The Tribune

By YOURI KEMP

and NEIL HARTNELL

Tribune Business Reporters

Bahamian economic output shrunk by a “remarkable” 20 percent in 2020, an Inter-American Development Bank (IDB) economist said yesterday, branding this COVID-induced plunge as “something you don’t see in the worst crisis”.

Chloe Ortiz, the IDB’s Bahamas country economist, speaking as the multilateral lender and a United Nations (UN) agency unveiled their assessment of the economic losses and damage inflicted on this nation by the pandemic, branded the gross domestic product (GDP) contraction as “massive” and of an extent rarely seen.

With the IDB and Economic Commission for Latin America and the Caribbean (ECLAC) study projecting that The Bahamas will continue to incur COVID-related losses through to near year-end 2023, taking the forecast total to $9.5bn, Ms Ortiz said this nation faces “a long road to recovery”.

This is especially since it is still grappling with the fall-out from Hurricane Dorian, with the catastrophic Category Five storm having combined with COVID to cause $13.1bn in economic losses and damage. While conceding that “the worst of the pandemic seems to be over, at least for now”, Ms Ortiz added that the possibility of a more deadly infection wave as well as The Bahamas’ vulnerability to major storms means its economic recovery faces multiple risks.

“The drop in real GDP in 2020 of more than 20 percent, you don’t see those type of numbers in the worst crisis. This is remarkable,” she exclaimed, adding that The Bahamas will not return to pre-COVID output levels until end-2023 or early 2024. “It’s kind of a long road to recovery,” Ms Ortiz said.

“On the good news, with tourism arrivals, we can see some improvement. When you focus on 2020, you can very clearly see that the first quarter was good, but then COVID-19 hit the country and hit the world, and the tourism mobility went down to almost zero.

“In 2021, recovery started, and if we look at the whole year and compare it to arrivals in 2019, it’s still short; it’s 29 percent only, so less than a third. But we clearly see that increasing trend and, by the first quarter of the current year, we have arrivals at 70 percent.” That ratio reached 85 percent for April stopover arrivals, according to the Central Bank earlier this week.

And, in tandem with a protracted economic recovery, Ms Ortiz said Bahamian unemployment figures will only decline gradually. “We still have very high unemployment rates,” she added. “It’s estimated that, at the worst of the pandemic, one in four active Bahamians was out of a job. That number has gone down so, right now, we’re at 18 percent. But still it’s above pre-COVID levels [and], in 2019, we were at a 10 percent unemployment rate. It’s getting better but we still have a lot to do.”

Ms Ortiz said “we are all feeling it in our pockets” with respect to the cost of living crisis and inflation, with rising food, gasoline and other costs disproportionately impacting lower income Bahamians and the most vulnerable in society because they spend more of their monies on such commodities.

As a result, she warned there are “risks we have to beware of” when it comes to The Bahamas’ progress in reviving its economy. These included the potential for new COVID strains that are more contagious and deadly to emerge, particularly given The Bahamas’ relatively low vaccination rate that the IDB/ECLAC report pegged at just 40 percent of the population at end-January 2022. And just 38 percent were fully vaccinated.

Warning that vaccine hesitancy could “prove damaging” and “a big issue” for The Bahamas if not addressed, Ms Ortiz added that a major hurricane strike - even a Category Three or Four storm that hit New Providence or multiple islands - will also undermine livelihoods and the Government’s finances.

Besides inflation’s domestic impact, she also warned that skyrocketing prices in the US and major visitor source markets - combined with rising interest rates - could deter some tourists from travelling or prompt them to delay their trip, while also reducing vacation spending. “It could generate spillover meaning less tourists arrive in The Bahamas,” Ms Ortiz said.

“So although US inflation is rising even more rapidly than in The Bahamas, it is becoming a big issue. We see energy prices going up, food prices going up. The fact that The Bahamas imports a good share of what it consumes in terms of these items represents a challenge.” 

A further concern is the possibility that any of a COVID resurgence, major hurricane or inflation/US recession could “derail” the Government from achieving its fiscal targets and objectives in an environment where the pandemic has already exacted “a massive toll” on the public finances.

Backing the Government’s efforts to “put their house in order”, Ms Ortiz said rising interest rates in the US and elsewhere may also threaten to “impose further pressure on the fiscal balance” by increasing The Bahamas’ sovereign borrowing costs.

“Risk aversion is on the rise, not particularly in The Bahamas, but around the world,” said Ms Ortiz. “Interest rates are rising in part because of that risk aversion, but also because of inflation and we see countries like the US are starting to increase their reference rates to try to control that inflation.

“So rising financing costs, given that financing needs are important in the Bahamas could pose some further pressure on our fiscal balances and that’s something that we have to take into account.” 

“The worst of the pandemic seems to be over, at least for now,” Ms Ortiz asserted. “We have to be attentive because there are many risks. Things could change in the short and medium-term if you are hit by any of these additional shocks.”