The Tribune

By Neil Hartnell

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian economist yesterday warned that The Bahamas will face “serious concerns” unless it earns “major foreign currency inflows by year-end” as uncertainties over tourism’s return persist.

Rupert Pinder, who also lectures at the University of The Bahamas, told Tribune Business that the domestic economy’s re-opening “cannot sustain” over the longer term without the US dollars provided by the tourism-dependent export sector to finance the country’s import bill.

Speaking after K Peter Turnquest, deputy prime minister, told the House of Assembly that The Bahamas’ foreign currency reserves presently stand at $2.1bn or 38 weeks’ worth of import coverage, Mr Pinder said the tourism industry’s re-opening model will seemingly take away the “value-added” benefits the industry has previously brought to the domestic economy.

He added that the “Vacation in Place” strategy, the euphemism for the 14-day quarantine that all visitors must undergo upon arriving in The Bahamas, effectively transforms the tourism industry into an all-inclusive model where guests stay on property and do not venture out to let the wider community benefit from their spending.

While Mr Turnquest yesterday voiced optimism that domestic economy’s re-opening will be able to “carry” The Bahamas until tourism returns in sufficient strength, Mr Pinder argued that this will not be sufficient to sustain the external reserves and one:one fixed exchange currency peg with the US dollar indefinitely.

“Any reopening of the domestic economy without some serious inflows of foreign exchange cannot sustain,” he told this newspaper. “It’s not sustainable over the long-term. The economy produces very little, so there’s a heavy dependence on foreign exchange. It is what it is. We can talk about the domestic economy opening but we need those foreign reserves....

“If we don’t see some serious inflows by the end of the year, in my view there will be cause for serious concern. I really think you’re banking on tourism opening up in a significant way by October/November this year to get some of these inflows, but in the absence of that, by the end of the year we will have some problems.”

Dionisio D’Aguilar, minister of tourism and aviation, and his ministry team said on Monday that tourism will likely enjoy a “slow ramp-up” once hotels re-open on October 15, with much of the rest of the industry following on November 1, even though market research suggests there is strong pent-up demand for a Bahamas vacation.

The strength and timing of any tourism rebound remains key to the Bahamian economy’s near-term fate given that the industry remains the country’s prime source of foreign exchange, jobs and economic growth, with diversification and the development of new sector a medium to long-term goal.

However, much depends on the willingness of potential travellers to come to The Bahamas given the 14-day “vacation in place” requirement, multiple health protocols that must be cleared and the continued growth in COVID-19 infections here.

Mr Pinder, meanwhile, argued that re-opening the domestic economy will also impose more pressure on the external reserves as this activity leaks out in the form of new inventory purchases. And, while the Government’s planned foreign currency borrowing will help to shore up the reserves short-term, increased US dollar debt will act as a longer term drain as more reserves are required to service interest.

Acknowledging that The Bahamas and its government are in a very difficult situation, he said tourism’s re-opening model was likely to concentrate the benefits in the hands of hotels and other facilities suitable for “vacation in place”.

“It sounds good,” he added of the strategy, “but the reality of tourism’s impact on the domestic economy comes by way of people’s ability to move around. What is the impact to the domestic economy, you tell me, if I have to vacation in place for 14 days?

“Maybe there’s some employment and benefit for the resorts, but the minus comes by way of value-added. That’s the way the domestic economic benefits; moving around to dine and shop. That’s where the value-added really comes in, and I don’t see where this really creates the value-added. The impact on the domestic economy is quite limited.”

K Peter Turnquest, deputy prime minister, yesterday acknowledged concerns that tourism’s return might be “slower than expected”, and the impact this could have for the Government’s economic and fiscal forecasting.

He also acknowledged that economic diversification would take some time to achieve and, with no short-term alternative to tourism, cautioned Bahamians about “swinging for the fences” and ignoring the domestic economy.

“We’ve been making investments in small and medium-sized enterprises to ensure that if all else fails we will have a strong and robust domestic economy that’s going to protect jobs, is going to protect income for persons taking advantage of all these opportunities that we expect,” Mr Turnquest said.

“If tourism is going to be down, there’s going to be more demand for domestic products. People are going to have to buy at home, shop at home, go to restaurants etc. As we anticipate tourism not producing as much, we’ll look to the domestic economy to receive a boost and hopefully that will carry us through this period....

“I want to caution Bahamians as we think about the future that we don’t swing for the fences, the home run all the time. There’s value in getting on base. We have to be realistic about our prospects in the short and medium-term.”

Several observers yesterday privately voiced surprise that the external reserves are now at $2.1bn, an increase on the $1.982bn unveiled by the Central Bank at-end July. The rise comes despite the fact that tourism-related foreign currency inflows have almost completely dried up for six months, yet The Bahamas still has to finance an expensive import bill including food and oil-related products.

John Rolle, the Central Bank’s governor, could not be reached for comment yesterday, but several offsetting factors will have helped reduce imports and conserve the external reserves. These include the drop-off in tourism-related imports, as well as the Central Bank-imposed restrictions on outflows that Mr Rolle said in August have helped to conserve $200m to-date.

While the regulator has predicted that the external reserves will fall to $1bn by 2020 year-end, the Governor said the National Insurance Board’s (NIB) liquidation of its overseas investment holdings, and their repatriation, had brought “in excess of $100m” in foreign currency back to The Bahamas.

And the bar on dividend/profit repatriation by the Canadian-owned banks, coupled with the block on foreign portfolio investments by Bahamians, was likely to conserve up to a further $180m. However, Mr Pinder described this as “holding back the tide” as such repatriations and investments will ultimately be made and act as a claim against the external reserves.

Another boost is likely to have been provided by the Government’s foreign currency borrowings. Besides the $252m International Monetary Fund (IMF) loan, Mr Turnquest yesterday said the Government had already accessed $248m as part of a bridge financing deal before concluding further borrowings of $200m with the Inter-American Development Bank (IDB) and $40m with the Caribbean Development Bank (CDB).

Marlon Johnson, the Ministry of Finance’s acting financial secretary, yesterday said the Government’s foreign currency borrowing strategy was working “to script” in boosting the external reserves. “So far that is holding as far as projections by the Central Bank,” he told Tribune Business.

“We have indicated and maintained we will see some fall-off over time, but are hopeful with the mitigation efforts from opening up and external borrowings we won’t see the decline projected. I think we’re satisfied that we have not seen any pronounced deterioration in foreign reserve holdings, and we hope that remains.”