The Tribune

By NEIL HARTNELL Tribune Business Editor THE Central Bank's governor yesterday said projected Bahamian economic growth of 2-2.5 per cent for 2012 remained "achievable" despite the gathering downside risks, while disclosing that the external reserves were down $240-$245 million from their April 2011 peak. Wendy Craigg told Tribune Business that the $2.6 billion Baha Mar development at Cable Beach would increase both foreign direct investment (FDI) and construction sector activity over 2011 levels, helping to mitigate global economic uncertainty and oil price volatility. She acknowledged, though, that the Central Bank of the Bahamas had intentionally 'flagged up' rising oil prices in its January 2012 monthly report as a potential 'downside' risk, although domestic inflation was expected to remain at 2011's 3.2 per cent level for the remainder of this year. "This year we certainly stand to see stronger growth of 2-2.5 per cent," Mrs Craigg told Tribune Business. "That's achievable based on the level of activity in the construction sector. "It's still achievable given the projects that are ongoing and the contribution they will make to growth. The Baha Mar project is not dependent on external factors, and that will continue." Noting that there was "still a considerable amount of volatility" associated with global oil prices, and that these represented a "downside risk" to Bahamian and world economic growth prospects, Mrs Craigg said it was possible their recent increase could be mitigated by slowing growth in China and the rest of the world. As growth slowed, oil demand was likely to reduce, "but if world demand slows it has other implications for us", the Central Bank governor said. Acknowledging that the Central Bank had made oil/energy price volatility a more prominent issue in its January 2012 monthly and economic financial developments report, Mrs Craigg told Tribune Business: "We wanted to signal it is a development that could have an impact for domestic price levels going forward, something we cannot discount." Asked about the likely implications for Bahamian inflation in 2012, she suggested it was likely to remain in line with 2011's 3.2 per cent, in itself a 1.9 percentage point increase over 2010. "On balance, I believe the rate will persist at its current level as there's some countervailing factors that we can see, with slowing demand, that will help to even out the rate," Mrs Craigg told Tribune Business. Although final FDI statistics were not available for 2011, Mrs Craigg said capital inflows into the Bahamas were "likely to be higher than in 2010". She added that this trend was expected to continue, with 2012 FDI inflows higher than last year, due to the "ramping up" of Baha Mar and continued investment at the likes of BORCO and Albany. When it came to the Bahamas' external reserves, Mrs Craigg said they were running some $70-$75 million below the same time last year. They had, though, recovered slightly from the year-end 2011 total of $884.8 million to stand at their current $895.8 million. And, while the foreign currency reserves were now some $242.2 million off their $1.138 billion peak achieved in April 2011, Mrs Craigg said the latter figure had been boosted by extraordinary one-off receipts from transactions such as the $206 million Bahamas Telecommunications Company (BTC) privatisation. Subsequently, this figure had been reduced by profit remittances by commercial banks, and foreign currency demand to pay for oil imports. "You have to put this in the context of lower inflows from the real sector," Mrs Craigg told Tribune Business. "Foreign reserves are still running behind last year by around $70-$75 million." She added that the current foreign reserves total was "certainly over the three months' of imports" threshold recommended by the International Monetary Fund (IMF). Mrs Craigg said the Bahamas was "unfortunately likely to see a continuation of the high unemployment data" for some time to come, with job growth lagging economic recovery. And, as for the level of Bahamian commercial bank loan arrears, she added: "That's not expected to show any material change in the coming months. The work out period for that will be extended."