliament next week, would provide more detail on the government’s own forecasts as well as a road map for addressing COVID-19’s fall-out.

“The Fiscal Strategy Report speaks a bit more to what the government projects for economic forecasts, but what the IMF is saying is is in line with where we are,” said Mr Johnson, who also co-chaired the government’s Economic Recovery Committee (ERC).

“The ERC made recommendations on what could be done to try and help accelerate that recovery. What is happening now is predicated on what is happening around the world, and how the world is recovering from the pandemic will drive the demand for the goods and services we offer. Our recovery cannot be viewed independently from the recovery in key source and export markets.”