The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamas must “make the switch” to focus on medium to long-term economic goals after it was revealed yesterday that 2023’s 2.6 percent real GDP growth came in below expectations.

Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, told Tribune Business that concentrating too heavily on near-term or year-over-year results threatens to mask structural economic woes that must be tackled over multiple years such as education reform and Bahamas Power & Light/energy policy.

He spoke out after the Bahamas National Statistical Institute (BNSI) unveiled initial gross domestic product (GDP) growth estimates for 2023 that 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 aver- age 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.

“According to the 2023 annual estimates, economic activity in The Bahamas increased significantly by 9.2 percent in nominal terms and by 2.6 percent in real terms as business activity experienced modest gains,” the National Statistical Institute said in a statement.

“When compared to 2022, the majority of industries showed marginal growth, while tourism-related industries experienced sizable growth. In 2023, the total value of goods and services produced in the Bahamian economy was estimated at $14.3bn in nominal prices, and $12.8bn in real prices.”

Mr Edwards, while acknowledging that the 2.6 percent real GDP figure signalled “the economy grew a little bit slower” than expected, 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,” he 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.

“Obviously there are some opportunities out- lined in the IMF Article IV report, and those revolve around taking a serious look at areas for reform, taking a serious look at how we marshall this growth for the long-term. We’ve kind of focused too much on year-over-year growth over our medium to long-term position.

“When we look at the information we’re getting from the Inter-American Development Bank [country strategy], the results we are getting for education, it suggests we have some long-term structural issues that are not going to be fixed over one or two fiscal periods,” Mr Edwards continued. “We need to kind

of switch the narrative in a fundamental way, looking at where the numbers are going to be longer than one year out. We need to take a medium and longer term view. There are going to be problems from year-to-year. If we are not sufficiently focused on where the long-term results ought to be, we might make sub-optimal decisions to target this year as opposed to where we are in year three.

“We need to rethink how we manage the economy going forward. That involves taking a very honest and transparent look at all the things we know are problems - education, the National Insurance Board, BPL and wider energy policies. Those issues have a significant impact on the economy and we need to fix them.”

Mr Edwards argued that the Bahamian economy’s “better than expected” rebound from COVID has created room to “re-orientate policy and start to make sure we are in a better long-term position. It’s time to make the switch”.

He cited the Government’s projected $131.1m or 0.9 percent of GDP fiscal deficit for 2023-2024, which “is totally out the window at this point in time”, as an example of short-term thinking. “If we stay too long in that position we are going to come to a hard conclusion that everything is failing, instead of looking at the trajectory,” Mr Edwards explained.

“The deficit is growing at a reduced rate. That’s a positive. We need to take a broader narrative so that citizens in the coutry understand we are on the path coming back from where we were.. A path needs to be laid out very clearly so that it shows processes are working in parallel.

“Some reforms the Government is working on are not necessarily going to translate into success in one or two years, in the long-term they will work for the betterment of the country and that’s where we need to get to.”

The National Statistical Institute, analysing the main growth drivers using the “value added” approach that breaks it down by industry, said tourism’s continued expansion pushed the major gains in 2023. Accommodation and food services increased its economic output by $226m or 26 percent year-over-year.

“This growth is directly connected to the increase in tourism arrivals. As indicated by the Ministry of Tourism, the number of air and cruise tourist arrivals showed an increase of 24 percent with 7.8m visitors in 2022 compared to 9.7m in 2023,” its report said.

Construction’s contribution to economic growth expanded by $113m or 22 percent, aided by greater foreign direct and capital investment, while arts, other services, household employment and “extra- territorial organisations” expanded their output by $97m or 10 percent.

“This sector of the economy includes hotel casinos and sporting facilities, which also benefited from increased tourist activity,” the Statistical Institute said.

“Transportation and storage increased by $98m (16 percent) as air and land transportation grew substantially” with the end to COVID travel restrictions and mandates.

Turning to the “expenditure approach” for measuring GDP growth, the report added: “Household consumption grew by almost $621m (8 percent). Food and non-alcoholic beverages were responsible for the lion’s share of the increased household expenditure, with the rising cost of these expenditures resulting in the gap between nominal and real growth in this grouping.

“General government consumption, which includes public administration and defense, public education and public health, increased by $87m (4 percent).

The overall increase in general government consumption reflects the Government’s increased consumption of goods and services, compensation of employees and consumption of fixed capital goods.

“The increase in compensation of employees included public service-wide promotions and increments for civil servants. Exports of goods and services increased by $200m (5 percent) over 2022.

“This growth was led by tourism expenditure which represents the bulk of exports of services. Tourist arrivals and the resulting spending within the economy offset the reduction of exports of goods.”