The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian economic output will not recover to pre-COVID-19 levels "until after 2024", Moody's has warned, in a stark illustration of the economic devastation unleashed by the pandemic.

The rating agency, in a "credit opinion" that accompanied its decision to cut The Bahamas' creditworthiness by two notches to "junk" status, is forecasting that the economy will take up to five years to recover from this year's 16 percent to 20 percent contraction.

Its assessment means Bahamian gross domestic product (GDP), which measures the size and value of what the economy produces, will only return to 2019 levels in 2025 - a prediction suggesting it may take half a decade for this country to fully recover from the growth and jobs lost to the pandemic.

And Moody's also warned that the COVID-19 crisis, complete with its tourism and economic shutdown, has inflicted "lasting deterioration" on The Bahamas' national debt burden and associated interest costs with "stabilisation" - rather than any meaningful improvement - in the fiscal outlook only occurring in 2022.

While the country's debt-to-GDP ratio is forecast to peak at 85 percent come June 2021, Moody's is predicting that it will remain stubbornly above 80 percent through 2024 with a very gradual rather than sharp decline. This compares to pre-COVID-19 forecasts that the debt-to-GDP ratio would stabilise at 65 percent, and is much higher than the 72-73 percent threshold estimated as recently as April 2020 when the pandemic took global hold.

Moody's added that the increased debt burden, coupled with much-reduced economic activity and tax revenues, will also keep the Government's debt servicing (interest) costs far higher than historical levels when measured as a percentage of its revenue income.

While interest costs will peak at 22.6 percent of revenues for the new 2020-2021 fiscal year that is due to start on Wednesday, the rating agency is forecasting that they will remain above previous peaks of around 15 percent through 2024, dropping to around 17 percent in that year.

Detailing a grim outlook, and long road to full recovery, Moody's said that while The Bahamas might experience a sharp 2021 rebound that recovers around half the GDP output it will likely lose this year, it would swiftly return to the low-growth rates it has endured since the 2008-2009 recession.

"We expect economic activity to rebound significantly in 2021, with real GDP growth reaching 12 percent," Moody's said. "This forecast is supported in part by the low base of comparison provided by 2020, but also by our expectation that tourism flows will pick up significantly in 2021 and total around 60-70 percent of 2019 levels.

"This expectation pivots on our assumption of economic normalisation in the US, which provides around 80 percent of air arrivals. Additionally, we expect several foreign direct investment (FDI) related projects to begin construction in 2021, as well as post-Dorian reconstruction efforts to resume.

"Despite the sharp rebound of 2021, the impact of the coronavirus will be significant enough that GDP will not recover until after 2024, and will remain well below past expectations." Charts produced by Moody's forecast that the Bahamian economy will, in 2023 and 2024, still be 2-3 percent below the size/output it achieved in 2019 despite the blow inflicted by Hurricane Dorian.

This compares to February 2020 forecasts, just prior to COVID-19's full impact, which predicted that the Bahamian economy would be 5 percent larger than 2019 levels come 2023 rather than smaller as is projected now following an 18 percent contraction this year. And the fiscal outlook as estimated by Moody's is just as uninspiring.

Describing the Government's planned 60 percent increase in capital spending in 2020-2021 as "ambitious", Moody's revealed it does "not expect the government to execute the full capital expenditure plan of $515.5m. However, with revenue projected to fall by $900m or 16 percent, it added: "The large deficits of 2019-2020 and 2020-2021 will take the debt-to-GDP ratio to 85 percent of GDP by June 2021.

"Authorities are planning a gradual consolidation in 2021-2022 and onward, which includes rationalisation at state-owned enterprises. While these fiscal dynamics may support the stabilisation of debt metrics by 2022, the debt and interest burdens will have increased materially by then.

"The interest burden, coupled with low medium-term growth potential for the country, means that we do not foresee a material improvement in fiscal metrics past a broad stabilisation in 2022."

K Peter Turnquest, deputy prime minister and minister of finance, last week urged Bahamians not to panic over the latest sovereign credit rating downgrade by Moody's. He pointed out that "it was expected", with multiple other countries suffering similar outcomes due to the fiscal and economic blows dealt by COVID-19.

"It's not the end of the world, and we have to make sure we don't see it as the end of the world," he told Tribune Business. However, Robert Myers, the Organisation for Responsible Governance's (ORG) principal, argued that drastic growth and fiscal reforms were "the only way we're going to save ourselves".

"We've got to stimulate growth because that's the rising tide that lifts all boats. That's the only way we're going to save ourselves," he argued. "We've got to stimulate growth and development, and cut back recurrent expenditure by 5 percent a year for the next, I would say, six years.

"We've got to get spending in line and revenues up. Depending on how good a job we do on GDP, we may be able to cut back a little less on expenditure, but that framework has to go into play. A reduction in expenditure by 5 percent per annum, and an increase in GDP by 6-7 percent per annum. That's the only way to get out of it."

Calling for a radical shift in economic thinking and policies, Mr Myers added: "We have got to get creative. It's got to be a paradigm shift in the way we think. We cannot win. We're losing, losing battles, and cannot get a win unless we have a paradigm shift in the ease and of doing business, and growth and development.

"The most immediate effect you are going to have on unemployment and foreign direct investment(FDI) is through stimulating the second home market and having many of these mid and large-sized developments coming through. We have to bring in money and employment now.

"Bringing in 5,000 Chinese workers is not going to help us. We need Bahamians to be employed, Bahamian businesses to be employed."