By NEIL HARTNELL
Tribune Business Editor
The International Monetary Fund (IMF) yesterday cut its projections for Bahamian GDP growth in 2015 by 25 per cent, meaning this nation’s focus has “got to be” economic expansion and job creation.
The Fund, in its latest World Economic Outlook, slashed the Bahamas’ economic growth outlook for 2015 from 2.8 per cent to 2.1 per cent, although it provided no reasons for taking this action.
The cut, likely influenced by expectations that the global economy’s performance will be weaker than anticipated, will also probably have been induced by Baha Mar’s later opening (pushed back to late Spring 2015) and the potential negative impact from Value-Added Tax (VAT) implementation.
The IMF’s revised projection for 2015, a crucial ‘make or break’ year for the Bahamian economy, brings it into line with the Wall Street credit rating agencies, Moody’s and Standard & Poor’s (S&P), both of which have forecast GDP growth of around 2 per cent for the Bahamas.
Given that the Bahamian economy’s total annual output (GDP) is estimated at around $8.932 billion for the 2014-2015 fiscal year, the IMF’s revised estimate effectively slashes $62.5 million off this nation’s projected 2015 growth - a significant number.
And, while 2.1 per cent is not to be sneezed at, it again highlights how far the Bahamas has to go to achieve the 5.5 per cent average GDP growth rate deemed necessary by the IMF to slash existing unemployment by 50 per cent - and absorb thousands of annual school leavers into the workforce - by 2018.
Robert Myers, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, yesterday called for a renewed focus on economic growth strategies in the wake of VAT implementation.
“That’s all we should be focusing on now; a growth strategy,” he told Tribune Business. “We’ve done as much taxation as the public can stomach, and now it’s got to be growth.
“The Prime Minister knows that, Khaalis [Rolle] knows that and Michael [Halkitis] knows that. The guys that need to know, know that. This is hugely important. It’s the difference between winning and losing.
“We’ve got to get people to work. There are 6,000 kids coming out of school every year. We’ve got to get those people to work.”
Mr Myers conceded that the IMF had shaved “a good bit” off the Bahamas’ projected GDP growth for 2015, but said it was difficult for him to comment further because the Fund did not lay out its rationale for doing so.
The BCCEC chairman, though, said he had “no doubt GDP growth will go up next year” as a result of the impact and activities surrounding the $3.5 billion Baha Mar project’s opening.
“I think it’s probably right, based on an improving economy and the fact that the VAT is going to have a slightly negative effect,” Mr Myers told Tribune Business.
“Quite frankly, it’s reasonable and I hope it’s more. If it’s 2.5 per cent, 2.8 per cent, it will be even better, but that means a whole lot more people employed, and FDI prospects coming out of the ground now to have that effect between now and the first quarter of 2015.”
K P Turnquest, the Opposition’s finance spokesman, yesterday told Tribune Business that the revised IMF outlook for 2015 was “in line with what we expect”.
He said the Fund’s projection was now consistent with what was happening “on the ground in the Bahamas”, and added: “One has to wonder to what extent the uncertainty over things like VAT might have had on these projections.
“Everybody expects there’s going to be some downward effect, particularly on the local economy, as a result of this new tax regime.”
Mr Turnquest said the IMF outlook was also likely to have been “significantly affected” by the delayed Baha Mar opening, given the weight the Government was placing on the project to revive the Bahamian economy.
And the IMF’s World Economic Outlook has also accounted for VAT’s likely impact on living costs in 2015, projecting that the increase in overall consumer prices will jump to 4.4 per cent next year from 1.4 per cent in 2014.
Mr Myers said the IMF estimate was in line with the Bahamian private sector’s 4.5-5 per cent price increase projection, adding: “We would expect it to be right in that range.”
For his part, Mr Turnquest described the IMF’s price impact projections as “very significant”, suggesting they might be on the low side.
“We’re probably going to see an increase in unemployment because businesses will have to make some adjustments and find some efficiencies,” he said in relation to VAT.
“The quickest place to have some effect is in payroll. Overall, we’ll continue to see a rise in mortgage arrears as well as increased demand for social services. I don’t see a pretty picture at all.”
The Fund’s 2015 growth projection is also more than the 1.2 per cent GDP expansion that the IMF is predicting the Bahamas will achieve for this year.
The Fund earlier this year slashed its 2014 economic growth forecast for the Bahamas by almost 50 per cent, from 2.3 per cent to 1.2 per cent.
But both the 2014 and 2015 growth projections are well short of the 5.5 per cent average the IMF believes is necessary to achieve a meaningful reduction in both existing unemployment and absorb new workforce entrants.