The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The International Monetary Fund says the country’s recovery is “strong” with real GDP growth pegged at eight percent this year.

The fund, in its Article IV Consultation Report for The Bahamas, said: “The Bahamas is experiencing a tourism-led rebound. The economy expanded by almost 14 percent in 2021, as net tourism receipts tripled relative to 2020. The strong recovery is expected to continue in 2022, with real GDP growth projected at 8 percent. The war in Ukraine, which adds considerable uncertainty to the outlook, is expected to affect The Bahamas primarily through higher commodity prices.

The fund also said that, despite the phenomenal growth, it would take until 2024 before the country would be able to return to the pre-pandemic levels of GDP of 2019.

“The economy contracted by almost 24 percent in 2020, as tourism receipts fell by more than 75 percent. Starting in the second half of 2021, air arrivals saw a steep rebound, recovering to half of 2019 levels in 2021, while cruise arrivals, that were initially more subdued, have recently ticked up.

“Coupled with a rebound in construction activity, output expanded by around 14 percent in 2021. Labour market conditions are improving, but remain challenging, with unemployment estimated at around 18 percent at end-2021 compared to over 25 percent in 2020.”

The report added: “Risks are skewed downwards given a difficult near-term financing situation, rising inflationary —and potentially BOP (balance of payments) — pressures because of the war in Ukraine, an ongoing threat from the evolving pandemic, and the country’s high vulnerability to natural disasters.

It continued: “The principal risks are one, the emergence of new COVID-19 variants, which could prolong the pandemic and induce renewed economic disruptions; two, additional upward pressures on global food and oil prices, including because of the war in Ukraine, which could erode consumer demand, impose a heavy burden on the vulnerable, put pressure on the balance of payments, and induce the government to put in place policies to mitigate pass-through further straining the fiscal situation; three, a sharp rise in global risk premia that could further strain public and private balance sheets; and four, natural disasters related to climate change, which would have significant social, economic, fiscal, and financial repercussions. On the upside, the global recovery could prove stronger than is currently anticipated, which would help support tourism. In the event of downside risks materialising, the government will need to find ways to provide additional fiscal support — including well-targeted social assistance — which may prove challenging given the significantly diminished fiscal space and potential inability to tap new sources of financing.

The fund added: “The pandemic has deepened medium-term growth challenges and public finances have deteriorated. The young experienced significant learning losses, and employment will take time to recover. Additionally, there may be lasting effects of the pandemic on travel, shifts in technology and climate risks. The new administration has pledged relief through tax cuts and increasing outlays on investment and education. However, with public debt close to 100 percent of GDP amid elevated financing costs, there is limited room for maneuver.”

The fund added: “The pandemic will likely exacerbate The Bahamas’ long-standing record of low growth. Staff projects medium-term potential growth at just 1.5 percent, owing to the slow structural reform implementation, including in the energy sector.”