The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

Tourism's full rebound has been delayed until 2023, the Central Bank's governor predicted yesterday, as he conceded that The Bahamas' recovery from COVID-19 is "further behind than expected".

John Rolle, unveiling the Central Bank's 2020 third quarter assessment, said the pandemic "continues to weigh negatively on the Bahamian economy" with foreign currency earnings from tourism, investments and other export sectors having contracted by one-third year-over-year for the nine months to end-September.

This, he added, had resulted in a net $750m foreign currency outflow from The Bahamas over the same period even though the demand for US dollars to pay for imports and other overseas imports had fallen by almost 15 percent. That decline was due to a combination of tourism's shutdown and lower consumer spending, the latter driven by higher unemployment and loss of incomes.

While proceeds from the Government's foreign currency borrowings, including the recent $600m sovereign bond issue, the gap produced by the $750m net outflow, Mr Rolle said these actions had only delayed pressures on the external reserves - the key support for the one:one US dollar peg - until the 2021 first half.

Hinting that both these reserves and the peg will come under growing stress early in the New Year unless The Bahamas kickstarts its tourism industry, or finds an alternative foreign currency earnings source, the Central Bank governor issued a stark warning that Bahamians must not under-estimate "the severity of the immediate headwinds facing the economy".

"Delayed resumption of tourism has significantly deprived the economy of private sector foreign exchange inflows and employment, even though construction and foreign investment projects are providing impulses," Mr Rolle said.

“With the peak winter tourism season approaching, and the recovery further behind than was expected, it is now projected that the economy will experience lower inflows next year, in 2021, than were forecasted in the earlier months of the pandemic.

"It was always anticipated that when tourism reopened, seasonal activity would be a diminished fraction of the occupancy rates normally enjoyed, and that thereafter the gradual strengthening of business might span more than 24 months. This would place the expected full recovery of tourism at some point in 2023.”

While Mr Rolle and the Central Bank have always forecast a two-year timeline for tourism's full recovery, the delayed start to this process means they have adjusted initial projections that it would be complete in 2022. They have now moved this deadline a further year out, which is not good news for The Bahamas' largest industry nor the jobs and economic activity that depend upon it.

And the Central Bank governor also backed International Monetary Fund (IMF) projections that The Bahamas will enjoy minimal gross domestic product (GDP) growth in 2021, given that it will be starting from a very low base following this year's estimated 15-20 percent shrinkage.

The IMF recently cut its 2021 GDP growth projections for The Bahamas from 6.7 percent to 4.6 percent, which represents a more than $200m drop in economic output. “Although the economy could experience moderate growth in 2021, it would only be in comparison to the very restrained outcome of 2020," Mr Rolle said yesterday.

"As a result, fiscal challenges will remain very significant, and the monetary policy priorities will have to stay focused on managing the reduced availability of foreign exchange from private sector activity and safeguarding the stability of the domestic financial sector. The Central Bank expects there will be a continued reliance on public expenditures to stabilise the economy, and that a prominent share of the deficit financing will have to be in foreign currency.”

Issuing a strong warning, for a Central Bank governor, about the dangers posed by the economic crisis created by COVID-19, Mr Rolle said it was critical that the Government maintain domestic and international investor confidence - thereby securing continued access to debt financing - by showing it will return to the previous fiscal consolidation path once the pandemic has sufficiently eased.

"The fact that policy options are available for The Bahamas to manage economic risks should not be taken as an understatement of the severity of the immediate headwinds facing the economy," the Central Bank governor said. "The Government will have to continue to engender confidence among both the domestic and external holders of its debt in order to preserve its access to deficit financing.

"This comes down to a factor of sustaining confidence that the medium-term fiscal consolidation strategy will pay down the accumulated debt from the pandemic, within a timeframe that does not protract the economy’s exposure to devastating hurricanes that could further derail debt reduction efforts. The Government will be under increased obligations to economise on expenditures and to undertake reforms to strengthen revenue collections."

Having hinted at the likely new and/or increased taxes, and other austerity measures, that will face the Bahamian people once the economy has escaped COVID-19's grip, Mr Rolle said the external reserves - which provide the foundation for the one:one currency peg - increased by a further $200m since the 2020m third quarter's end to $2.3bn at November's start.

He warned, though, that this was no reason for complacency given the boost provided by the Government's recent foreign currency borrowing will soon be offset if tourism does not swiftly rebound. "With the latest inflows, the reserves are now expected to end 2020 higher than they were in 2019," Mr Rolle added. "That said, the projected near-term reduction in holdings has only shifted into the first half of 2021.

"The Central Bank’s data on foreign exchange transactions, which are a good barometer of private sector activity, revealed that over the first nine months of 2020, inflows from foreign investments, tourism and other export earnings contracted by almost one-third.”