The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian economy may shrink by between 15-19 percent this year with a fully recovery of COVID-19 losses not occurring until 2022, the Central Bank's governor warned yesterday.

John Rolle, in a bleak near-term assessment of the country's post-pandemic prospects, said the Central Bank's initial projection of an eight percent contraction in Bahamian economic output (gross domestic product or GDP) for 2020 was now "outdated".

And he warned that the Bahamas faced "excessively greater hardship" from COVID-19 in the short term than during the 2008-2009 recession, although he forecast that the recovery period will be much shorter than the decade it has taken the economy to rebound from the latter.

"In our early work, when a lot of the analysis centred on the economy being in stasis for about three months, tourism being in stasis for three months, we would have arrived at an eight percent estimate," Mr Rolle said for the size of 2020's economic contraction.

"If one relaxes that assumption we could get a contraction that could be in the mid to upper teens... We know eight percent is an outdated estimate." The "mid to upper teens" projection would be in line with Standard & Poor's (S&P) recent projection that The Bahamas will suffer a 16 percent, or nearly $2bn, contraction in GDP during 2020 due to the tourism shutdown and associated economic lockdown.

The Central Bank's earlier forecast would have been in line with the shrinkage projected by both the International Monetary Fund (IMF) and Moody's, but Mr Rolle argued yesterday that it was "not useful" to get hung up on numbers and projections. Instead, he argued that the primary concern was "how that magnitude of shock affects the net inflows of foreign exchange".

Explaining the Central Bank's projection that the Bahamian economy will take two years to fully recover from the pandemic, the Central Bank governor added: "2022 is a point at which we think, if the recovery begins at a very gingerly pace in the near term, given all the public health and safety concerns and the prospects of a vaccine for COVID-19, it will take is until 2022 to be fully recovered.

"It is not to say the recovery will not begin until that period. It is the mere fact that the economy will have had such large losses in 2020 that we expect in 2021, while the level of economic activity will be collectively higher than at present, it will not be at the level that erases all the losses that we are likely to incur this year."

Mr Rolle said the economic crisis sparked by COVID-19 will have a different impact to that of the 2007-2009 financial crisis, and subsequent recession, on the Bahamian economy. "The difference for us relates to the speed at which we recover," he added.

"It took The Bahamas a decade to recover from the great recession. In 2018 we obtained a level of tourism visitors in the stopover sector that we had in the 2000s. We do not anticipate any recovery that is of that duration. The economy is expected to regain its position faster."

Yet Mr Rolle warned: "However, the extent of the interim hardship is excessively greater because you are managing the extent to which the economy comes out of the shutdown. That is what is most important; measures to make sure we can endure beyond the extreme period of the shutdown.

"If we don't survive the shutdown then all the other metrics of how we can recover will have less value because most of the other fundamentals end up being askew. We're equipped, and we're certainly prepared, to continue to endure the necessary sacrifices that are necessary to make sure we come through this in one piece."

Mr Rolle said the Central Bank had yet to see any deterioration in the commercial banking industry's non-performing loan portfolio, which measures credit 90 days or more past due, as a result of borrower inability to repay as a result of job and income loss.

"We anticipate there will be some increase, and there's a lot of work going on around that," he added. "More importantly, we believe the banks have a comfortable level of capital. The capital levels in domestic banks are far in excess of internationally recommended levels, and we're confident the banks can absorb any losses from increased non-performing loans. That's an area of comfort for us."

The governor added that intense discussions were ongoing between the Central Bank and Ministry of Finance over the Government's borrowing strategy, and especially the split between foreign currency and Bahamian dollar borrowing, given the impact this will have on the nation's foreign exchange reserves.

The Central Bank's outlook depends on the Government's "ability to finance most of its deficit financing in foreign currency", with some estimates suggesting it will need to raise between $1bn-$2bn to cover its financial holes and stimulate the economy post-COVID-19.

"We know there'll be a much higher than normal amount of financial need by the Government," Mr Rolle added. "The focus is really on ensuring that they borrow the appropriate amount in foreign currency versus local currency.

"There will be some borrowing to come in local currency, but the balance has to be considerate as to how those funds are used to finance spending on imports. There'll be those kind of discussions going on behind the scenes at the Ministry of Finance.'

Mr Rolle said the amount of foreign currency borrowing the Government will be able to access in the international capital markets, as well as The Bahamas' ability to repay the amount of COVID-19 debt taken on, will also be key factors in its upcoming decisions.

He added that there was "no intent to suspend the Credit Bureau roll-out process" as a result of the pandemic, adding that such such facilities would still be able to determine the individual's creditworthiness amid the fall-out from an event beyond their control. The governor urged Bahamians to reach out to their lenders before they got into trouble.

Elsewhere, Mr Rolle voiced optimism that the Bahamian digital dollar will be in a position to "circulate more widely" come July 2020. He explained: "The work to make the digital currency available to the rest of The Bahamas is progressing quite satisfactorily.

"A lot of our financial institutions who are participating have advanced their software development to have seamless integration with the Sand Dollar. They're in the midst of cyber security assessments of their platforms.

"We expect that as we progress into the mid-summer months, meaning just north of July, we should be in a comfortable position to allow financial institutions to circulate Sand Dollars more widely. It was critical to get beyond the cyber security assessments."