The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas was yesterday urged to "capitalise on the momentum" created by the IMF's increased 2023 economic growth projections otherwise it could face "bother" in the medium to long-term.

Hubert Edwards, head of the Organisation for Responsible Governance's (ORG) economic development committee, told Tribune Business that The Bahamas should "celebrate what we have now" after the International Monetary Fund (IMF) raised the country's forecast gross domestic product (GDP) growth from 4.1 percent to 4.3 percent.

Yet he warned that the Fund's projections of a swift return to historical GDP growth rates of 2 percent or less after 2023, with the Bahamian economy forecast to expand by 1.8 percent in 2024 and just 1.5 percent in 2028, are "going to be a problem" given the country's $11bn-plus national debt.

Asserting that economic growth is "the only way to escape our debt crisis", Mr Edwards told this newspaper that The Bahamas needed to double the IMF's growth projections for 2024 and beyond to between 3-4 percent over a sustained three to four-year period to get its fiscal position back on track.

The 20 basis points, or 0.2 percentage point, uptick in The Bahamas' forecast 2023 GDP growth is equivalent to a $25.708m increase in projected economic output based on the $12.854bn real GDP estimate produced by the Bahamas National Statistical Institute (BNSI) for 2022.

Mr Edwards, suggesting that the post-COVID recovery was almost complete, with economic output restored to 2019 levels, said: "I think the consolidation has crystallised. The uptick by 20 basis points is always a good thing. Anything above expectations is a very important signal. Whatever that is at this time is going to be good."

However, warning that it is important for The Bahamas to also look to the medium and long-term, he quickly added: "The focus is on the long-term future, and all the projections coming out in cohort with this increase also suggest we are going to revert very rapidly to our historical GDP growth rates. That's where the bother is.

"The moment we start to gravitate back to 2 percent growth or less, it then brings into question all the projections we've heard recently and also the extent to which the country will be OK from an economic viewpoint having regard for the fact we are now, in 2023, really operating in a new environment from a debt perspective. We've never been at this level of $11bn and counting. It's going to be a significant challenge."

Mr Edwards pointed to the discounts, and higher yields, being demanded by global investors and the international capital markets when it comes to The Bahamas' listed external foreign currency debt. Following a period of recovery, these have again started trending in a negative direction in recent weeks.

Based on information provided by the Frankfurt Stock Exchange, The Bahamas' $825m foreign currency bond, priced at 8.95 percent, is now trading at almost a 19 percent discount to par or face value, while yields sought by investors have risen to 12.725 percent. And this nation's $300m bond, priced at 6.95 percent, is trading at almost a 25 percent discount to face value, while yields now stand at 13 percent.

Mr Edwards said this suggested that the international markets are not fully convinced about The Bahamas' economic projections, and the country's ability to achieve them, and/or that its perceived credit risk has increased in recent weeks. Such developments, he added, explained why The Bahamas needs to look beyond its improved 2023 GDP growth projections.

"It's natural to latch on to that and capitalise on that," he said of the 4.3 percent growth now forecast, "but we must not lose sight of the fact we need to get The Bahamas growing beyond its long-term projections, and if that doesn't happen there's going to be a problem.

"The trend back to historical growth rates is suggesting we have not put in sufficient work into our enabling environment, and we have not made and undertaken sufficient reforms that are going to change the output. This assessment should point us to where work needs to go, where work needs to be done; the change in the short-term and work that needs to be done to secure a different output over the medium to long-term."

Mr Edwards said it was now too late to change the 1.8 percent growth forecast for 2024, as any reforms introduced now would not have sufficient time to take effect due to lags in the economy. However, he argued that 2025 could "look different" from the IMF's forecasts if change is enacted quickly over the next 12 to 18 months.

''The good thing about these short-term improvements is they have the potential of creating momentum. We have to put the work in and position ourselves to capitalise on that momentum otherwise we will get to a situation where the country goes back to 1.5-1.8 percent growth," he told Tribune Business. "That doesn't do it.....

"The only way out of our debt crisis is to have real economic growth. Returning to a level below 2 percent doesn't augur well for the country long-term. Let's celebrate what we have now. Let's agree that what is happening now is good, but by no means the end of the story or a large portion of the story.

"How are we going to move the economy beyond 1.5-1.8 percent to 3-4 percent over the next three to four years in order to counter the ill-effects the increase in outside debt is going to exert on the economy?"

The $16bn nominal GDP for the 2026-2027 fiscal year, as targeted by the Fiscal Strategy Report, means the Bahamian economy has to expand by just over $3bn in four years if that goal is to be achieved. And government revenues will have to increase by $1.2bn over the same time period to strike the forecast $4bn mark, while the 25 percent revenue-to-GDP goal is projected to be met in just three years.

John Rolle, the Central Bank's governor, earlier this year said The Bahamas could grow its economy “anywhere in the 4-6 percent range” for 2023. However, he warned that The Bahamas must seek out new economic growth drivers beyond 2023 to continue beating historical trends.

“Once we move beyond 2023, we expect that at least on a calendar year basis, tourism would have regained the output lost during the pandemic, and therefore the economy will settle into lower average growth rates,” Mr Rolle added. “That, in itself, is not an area of concern because it reflects the level of growth we’ve historically experienced in The Bahamas year-over-year.”

This nation has traditionally relied on external drivers, namely tourism and “the impetus” from foreign direct investment (FDI), to drive GDP expansion. However, previous IMF studies have suggested that consistent annual economic growth of between 4-5 percent - at least double The Bahamas’ long-run average - is required to both slash existing unemployment by 50 percent and fully absorb the 5,000 high school leavers into the workforce every year.

In a nod to the implications of returning to traditional growth rates post-2023, Mr Rolle said: “The issue for us is that it means The Bahamas will be back closer in line with its longer-term growth potential, which stands closer to 2 percent on average.... I think it’s slightly less than 2 percent.

“If there is an issue, the issue is not so much the economy settling into its potential [long-term] rate next year but, really, what it is we can all work on to increase potential growth, and that will not be independent of how things look in 2024.”

Meanwhile, the IMF yesterday forecast as part of its latest World Economic Outlook that Bahamian inflation - as measured by consumer prices - had peaked at 5.5 percent in 2022 and will moderate to 3.7 percent in 2023 before dropping further to 2.8 percent in 2024.

Describing this as a positive development, Mr Edwards said: "The extent to which the purchasing power returns or strengthens for vulnerable sectors of the population, that's going to be very, very important." He added, though, that the impact from the recent increase in global oil prices will have to be monitored closely to assess its impact on Bahamian energy, transportation and other costs.