The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The New Year is expected to “crystalise the reconsolidation of the economy", says a governance reformer as 2023 foretells a year of “great performance” for the economy.

Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, said in a release to the media that despite the headwinds ahead for The Bahamas and the wider Caribbean region predicated on the possibility of a US recession in addition to lower global growth, The Bahamas can still weather the storm if it sticks to the “facilitation of sectorial reforms and institutional strengthening".

Mr Edwards said: “The prediction of global growth in the region of 2.7 percent is indicative of serious headwinds ahead for the global economy and the Caribbean region, having regard for the expected impact on the US economy.

“This means that the country could face headwinds which will negative impact its ability to secure much needed improved growth levels beyond historical averages.

“The US economy is expected to decline, performing within a band of 0.5-1 percent for 2023, with mild recession beginning in late 2023 and a longer-term average annual growth rate of 1.8 percent. Despite this expectation of decline the economic reconsolidation in The Bahamas which continues to move at a greater than anticipated rate will serve to blunt the effect. The current momentum in tourism could mitigate the effect by delaying the generally anticipated reversion to average growth rates. It is predicted that growth in 2023 for the country will be around 1.1 percent.

“Should tourism continue at the current pace of performance any such decline could be pushed well towards the latter part of 2023. Caution must be take of the potential impact that developments in the US could have on the market. A recessionary period would create downward pressure on disposable income and would therefore slow touristic activities.”

The likelihood of a US recession in 2023 has been distinguished due to the fact that the US Federal Reserve raised interest rates earlier this month by a half of a point to a range between 4.23 and 4.40, the highest benchmark rate in 15 years.

There are also discussions around more interest rate increases in the US for 2023 as the Fed tries to dampen inflation that has rocked the Americas.

Mr Edwards also said: “The US Treasury appears still fully committed to fighting inflation through continuing tighten monetary policy. This is expected to terminate within a rage of 4.75-5 percent. This represents a significant shift in interest rates which less than a years ago was less than 1 percent. While this effort to fight inflation represents good news for the country the impact on borrowing cost, which currently stands at more than 15 percent of total expenditure, should definitely be an area of concern for policy makers.

“The Bahamas demand for debt, while declining is still relatively significant. It will be crucial for the government to be able to leverage announced initiatives, early in 2023, to tap into the domestic market credit in order to secure much needed reduction in the cost of borrowing. With a $1.8bn borrowing requirement for the fiscal year 2022/23, of which less than $500M has been borrowed to date, the implications of not securing cheaper debt will have significant effect on government plans and would weigh negatively on economic outcomes despite positive performance to date.”

The national debt is $10.4bn, nearly the size of the current GDP estimated at 11.88bn, this puts the country at a position where borrowing may become more difficult as the threat of defaulting becomes more possible.

Mr Edwards ultimately said: “There is need for broad-based reforms across many sectors. As the new administration approaches its second year in office it will become critical that these issues are addressed early. Delays are likely to create tensions for making changes as the administration matures deeper into the five year cycle.

“2023 is expected to crystalise the reconsolidation of the economy. The New Year has the potential to be a productive one for The Bahamas, not necessarily in growth terms but through the facilitation of sectorial reforms and institutional strengthening. The tourism sector, together with recently announced investments, have already demonstrated a trajectory for great performance. This will, however need support, greater and improved contribution from other sectors. From a macro perspective there will be headwinds and challenges driven largely by a combination of global development, energy cost, inflation and fears of recession. There will also be challenges and obstacles to growth due perennial lack of reforms.

“Energy cost will represent an important factor for the productive sector. The cost of food and quality of social support will bear heavily on the minds of consumer and vulnerable segments respectively. The management of the debt stock will be very critical for government and economic outcomes. 2022 demonstrated the limited and narrowing fiscal space and policy options available to government. For 2023 the options will remain limited but presents great opportunities to focus on areas of long neglect and those in need of serious and urgent reform, financial and otherwise. Despite any significant growth the country may realise, reforms are an imperative to finding the path to sustainable economic resiliency. We would be delighted to see this journey started in earnest in 2023.