The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government and Opposition yesterday battled over what real GDP growth that fell below expectations for 2023 means for The Bahamas’ short-term economic prospects.

The Ministry of Finance, responding one week after the Bahamas National Statistical Institute (BNSI) unveiled estimates suggesting this nation’s real economic output expanded by 2.6 percent last year, sought to emphasise the positive by highlighting that it was a growth rate “almost double the country’s recent average”.

It also added that this figure was also “more than twice the Government’s” 1.1 percent gross domestic product (GDP) growth projection unveiled in the recent mid-year Budget, describing the data released by the Institute as “very encouraging”.

However, Michael Pintard, the Opposition’s leader, hit back by pointing out that Prime Minister Philip Davis KC said he had expected the economy to grow by 4.3 percent in 2023 when presenting the 2023-2024 mid-year Budget at end-February.

And he asserted that the Government had deliberately ignored, and failed to address, the fact that its own Budget projections had cut forecast economic growth for the present 2023-2024 fiscal year by 80 percent in just nine months - slashing it from 5.5 percent in May 2023 to just 1.1 percent at the mid-year.

The Ministry of Finance, talking up the figures, said: “The estimates were very encouraging with nominal GDP increasing by 9.2 percent and real GDP increasing by 2.6 percent. The nominal growth was more than twice the Government’s mid-year projection for fiscal year 2023-2024 of 3.7 percent, and the real projection was more than twice the Government’s mid-year real projection for fiscal year 2023-2024 of 1.1 percent....

“The medium term and long-term growth prospects for The Bahamas are very encouraging, and the preliminary GDP results of 2023 provide this confirmation. A 2.6 percent real growth is almost double the country’s recent average real growth excluding the post-pandemic adjustment. As prices continue to normalise globally, the retail and utility sector would grow, and strong real GDP growth would continue.”

The release, though, seemed to misrepresent a Tribune Business inter- view with Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, by suggesting he said the 2.6 percent real GDP growth rate “should be viewed as a sign of potential trouble in the future given that it is below previous estimates provided by the IMF”.

Mr Edwards, in fact, said The Bahamas needs to focus more on its medium and long-term economic goals rather than have a myopic concentration on short-term annual outcomes. He acknowledged that the 2.6 percent real GDP figure signalled “the economy grew a little bit slower” than expected, but told this newspaper that it still represented a rate slightly higher than the country’s annual average.

“That tells you there is some momentum being created in the economy in terms of the consolidation and kind of correction from Dorian and COVID,” Mr Edwards said. “That’s a positive. The question going forward is always going to be how we move this from 2.6 percent to 3 percent or 3.5 percent consistently.”

“For The Bahamas, according to the BNSI, the economic expansion which the country is currently experiencing is driven by strong tourism and construction activity supported by foreign direct investment and an improved domestic economy,” the Ministry of Finance added.

“The domestic economy has strengthened because of a deliberate strategy of the Government to stabilise the public finances. Service exports, which are mainly tourism related, grew by $200m and real construction activity grew by 22 percent.

“The areas where real growth was stunted were in the utilities sector and the retail sector. Given the spike in fuel prices last year and its impact on energy costs, this was expected and should be viewed as a one-off event with no lasting effect on the country’s growth trajectory,” it continued.

“Finally, the 2023 preliminary GDP results demonstrate that the Government’s growth strategy of stimulating the economy through encouraging foreign direct investment, stabilising public finances, and making strategic investments in the health and social sector is clearly working. The Government is confident that this strategy would lead to acceleration of economic growth over the medium term.”

Mr Pintard, not surprisingly, had a much different interpretation as he blasted the Ministry of Finance’s statement as “a sad and desperate attempt at spin” that sought to mask the fact 2023’s economic growth had underperformed the IMF’s 4.3 percent projection by 40 percent in percentage terms.

“No less than the Prime Minister himself a few weeks ago, in late February 2024, said that he expected the economy to grow in real terms by 4.3 percent last year only to find that the growth only reached 2.6 percent,” the Opposition’s leader blasted.

“Even at the mid-term Budget report, when the Prime Minister failed to publicly acknowledge that they were forced to drop the economic growth fore- cast for this fiscal year by 80 percent - from 5.5 percent to 1.1 percent - this reckless PLP government still did not come with a plan to rein in spending and to boost the economic prospects.

“They’ve only recently admitted this drop in economic forecasts to 1.1 percent after trying to hide it on purpose until Opposition parliamentarians brought it up in the House. We must also ask the question: If the Minister of Finance had already adjusted the fiscal year forecast to 1.1 percent in the actual mid-year report, why was he still claiming in his mid-year Budget statement that he expected 4.3 percent growth in 2023?”

The fiscal year, though, runs from July to June the following year, whereas the IMF’s 4.3 percent forecast was based on the calendar year, so it is not a direct comparison. Mr Pintard, though, warned that the missed growth forecasts will lead to higher fiscal deficits and an increased national debt, as well as “worsen the burdens on already-struggling Bahamian families”.

Tribune Business reported last week that the initial GDP growth estimates for 2023 unveiled by the Institute came in under both International Monetary Fund (IMF) and Central Bank of The Bahamas forecasts.

The Fund, in its late November 2023 statement on the latest Article IV consultation with The Bahamas, projected that real GDP - a measure of total economic output that strips out inflation’s impact - would be around 4.3 percent last year as the economy completed its recovery from the COVID-19 pandemic.

And John Rolle, the Central Bank’s governor, said as recently as late January: “In 2023, it is estimated that the economy grew in the 4 percent range, which is a levelling off from the significant post-pandemic recovery of around 14 percent in 2022.

“This captured a very robust boost in the cruise sector’s contribution, a completion of the occupancy recovery in the stopover sector, and healthy appreciation in the average pricing for stopover accommodations, among both hotels and vacation rental properties. In 2024, the growth is expected to be within the low 2 percent range, still moderately above the estimate of the economy’s medium-term potential.”

However, according to the Statistical Institute, real GDP growth in 2023 was just 2.6 percent - an outcome that was around $200m lower than both the Central Bank and IMF had forecast. Still, that growth rate represented a $330m expansion in Bahamian economic output to $12.831bn, which pushed this nation beyond the pre-COVID GDP record of $12.616bn set in 2018.