The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ stopover visitor numbers rebounded to 97 percent of pre-COVID levels in the 2023 first quarter, the Central Bank’s governor said yesterday, while slightly trimming his full-year economic growth forecast.

John Rolle, addressing the regulator’s first quarter economic briefing, predicted Bahamian gross domestic product (GDP) growth “will moderate closer to 4 percent” in 2023 - a figure in line with International Monetary Fund (IMF) and World Bank forecasts, but slightly less than the 4-6 percent range he gave three months ago at end-January.

With the Bahamian economy’s rebound from COVID-19’s ravages almost complete, he said there were numerous indicators showing that growth was reducing back towards its long-run average of between 1-2 percent. For the 2023 first quarter, growth in total private sector foreign currency inflows through the commercial banks - while up by almost percent year-over-year - was down significantly on the prior year’s near two-thirds expansion.

And private sector foreign exchange outflows to purchase goods and services, while up 20 percent during the three months to end-March 2023, also showed moderated growth compared to the 37 percent expansion during the same period in 2022.

Nevertheless, Mr Rolle said The Bahamas’ external reserves, which support the one:one fixed exchange rate peg with the US dollar, stood at a “healthy” $2.7bn this week and, while expected to end 2023 below last year due to private sector demand in the Christmas run-up, will remain more than sufficient.

“As regards tourism, the recovery trend during the first quarter still conveyed elements of pent-up travel demand. Taking average pricing increases into account, the stopover industry’s seasonal earnings are projected to have already fully recovered, even though visitor volumes still have a small amount of capacity to regain,” Mr Rolle said.

“For 2023, balanced against downside risks, tourism earnings are also expected to exceed pre-pandemic estimates on a calendar year basis. As to visitor head count, comparing season with season, it is estimated that at the end of the first quarter, based on air arrival trends, stopover visitor volumes were approximately recovered to about 97 percent of their 2019 levels, which would have been the pre-COVID high.”

However, the Governor added: “With stopover visitor volumes being closer to full recovery from the pandemic, the pace of growth was, as expected, strongly moderated in comparison to the same period of 2022.... The tempered pace of growth was captured in the foreign exchange markets trends.

“In particular, total private sector inflows through commercial banks grew by almost 10 percent in the first quarter compared to more accelerated recovery-paced gains of almost two-thirds in 2022. Other than tourism’s impact, the outcome also points to potentially slowed contribution from other foreign exchange earning activities, such as real estate and foreign direct investments.

“In the meantime, foreign exchange outflows through the private sector, mainly an indicator of domestic demand for imports of goods and services, rose by about 20 percent in the first quarter of 2023 compared to the recovery-propelled boost of 37 percent in 2022. Because private sector outflows grew faster than inflows, it led to reduced net sales of foreign exchange from commercial banks to the Central Bank,” he continued.

“While this helped moderate the seasonal build-up in external reserves, the transactions with the public sector had the greater impact. In particular, in the first quarter the Central Bank made a net sale of foreign currency to the public sector as compared to the net purchase in excess of $300m in 2022, which was timed with the bulk of the previous fiscal year’s external borrowing activities.

“As of the beginning of May, the external reserves measured approximately $2.7bn, still a healthy position. On a seasonal basis, these balances are expected to peak later in the year before being drawdown over the closing months of the year. The reserves are expected to end 2023 below their closing levels of 2022. This is in keeping with stronger private sector demand for imports of goods and services, some of which could be driven by expanded private sector credit.”

While unemployment has fallen from its COVID peak, Mr Rolle said the jobless rate is still likely to be higher than it was in 2019 before the pandemic. “The unemployment rate would also have fallen significantly from the elevated setback, projected in excess of 20 percent, during parts of 2020 and 2021,” he added.

“The prospects for further reduction in the employment rate will depend on the speed at which the economy grows after 2023, catering both to the surplus of new labour that accumulated during the recession and workers who were only temporarily unemployed.”

Mr Rolle said: “Turning to the outlook, the Central Bank expects that growth in the economy will moderate closer to 4 percent in 2023 after regaining about 14.4 percent in 2022, according to the Bahamas National Statistical Institute. Correlated with this would also be more moderated changes in bank liquidity, healthy evolution of the external reserves and room for further reduction in the Government’s budget deficit.

“The domestic environment is expected to be able to support both increased lending to the private sector and allow the Government to increase its reliance on local borrowing to finance the deficit..... Bank lending to the private sector remains constrained overall. Based on the latest Lending Conditions survey through the second half of 2022, the volume of requests for loans has increased, but new lending was still pacing slower than debt repayment.

“Hence, even over the first quarter of 2023, total private sector contracted. However, the contraction was more moderated than in 2022, still holding out prospects for a more incremental increase in total credit by the end of 2023. In the meantime, the domestic banks continued to record healthy reductions in the credit delinquency rate over the first quarter of the year. Continued reduction in the delinquency rate, along with increased use of the credit bureau, is expected to further improve the environment for lending.”

Mr Rolle said inflation, and particularly higher fuel costs that might affect transportation and the tourism industry, as well as interest rate rises in the US and major economies all represent risks to The Bahamas’ economic outlook. “In this environment, the Central Bank’s monetary policy position is to continue to be accommodating for lending to the private sector,” he added.

“Although this increases the potential for net foreign currency outflows, it is still projected to leave the external reserves in a healthy position overall, and therefore maintain solid support for the Bahamian dollar fixed exchange rate. As regards to other foreign exchange market policies, the Central Bank will maintain a very measured approach to investment currency reforms, while favouring increased administrative efficiencies in processes governing trade payments, and both inward and outward direct investments.”