The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) yesterday slashed the Bahamas’ 2015 economic growth forecast to just 1.2 per cent, further “widening the gap” with the 7 per cent rate it says is needed to slash this nation’s near-14 per cent unemployment rate in half.

The Fund’s action, taken in its World Economic Outlook report, means it has cut the Bahamas’ 2015 GDP growth forecast by more than one percentage point in just six months.

Having predicted that this nation’s economy would expand by 2.3 per cent this year, the IMF then cut this forecast to 1.8 per cent when it released its Article IV consultation report on the Bahamian economy in late July.

Yesterday’s cut to 1.2 per cent means that the IMF has slashed its Bahamas’ gross domestic product (GDP) expansion prediction by more than a full percentage point in half a year.

Given that Bahamian GDP totals around $8 billion, the 1.1 percentage point cut to this nation’s growth forecast has effectively wiped at least $80-$90 million off 2015 output predictions.

The IMF will have made these revisions prior to the devastation inflicted upon the southern and central Bahamas by Hurricane Joaquin, which threatens to further impact the economy’s growth and performance.

The new 1.2 per cent 2015 growth forecast is just above the 1 per cent expansion that the Bahamian economy achieved in 2014, while the Fund also cut its 2016 estimate for this nation from 2.8 per cent to 2.2 per cent.

K P Turnquest, the Opposition’s deputy leader and finance spokesman, told Tribune Business that “the primary reason” for the downgraded growth forecast was likely the dispute-delayed opening of the $3.5 billion Bah Mar development.

The absence of a “definitive opening date” for a project billed as the Bahamian economy’s “saviour” will also have factored into the IMF’s decision.

“If you look at the long-term historical growth rates for the Bahamas, on average they’re not much more than 1 per cent,” Mr Turnquest said.

“I thought that the Government was being overly optimistic in its projections for this year. They were anticipating that Baha Mar was coming on stream, and that it was going to spur all this economic growth.

“Those of us more conservative in our economic outlook were saying they, even with Baha Mar opening, were being kind of aggressive with those growth forecasts.”

The Fund generally revised world growth forecasts downwards yesterday. Its adjustments effectively slash the Bahamas’ 2015 GDP growth rate almost half. And its new 1.2 per cent prediction is less than 50 per cent, in percentage terms, of the 2.6 per cent expansion predicted by the Christie administration in its 2015-2016 Budget.

All of which implies that the lower than-expected economic growth could impact the Government’s fiscal forecasts, especially its revenue projections, which typically rely on buoyant economic activity.

Mr Turnquest, meanwhile, said the downgraded growth forecast was putting the Bahamas further and further away from achieving the rate necessary to both slash existing unemployment by 50 per cent and absorb all new workforce entrants between now and 2018.

The Fund, in its full Article IV report back in July, upped the average five-year GDP growth rate that the Bahamas needs to achieve this from 5 per cent to 7 per cent.

“I remember correctly, we need somewhere in the region of 5-7 per cent,” Mr Turnquest told Tribune Business. “That is a wide gap; between 1.2 per cent and 7 per cent.

“There is going to be a direct correlation between the lack of substantial growth and unemployment. I think that the outlook in terms of the unemployment rate coming down is not looking too good at the moment, unless there’s some significant event that happens between now and the next [IMF] report.

“I don’t think we can dismiss what this means in terms of the long-term growth and health of the economy.”

Describing himself as “very concerned”, Mr Turnquest said he was more worried about “the reality of the situation” on the ground in the Bahamas, as opposed to the IMF’s forecasts.

Referring to Baha Mar, the east Grand Bahama MP added: “The saviour project has not come, and no one knows when it will come.

“In the meantime, there’s no real effort to create alternative investment projects that might supplement or offset if this [Baha Mar] doesn’t come to fruition.”

Mr Turnquest said the continuing impasse over Baha Mar, and uncertainty over when its construction will be finished and the resort campus open, again highlighted how the Bahamas “cannot put all our eggs in one basket and expect things to be OK”.

“We have to go out aggressively and look for foreign direct investment and domestic investment projects, and implement the incentives that will encourage people to take the risk on us as a nation,” the FNM deputy leader said.

“Thank God that the hurricane did not hit our primary economic hub [Nassau], otherwise we would be talking a totally different story altogether.”