The Tribune

• But return to pre-COVID levels ‘not good’

• Nation must target 3-3.5% GDP expansion

• Inflation projected to peak at 7.2% this year

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas is being urged to “significantly move the needle” on medium-term economic expansion even though the International Monetary Fund (IMF) yesterday raised this nation’s 2022 growth forecast back to 8 percent.

The Fund, in its latest World Economic Outlook, completely reversed March’s two percentage point cut by increasing The Bahamas’ projected GDP growth for this year from 6 percent to 8 percent. That places it among the highest expanders in the Caribbean behind oil-rich Guyana (57.8 percent), Barbados (10.5 percent) and St Kitts and Nevis and St Lucia at 9.8 percent and 9.1 percent, respectively.

The IMF also maintained its 4.1 percent growth forecast for The Bahamas in 2023, as this nation’s tourism-driven recovery from the COVID-19 pandemic’s depths continues despite mounting fears of a US and global recession coupled with internal headwinds from rising energy costs.

No explanation was provided for the upward revision to The Bahamas’ 2022 economic growth, which provides modest respite from last week’s grim developments that included another credit rating downgrade by Moody’s. However, Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that the change was likely sparked by the availability of more timely and accurate data on how strongly tourism continues to rebound.

Reiterating that The Bahamas continues to suffer from ‘“a deficiency in timely and quality statistical collation”, with data on hotel occupancies, cruise ship arrivals and tourist spending - and their overall GDP impact - now more readily accessible for the IMF and others.

Of greater concern, Mr Bowe argued is the IMF’s continuing prediction that The Bahamas will return to historical low GDP growth in the short to medium-term once it has recovered what was lost in COVID. Economic expansion is projected to be just 1.5 percent in 2027, and the Fidelity chief told this newspaper: “That’s what we have to be very careful on.

“When you ask questions about whether we have done anything significant to move the needle, the answer is ‘no’. We have to have structural changes, a more established mindset change.” He added that last week’s Moody’s downgrade, which pushed The Bahamas further into so-called ‘junk’ status, suggested international as well as local observers want to see “meaningful evidence of structural change” as well as an altered attitude.

“I don’t think there’s a lack of intellectual thrust in what’s being said, but it’s what we say in the Bahamian vernacular: ‘Mouth can say anything’,” Mr Bowe said. “We have to demonstrate that what we are saying has tangible actions behind it that support it.

“In reality, when we don’t have an economic plan, we don’t have a debt management plan, we don’t have a Budget that has credible forecasts in the medium-term... The reality is because you present numbers it doesn’t mean they will be automatically accepted. There’s not been a history of long-term forecasts and accountability measuring which elements we have achieved and which we have not.”

There was too little analysis and explanation for why certain fiscal targets were missed, and why projections extending out three years were frequently subject to change at each Budget cycle, he added.

Hubert Edwards, the Organisation for Responsible Governance’s (ORG) economic development committee head, told Tribune Business that The Bahamas must aim for annual GDP growth rates “north of 2 percent” with a consistent 3 percent to 3.5 percent the ultimate goal if this nation is to make serious inroads into its economic woes.

“I don’t know if concerning is the right word,” he said of the IMF’s 1.5 percent growth forecast for 2027. “That is the area of biggest focus and the biggest policy challenge. In order for The Bahamas to fundamentally correct some of the issues it’s faced with, it’s going to need to experience above average growth.

“We have a circumstance where we’re going to revert to pre-COVID, pre-crisis levels, which is not good, and suggests we have not made any significant shift, not implemented or executed any type of reform, developed and expanded new industries, diversified and expanded into new revenue streams.

“The challenge in The Bahamas is to get us north of 2 percent, and get us up to growth of 3-3.5 percent. Historically, we have been averaging just over 1 percent. In times when we have had our greatest level of growth, we have been just about or north of 2 percent. Two percent is the benchmark we need to get beyond. Two percent to 2.5 percent, three percent to 3.5 percent is the area that we need.”

Without such growth, Mr Edwards voiced fears that the Government will be forced to introduce new and/or increased taxation and cut public spending to achieve its fiscal targets via austerity measures. He pointed to Moody’s recent assessment, which expressed concerns that the Davis administration’s plans to restrain public spending may impose downward pressures on economic growth.

Pointing out that these scenarios are to be avoided, the ORG chief added: “We need to get to a place where we see real, robust growth, not 2-2.5 percent nominal growth.” He also described the IMF’s 8 percent growth forecast for The Bahamas for 2022 as “a marginal move” given that it was not a major increase upon the 7 percent predicted last week by Moody’s in its latest credit assessment.

John Rolle, the Central Bank’s governor, had in early August trimmed his GDP growth forecast for The Bahamas in 2022 to 5 percent, so the IMF’s revision at least represents a reasonable upgrade on that. The revised 8 percent GDP expansion follows 13.7 percent growth in 2021, which came after COVID and associated lockdowns/restrictions caused the Bahamian economy to shrink by 23.8 percent in 2020 - the biggest contraction in the Western Hemisphere bar Venezuela and St Lucia.

Elsewhere, the IMF forecast that inflation will peak at 7.2 percent in The Bahamas this year before declining to a more manageable 3.4 percent in 2023. While the 2022 projection indicates “there is a bit more pain” to be endured in terms of price increases, Mr Edwards said the “drastic drop-off” in the inflation rate year-over-year could prove a “mixed bag” if too much demand is squeezed out of the Bahamian economy and its tourism industry.

A supply side improvement, with product shortages reduced if not eliminated, together with a reduction in food and energy costs will benefit the Bahamian economy, he added. But if the US plunges into recession as a result of interest rate hikes designed to dampen down inflation, that may have “implications for local economic activity”.

Mr Bowe agreed, adding that the US and other major economies are taking a “big gamble” that through interest rate hikes they can bring inflation under control quickly while also creating a soft landing for their economies with a minimal, short lived recession. Should this fail, The Bahamas will feel the negative consequences.