By NEIL HARTNELL
Tribune Business Editor
The Central Bank of the Bahamas yesterday warned that this nation’s recovery remained “very fragile”, with official government data suggesting the economy grew by “a mere” 0.7 per cent in 2013.
In a message fraught with implications for the Government’s Value-Added Tax (VAT) and fiscal reforms, the Central Bank - in unusually strong language (at least where it is concerned) - used its March economic report to warn that “below trend growth” was set to persist in the near term.
“Preliminary estimates released by the Department of Statistics place real GDP growth at a mere 0.7 per cent for 2013, confirming that the recovery is still very fragile,” the Central Bank said.
“This below-trend growth is expected to persist over the near-term, as the domestic environment continues to face significant headwinds, due to the modest recovery in the global economy - particularly in the key stopover markets for tourists.”
The translation of all this is that the high unemployment figures are unlikely to be dented in the short-term, and if the Government gets fiscal reform wrong, it could push the Bahamian economy back into recession.
“In other words, make your seatbelt even tighter,” said Rick Lowe, the Nassau Institute executive, when informed of the Central Bank’s analysis yesterday.
“I don’t, and no one I speak to, sees any great growth or business increasing. I think we’re in deep trouble.”
Suggesting that the Central Bank had placed the “most positive spin they can” on the situation, Mr Lowe said anyone reading between the lines would immediately grasp the negative undertones.
As for the Department of Statistics’ findings, Mr Lowe added: “That’s [0.7 per cent] not anything at all really. One per cent of nothing is nothing. I think our taxes are very high already, and this is only going to make it worse. It’s getting kind of scary.”
The Central Bank also reemphasised how the Bahamas’ ‘eggs are in one basket’ with the $2.6 billion Baha Mar project, but noted how its employment impact was being offset by the loss of high-paying, middle income jobs in the financial services industry.
“Steady stimulus from foreign investment activity, alongside the pending completion of the mega resort project [Baha Mar] will provide improved opportunities for employment in the near-term, although counterbalanced by the recent announcements of retrenchments in the banking sector, which are poised to impact the middle income segment of the job market,” the Central Bank said.
When it came to the fiscal position, the Government’s deficit was down by $92.3 million or 26.3 per cent for the eight months to February 2014, although the $258.6 million worth of red ink means the monthly deficit still exceeds $32 million.
While spending was down $69.2 million or 5.6 per cent, this was largely due to a $59.5 million drop in capital spending as major infrastructure projects came to an end.
The revenue side displayed continued weakness, as tax receipts fell by $11.7 million or 1.5 per cent to $776.4 million. The fall was led by a $29.4 million, or 7.2 per cent decline, in the all-important international trade taxes.
“Financing for the deficit was sourced from both the external and domestic markets,” the Central Bank said.
“Specifically, external borrowings totalled $423.8 million and included a $300 million bond and $123.8 million in loans.
A total of $370 million was raised domestically and comprised foreign currency loans ($125 million), bonds ($115 million), short-term advances ($79 million) and Treasury bills ($51 million).”