The Tribune

• Minister: ‘Absolutely no intent’ to seek such help

• But GDP to be 7% under pre-COVID at end-2023

• Government ‘feels good about economic recovery’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday pledged “not on my watch” after a noted Caribbean economist again forecast The Bahamas will need an “IMF restructure” with GDP still below pre-COVID at end-2023.

Senator Michael Halkitis, minister of economic affairs, in a voice message response to Tribune Business inquiries, said the Government has “absolutely no intention of entering any restructuring or IMF programme at any time in the foreseeable future” as it “felt good about the recovery in the economy” driven by tourism’s rebound.

He spoke out after Marla Dukharan, the former Royal Bank of Canada (RBC) chief economist for the Caribbean, yesterday doubled down on her long-standing prediction that The Bahamas will have to restructure its debt and follow Barbados in seeking International Monetary Fund (IMF) “in the next year or two”.

While her previous forecast that this would occur in 2020-2021 failed to materialise, Ms Dukharan sounded further alarm for The Bahamas by projecting that economic output or gross domestic product (GDP) would still be some 7 percent below 2019’s pre-COVID levels come end-2023. This was despite relatively strong expansion recorded on both 2022 and 2023.

“We expect the economy to grow 5 percent in 2022 and 4 percent in 2023, backed by reconstruction and the continued recovery of tourism. This will still leave the level of economic activity around 7 percent below its 2019 level,” she wrote.

Ms Dukharan’s near-term GDP growth forecasts for The Bahamas are more pessimistic than both the IMF’s and that given by John Rolle, the Central Bank’s governor, at last week’s Bahamas Business Outlook conference where he predicted that the economy is poised for 8 percent growth “or just over” in 2022 as tourism continues to reflate after the pandemic.

The IMF forecast that Bahamian GDP will expand by 8.5 percent in 2022, recapturing a significant chunk of the $2bn it lost in 2020 due to COVID-19. However, its 2023 forecast matches the 4 percent cited by Ms Dukharan.

The Government’s 2021-2022 supplementary Budget forecasts that GDP in current prices, which includes inflation’s impact, will only return to pre-COVID levels or just above in the 2023-2024 fiscal year. This suggests that Ms Dukharan’s prediction that Bahamian GDP will be 7 percent, or $810m, below 2019 levels at end-2023 may not be too far off the mark.

“We expect a debt restructure and an IMF programme in the next year or two,” the economist, who now runs her own consulting firm, said in her Bahamas assessment. “The high level of external debt (43 percent of central government debt) would make a [currency] devaluation very costly in terms of the overall debt burden.

“In 2020, the IMF assessed that the currency was overvalued by 6-9 percent. The alternative to currency devaluation is an internal devaluation much like the IMF BERT programme in Barbados, lowering labour costs and the overall cost of doing business through reforms, and raising taxes.”

But Mr Halkitis, who said he had received Ms Dukharan’s analysis himself just yesterday morning, said the Government was “very proud” of never having to seek restructuring assistance or a bail-out from the IMF and “we expect to continue that record”.

He told Tribune Business: “I guess if it was to be a headline it would be: ‘Not on my watch’. The Government of The Bahamas has never restructured its debt, it has never been part of an IMF programme, and we don’t intend to start notwithstanding the analysis by the esteemed economist.

“Our job is to manage our affairs so that we can fulfill our obligations to our creditors and provide services to the Bahamian people. We’ve been doing that, and are continuing to do that. We manage every day, keeping an eye on all the levers, and we manage our expenditure and manage, or try to administer, our revenue and continually improve our revenue so we’re in a position to continually do these things.

“We’ll continue to do that. Notwithstanding the analysis, we feel good about the recovery in the economy driven by the tourism [industry]. That is recovering nicely as indicated in the report and, again, we are embarking on a revenue enhancement programme to improve our revenue and we’re watching our expenditures,” Mr Halkitis continued.

“We expect to continue to fulfill our obligations and, again, there is absolutely no intention of entering into any restructuring or IMF programme at any time in the foreseeable future. We’re very proud of that record and expect it to continue.”

Ms Dukharan said stopover tourist numbers for the period to end-October 2021 totalled 667,881, representing 48 percent of 2019’s pre-COVID figures. Cruise passenger arrivals were at just 10 percent of 2019 levels for the same period, standing at 444,974, with the industry having only slowly resumed sailing from June 2021 onwards.

“Hurricane Dorian reconstruction and FDI-led projects continue to drive economic activity,” Ms Dukharan wrote. “Tourism is recovering gradually with 48 percent of January to October 2019 stayovers recorded in January to October 2021, with results for September and October 2021 at 80 percent and 76 percent of 2019 levels, respectively.

“External reserves strengthened as a result of increased US dollar borrowing and were not based on economic activity. Non-usable reserves amount to 46 percent of total external reserves. Non- borrowed, usable reserves at November 2021 stood at negative $404m, and have been negative for more than a year.”

Mr Rolle, the Central Bank’s governor, could not be contacted for comment before press time on the external reserves despite several text and voice messages being left.

Ms Dukharan’s economic forecasts as they relate to The Bahamas have in the past been criticised for being alarmist, since previous IMF restructuring projections failed to come true, while the likes of Gowon Bowe, Fidelity Bank (Bahamas) chief executive, said her analysis was based on a static model that failed to account for the possibility of future policy actions to address her concerns.

One economic analyst, speaking on condition of anonymity, yesterday suggested that her analysis was “accurate” but the timeframe in which she forecasts events to happen is wrong. By this, they explained that while The Bahamas will not require any IMF intervention for the next three to four years, this need may arise after that if the Government fails to tackle the fiscal crisis.

“What she’s saying is accurate,” the source said of Ms Dukharan, “but not in that timeframe? The impact is down the road, three to four years. We have enough cushion to last, but what the Government has to do in the Fiscal Strategy Report, mid-year Budget and full-year Budget is really lay-out what the game plan is for fiscal consolidation.

“And not only do you have plans, but that you are taking steps to generate new revenues, cut subsidies to state-owned enterprises (SOEs). There’s some belt tightening that has to happen, and we have to do it between now and the full-year Budget” in May 2022.

The Government has yet to release its Fiscal Strategy Report, which sets the foundation for its economic and fiscal planning, and upcoming Budget, as well as The Bahamas’ first-ever Debt Management strategy.

The Fiscal Responsibility Act mandates that the Fiscal Strategy Report be released by the third week of November every year, but that date is now some two months ago. The last such report was published late by the Minnis administration in December 2020, with the delay blamed on the response to the COVID-19 pandemic.

With the mid-year Budget close, as it is normally released to Parliament and debated around February, it is possible that the Government will release the Fiscal Strategy Report and Debt Management Report may be disclosed at the same time.