The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

A SENIOR Caribbean economist yesterday described the Bahamas’ current account deficit of roughly 20 per cent as “concerning”, revealing it was one of the widest she was aware of.

Marla Dukharan, senior economist with Royal Bank of Canada (RBC) Caribbean, while addressing Royal Fidelity’s inaugural Bahamas Economic Outlook conference,  said: “Having a current account deficit of roughly 20 per cent of GDP is one of the widest that I am aware of.

“That deficit on the current account has been in the past financed by foreign direct investment. If those inflows do not support this, what ends up happening is that you have a balance of payment deficit, and that shows up as a decline in your foreign exchange reserves.”

Ms Dukharan added: “We saw a little bit of an increase in the foreign exchange reserves in December, which was quite good, but it was still down from the highs seen in the middle of last year.

“That suggests that there was a net outflow of US dollars, and that is of concern and something that correcting the fiscal picture helps to fix. “That net outflow of US dollars is supported by spending and consumption. The more that the Government spends, the more leakage there is in terms of US dollars. So correcting that fiscal imbalance helps to correct the imbalance on the external front.”

Ms Dukharan said International Monetary Fund (IMF) figures showed that the Bahamas;’ primary deficit was turning into a surplus in 2016. “I was very pleased to see the  IMF figures that the primary deficit is actually turning into a surplus in 2016,” she added.

“It means that by next year, based on taxation reform, you will no longer have a primary fiscal deficit and no longer be borrowing to service the interest on your existing debt.

“That is a very positive thing. The IMF is also predicting that by 2018 your fiscal deficit will shrink to 1 per cent of GDP. Having a level of debt that is 60 per cent of GPD is a critical threshold. In this region, empirical  data has shown that once you cross that threshold every additional dollar of debt you take on actually takes away from growth.”