The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Although Hurricane Sandy’s impact will not harm the Bahamas’ chances of achieving 2.5 per cent GDP growth for 2012, the Central Bank’s governor yesterday warned that the economy needed to grow at a faster rate to reduce the 14.7 per cent unemployment rate.

Implying that the Bahamas would be stuck with relatively high, double digit unemployment rates for several years to come, Wendy Craigg said the economy required a GDP growth rate “in excess of 2.5 per cent” if it was to make a material dent in the jobless levels.

The International Monetary Fund (IMF) and Wall Street credit rating agencies have projected that the Bahamian economy will grow by 2.5 per cent this year and 2013, with a slight uptick to 2.7 per cent coming in 2014.

Yet the Bahamas currently has 41,000 persons who are either officially unemployed or said not to be seeking work, plus a labour force that expands by at least 3,000 persons every summer when the latest year graduates from high school.

Acknowledging that the only way to reduce the unemployment rate was through economic growth, Mrs Craigg said it was difficult “at this particular time” to see how the jobless rate cut be cut in the short-term.

“That’s been the experience for the past two to two-and-half years,” the Central Bank Governor told Tribune Business of the Bahamian economy’s failure to materially reduce unemployment despite enjoying some economic growth.

“At that growth rate [2.5 per cent], we’ve not been able to absorb the unemployment. It needs to be a faster rate. It needs to be in excess of 2.5 per cent, based on our current experience.”

When asked by Tribune Business whether the Bahamas was likely to be stuck with elevated unemployment levels into the medium term, Mrs Craigg replied: “That may be the case.”

The Department of Statistics, in May this year, noted that youth unemployment was an especially serious problem, with 29.45 per cent of Bahamians aged between 15-24 looking for work but unable to find it.

The Bahamian economy’s services-based nature, dependent on tourism and financial services, meant it relied on external forces in the world economy to drive growth.

Agreeing that “downside forces” remained, Mrs Craigg said Hurricane Sandy’s impact was “more of a concern” in relation to the US east coast, given that it was the Bahamas’ major source tourist market - particularly for higher-yielding stopover visitors - with Americans accounting for 85 per cent of this nation’s arrivals.

“I don’t think it will impact it,” Mrs Craigg said of Sandy’s potential effects on the Bahamas’ projected 2.5 per cent GDP growth for 2012.

“Most of the damage was localised in a few areas, but the main drivers of that growth rate is what happens in tourism and the Baha Mar project, and large foreign direct investment (FDI) activities.

“From that standpoint, the tourism activity, Sandy would have an impact and be more of a concern, because most of our tourists are from the US east coast, and the US accounts for 85 per cent of our market. It all depends on the outside, what happens in our key source markets. ”

With Baha Mar “ramping up” in 2013, Mrs Craigg expressed optimism that the Bahamas would “at least” match 2012’s GDP growth of 2.5 per cent next year.

“There’s some promising developments that are in the pipeline for foreign direct investment, and hopefully they’ll be able to provide some of the impetus for growth,” she said.

While the Bahamas’ external reserves were “not seeing much growth”, the Central bank governor said they were “holding” at just below $840 million - down 7 per cent from the $903 million held at this time last year.

Noting that the current level of foreign currency reserves was still above the minimum three-months’ worth of imports limit set by the IMF, Mrs Craigg said: “Given the circumstances, it’s a relatively healthy level of reserves.

“We may have some further run-off towards the end of the year, in line with the normal pick up” for Christmas.