By NEIL HARTNELL
Tribune Business Editor
The Bahamas will be “strained” to hit the Government’s and IMF’s projected 2.7 per cent GDP growth rate for 2013, a former finance minister yesterday warning this nation may never again hit the 2007-2008 heights.
James Smith, also an ex-Central Bank governor, said the Bahamas would be more likely to achieve such a growth target if it was measuring the economy’s performance based on the fiscal year calendar.
Emphasising that the Bahamas was still “muddling our way through” the post-recession landscape, Mr Smith said a 2.7 per cent GDP expansion was “more likely if it’s from July 2013 to July 2014”, given that Baha Mar’s project expenditures were set to increase as it raced towards completion.
“It’s going to be a bit of a strain,” Mr Smith, now CFAL chairman, told Tribune Business of the projected 2.7 per cent GDP growth target for the 12 months to end-December 2013.
“I don’t see our growth rate outstripping the US unless something extraordinary happens..... It’s going to be a slow climb back, if we ever get back to where we were prior to 2007-2008.
“It’s a question of how long it takes to muddle our way out of this. It’s a long and deep recession, and it will take time to get out of this. It’s making the Baha Mar project much more significant, assuming all the other players remain the same.”
Mr Smith noted that the Nassau Palm Resort’s recent closure following its acquisition by Sunset Equities, while beneficial in the long-term, would take another 200 hotel rooms off the market, resulting in job losses and occupancy drops.
And he emphasised that the Bahamian economy’s recovery still depended on external factors - tourism and other foreign exchange earners - as opposed to a revival in domestic demand and consumption.
This was born out by the Central Bank of the Bahamas’ report on monthly economic developments for May, which showed net contractions in both new private sector credit and outstanding consumer loans.
Private sector credit for May 2013 shrunk by $1.2 million, although the contraction was less than last year’s $13.7 million.
“The outcome reflected declines in consumer credit and commercial and other loans, of $1.3 million and $4.4 million respectively, following contractions of $7 million and $4.8 million in 2012,” the Central Bank said.
“However, mortgages posted modest growth of $4.5 million, vis-�-vis a $1.8 million decrease in the previous period.”
When it came to consumer loans, the Central Bank said “almost all loan categories registered contractions” in April 2013.
It added: “The most significant net repayments were posted for credit cards, debt consolidation and land purchases, of $8.9 million, $6 million and $5.8 million, respectively.”
The Central Bank said “more muted reductions” were recorded for education ($1.4 million), travel ($1.4 million) and furniture/domestic appliances ($0.6 million).
But lending for private cars, home improvement and the ‘miscellaneous’ category rose by $4.4 million, $0.9 million and $0.7 million, respectively.
Analysing these trends, Mr Smith told Tribune Business: “It’s a reflection of a number of things. One of which could be the banks kind of moving towards a more solid portfolio where they’re being very circumspect with new loans and people qualifying for them.
“I think it’s a drawback on their part, and they’re not marketing as heavily. And a number of consumers still in the workforce are deleveraging, paying off loans and not taking out new loans. This is a recognition that the recession is still affecting some people, and they do not want to get beyond their limits.”
Beyond the individual situations, Mr Smith said this “also reflects sluggish growth in the economy.
“The bottom line is there will be continued slow growth in the economy, and this is likely to play out in commercial loans as well as consumer loans. I think the economy is responding almost normally to the sluggishness we see around us.”