The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) has slashed its 2014 economic growth forecast for the Bahamas by almost 50 per cent, prompting a leading private sector executive to warn: “The writing is being put on the wall”.

Robert Myers, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC)chairman, told Tribune Business yesterday that the IMF’s decision to cut this nation’s GDP growth forecast from 2.3 per cent to 1.2 per cent should act as “a wake-up call” for both the Government and Bahamian people.

The Fund, in a report on its visit to the Bahamas last week, said “weak momentum” justified its decision to cut more than one percentage point off this nation’s GDP growth forecast. It had forecast that the Bahamas’ GDP growth for 2014 would be 2.3 per cent in its April World Economic Outlook - a publication released just three months ago.

Mbuyamu Matungulu, head of the IMF team that visited the Bahamas, said bluntly: “Economic activity continues to recover, but momentum remains weak, with growth estimated at 0.7 percent in 2013, and expected to be limited to 1.2 per cent this year.”

Based on the Bahamas’ total $8.149 billion GDP for 2012, the IMF’s decision to shave its growth projection by 1.1 per cent cuts this nation’s 2014 economic output by almost $90 million - a not insignificant sum for a nation this size.

The revised outlook also has worrying implications for the Government’s fiscal targets, given that revenue projections are based to a great degree on economic growth projections.

The Christie administration is projecting that its 2014-2015 GFS deficit will come in at $286 million, a sum equivalent to 3.2 per cent of GDP. This represents a $176 million drop from the $462 million deficit (5.4 per cent of GDP) forecast for the previous fiscal year.

While not explicitly saying so, the IMF team’s report appears to already be casting doubt on the Government’s 2014-2015 deficit projection, saying it will likely come in at “just under 4 per cent of GDP”.

The Fund added that hitting the fiscal targets depended heavily on the Government realising its forecast $150 million from a half-year of Value-Added Tax (VAT).

And, echoing the private sector, it effectively called on the Christie administration to get a move on with the release of the VAT legislation and accompanying regulations if it was to hit its January 1 deadline for the new tax’s implementation.

The IMF also backed calls by the BCCEC and Mr Myers to “accelerate” planned reforms of the Bahamas Electricity Corporation (BEC) and the energy sector, given the importance of lower costs and consistent power for the economy.

Mr Myers, meanwhile, told Tribune Business that the revised 1.2 per GDP growth was well below the 5.5 per cent rate that IMF staff reports believe is necessary to both slash the existing Bahamian unemployment rate by 50 per cent and absorb all school leavers entering the workforce.

“That’s probably right,” he said of the revised IMF forecast. “We have a lot of work to do. A slowing economy is not a good thing, and we’ve obviously got to do something to change that.

“We’ll never get out of our fiscal situation with an economy that’s slowing. We’ve got to grow our way out of this thing; everyone knows that.

“A move in the wrong direction is a wake-up call to the Government and the people. We’d better get on with ways to grow this economy. The writing is being put on the wall, and the IMF has just written another sentence on the wall.”

The IMF’s revised 1.2 per cent growth projection is an improvement on this nation’s 0.7 per cent GDP expansion in 2013, and the 1 per cent growth achieved in 2012. But it still emphasises that this nation’s economy is not growing fast enough to provide all the jobs required by the Bahamian people.

“The point I’d like to make to the public is that this is writing on the wall, and we have to make sure that we’re aware enough and awake enough to read them,” Mr Myers told Tribune Business.

He added that all indices and comparative data produced by the IMF, and the Wall Street credit rating agencies, needed to be assessed and the Bahamas make the necessary adjustments.

“The only way we’re going to work our way out of this is to grow, we can’t tax our way out,” Mr Myers reiterated. Growth is critical, and any way we can cut our costs like energy is critical.”

The Chamber chair renewed his call for an Immigration policy liberalisation that would allow entrepreneurs to start job-creating businesses in the Bahamas, and monetary reforms that would lower interest rates and free-up smaller loans to the private sector.

“Energy is a big deal, and it’s absolutely ridiculous that we’re dragging our feet on it,” Mr Myers said. “We can’t understand why, but we’ll keep screaming from the highest mountains.”

The IMF’s growth forecast slash dilutes the gloss created for the Government by the modest reduction in unemployment noted in the May Labour Force Survey.

It also comes as Elcott Coleby, one of the Government’s PR advisers, sent out an e-mail touting “a particularly good week for the Bahamas” based on the Christie administration’s ‘accomplishments’.

The IMF’s growth projection slash is also much more than that of Moody’s, the Wall Street credit rating agency, which recently lowered its 2014 outlook for the Bahamas to 1.9 per cent from 2.2 per cent. Standard & Poor’s (S&P ) growth forecast is similar, standing at 2 per cent.

It is unclear what impact the likely reduced growth will have on the Government’s fiscal projections. Neither Michael Halkitis, minister of state for finance; John Rolle, the financial secretary; or Khaalis Rolle, minister of state for investments, could be reached or returned Tribune Business messages seeking comment before press time.

In his statment, the IMF’s Mr Matungulu warned that fiscal consolidation pace “could be frustrated by delays in the introduction of the VAT”.

He added: “Preliminary data suggest that the fiscal deficit declined to 4.5 per cent of GDP from 5.4 per cent in the previous fiscal year. The deficit is projected to narrow further to just under 4 per cent of GDP in the 2014-2015 fiscal year, provided that the VAT is introduced in the coming months.”

Backing the Government’s plans to reduce the national debt, Mr Matungulu said: “This is essential to boosting investor confidence, further improving the growth outlook, and strengthening employment prospects.

“The mission emphasised the key role to be played by the VAT in that context. In this regard, the team encouraged the authorities to finalise the agreed VAT legislation to ensure the successful introduction of this key reform.”

The IMF team said the Bahamas’ current account deficit was projected to fall to 16.6 per cent of GDP in 2014, compared to 19.4 per cent in 2013, with the external reserves enjoying a modest boost.

It added that the financial sector “remains well capitalised and highly liquid, although it continues to deal with a sizable and aging stock of non-performing loans (NPLs)”.

Mr Matungulu said: “The staff team welcomed the anticipated improvement to the external balance from the soon-to-be opened Baha Mar project, which would boost tourism earnings and contain official external borrowing to shore up reserves.

“The team counselled efforts to strengthen and diversify growth, in light of continuing high unemployment levels. In this context, the team urged accelerated implementation of planned reform of the energy sector.

“Finally, the mission welcomed the continued strength of the financial system in the face of both high level of NPLs and a rapidly changing supervisory framework. In this respect, it urged continued close monitoring of credit risks, and supported government efforts at implementing appropriate domestic and international supervisory policies, including as recommended by the IMF’s recent Financial Sector Assessment Programme (FSAP).”