By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A failure by Baha Mar to deliver on the projected 10 per cent stopover arrival increase is among the greatest risks facing the Bahamian economy, the International Monetary Fund (IMF) warning that expected 2.8 per cent economic growth in 2015 would “not materialise” if this occurred.
The Fund, in its Article IV report, illustrated just how the Bahamas’ ‘eggs are in one basket’ when it comes to its reliance on Baha Mar to drive improved economic and fiscal performance.
It also tied Baha Mar’s, and the Bahamas’ overall, tourism success to their ability to tap into new and emerging markets for visitors, warning that many of these countries were already experiencing a slowdown.
“A key factor underlying medium-term projections is the expected expansion in supply,” the IMF said. “The full operation of Baha Mar could allow for an increase of almost 10 per cent in total arrivals, and two smaller hotel projects planned on Grand Bahama and Bimini islands [Memories and Resorts World Bimini] could add another 2.25 per cent in arrivals.
“Growth performance will also depend on success in addressing a number of parallel supply challenges going forward, including expanding incoming airlift capacity; addressing infrastructure bottlenecks; strengthening the linkages between tourism and other sectors; and developing a more diversified tourism experience, including ongoing plans to boost sports and health care-based tourism.”
The IMF said a “disappointing Baha Mar performance” would be “especially disruptive” to the Bahamas’ short and medium-term economic outlook, given this nation’s heavy reliance on it to generate employment (5,000 jobs) and foreign currency inflows.
“Baha Mar’s success critically hinges on effective implementation of the project’s strategic positioning (more focus on high-end products, more diversification to Europe, South America and East Asia) in the region’s fiercely competitive tourism market,” the IMF said.
“While staff’s baseline is conservative about Baha Mar’s growth impact, and the project was based on a thorough feasibility study, significantly lower-than-assumed net tourist arrivals or expenditure relating to the project would limit the upside boost to domestic economic activity.
“In a tail risk scenario, where the project completely fails to raise overall tourism exports, the uptick in growth currently projected for 2015 onward would not materialise, with adverse implications for fiscal revenues and the public debt outlook (the project entails no direct fiscal risks as it is entirely financed by foreign private sources).
“If the project did fail to deliver, there could also be significant pressure on reserves, and maintaining external and internal stability would then require a more aggressive approach to structural fiscal consolidation.”
The Fund said there was a “low” risk that Baha Mar would fail.
Still, the Article IV report said that while Baha Mar’s primary developers, the Lyford Cay-based Izmirlian family, “appear proficient in the tourism business”, there remained the risk that Cable Beach’s redevelopment could “cannibalise” the market with other resorts - a likely reference to Atlantis.
Focusing on the Bahamas’ strategy to diversify its tourism source markets, the IMF said this might be impacted by lower than expected growth in those nations, many of which were already slowing.
“With the tourism strategy aimed at exploiting arrivals in part from emerging market countries, a further slowdown of emerging market growth would undercut the growth outlook,” the Fund added.
“That said, the negative impact could be tempered by an accompanying decline in fuel prices. If tourism demand from new markets proves stagnant, the authorities may need to pursue ambitious structural reforms to help reduce the internal price level and draw in more demand from existing markets.”
The IMF said it and the Government agreed that diversifying tourism and the economy was essential for stronger growth, with $10 million allocated in taxpayer funds this year to help market Baha Mar. Medical, sports, heritage and religious tourism were also being targeted as niche markets.
Another $30 million has been allocated by the Government to fund special education and the College of the Bahamas (COB) transition to university status.
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