The Tribune

Prime Minister Perry Christie yesterday slashed a full percentage point off the Bahamas’ projected economic growth for 2016, cutting real GDP expansion estimates to just 0.5 per cent.

Mr Christie, unveiling the Government’s 2016-2017 Budget, implied that the major revision to the Government’s growth forecasts had been sparked by the Department of Statistics’ recent release of national accounts data for 2015.

That report said the Bahamian economy had contracted by 1.7 per cent in real terms during 2015, a figure that contrasted sharply with both the Government’s own growth estimates and those from the International Monetary Fund (IMF) and credit rating agencies.

“We were all wrong on our estimates,” Mr Christie admitted, revealing that the Government had also slashed 2017 real GDP growth estimates to just 1 per cent.

“The Ministry of Finance and the Central Bank expect some degree of firming in economic activity this year on the basis of ongoing modest growth in the tourism sector, and foreign investment-led activity in the construction sector,” he added.

“On that basis, real GDP is expected to grow by some 0.5 per cent in 2016, following the 1.7 per cent contraction last year.

“That rate of expansion in economic activity is projected to strengthen further in 2017, to an annual rate of 1 per cent in real terms.”

The cuts to both 2016 and 2017 forecasts come just months after the IMF estimated the Bahamian economy would expand by 1.5 per cent in both years, meaning that a full percentage point - equivalent in value to $80-$90 million - was yesterday shaved off this nation’s projected output.

The Prime Minister’s 2016 growth projection is also lower than the forecasts supplied by Moody’s and Standard & Poor’s (S&P),the two credit rating agencies, which in the past several months estimated the Bahamian economy would expand by 1.5 per cent and 1.2 per cent, respectively.

The revised GDP growth figures mean the Bahamas is also moving further away from the 5.5 per cent that the IMF estimated was necessary to both cut the existing unemployment rate in half, and absorb all new workforce entrants, over the five years to 2018.

Acknowledging that the Department of Statistics data suggested the Bahamian economy had been in recession for two years, Mr Christie noted the sharp “contrast” between its findings and previous 2015 growth estimates.

“This... stands in contrast to the projected positive rate of real growth of 2.3 per cent presented in last year’s Budget Communication, which had been developed by the Ministry of Finance in conjunction with the staff of the IMF,” Mr Christie said of the Department of Statistics report.

“The estimates of real growth in the Bahamian economy presented by the major ratings agencies at various times following the May Budget also featured positive rates of growth for 2015.”

The Prime Minister also conceded that the lower-than-expected GDP growth had major implications for the Government’s fiscal performance, given that it acted as the denominator for key ratios.

“For instance, the value of nominal GDP, which is used as the denominator in our fiscal ratios, is now estimated at $8.736 billion in fiscal year 2014-2015, down $35 million from last year’s Budget forecast,” he explained.

“More significantly, the value of nominal GDP in the 2015-2016 fiscal year is now estimated at $8.944 billion, down considerably from $9.22 billion in last year’s Budget.”

This again suggests that successive administrations have been over-optimistic in their GDP growth estimates, which in turn has led to revenue forecasts that turned out to be too aggressive. And Bahamian governments have relied on these GDP growth estimates to keep the fiscal and debt ratios in check, something they may no longer be able to do.

Mr Christie blamed the 2015 economic malaise on the construction industry and a fall-off in foreign direct investment-led projects, chiefly the Baha Mar development prior to its collapse into bankruptcy.

Pointing to improvements in other sectors, he added: “Activity in the domestic construction sector posted mixed signals in 2015. Mortgage loan disbursements for new construction and repairs in the residential segment grew by an appreciable 35 per cent last year, a reversal from the 8 per cent decline in the previous year.

“This performance contrasts to that in the smaller commercial segment, where disbursements fell to roughly $10 million from $15 million in 2014.”

Elsewhere, Mr Christie said the Bahamas’ external reserves “expanded significantly” during the 2016, growing by $172 million over that three-month period to hit $980.5 million.

Looking beyond this nation’s borders, the Prime Minister expressed hope that the “slightly more buoyant” forecast for the US economy would result in spin-off benefits for the Bahamian tourism industry.

He conceded, though, that the uncertain outlook for the world economy, especially in key markets such as China, and low growth rates elsewhere meant potential headwinds for the Bahamas.

“For the Bahamas, the implications are clear,” the Prime Minister said. “We must, on the one hand, protect the hard-won improvements in our public finances that have to-date been secured, and persevere with the further improvements that are planned.

“That is critical to maintaining confidence in our nation as a very attractive locale for investment. We must also address the various structural reforms that are necessary to boost productivity and enhance the competitiveness of our economy.”