By NEIL HARTNELL
Tribune Business Editor
Moody’s yesterday slashed its 2017 economic growth forecast for the Bahamas to “below 1 per cent”, and warned that there was little medium-term momentum beyond Baha Mar.
The credit rating agency, releasing its full Bahamas country analysis, said there were “signs” that this nation had endured a third consecutive year of recession in 2016, following the one-off blow from Hurricane Matthew.
It is projecting that the Bahamas’ real GDP will expand by a modest 0.8 per cent in 2017, following a 0.3 per cent contraction last year, further showing how much work is required to turn this nation’s $8.9 billion economy around.
“Over the coming years we expect that growth will gradually recover. We forecast growth below 1 per cent in 2017,” Moody’s said. “The full operations of Baha Mar will likely provide a short-term boost to economic activity in 2018.
“Thereafter, economic growth would return to potential (1-1.5 per cent). In our view, the Bahamas’ medium-term outlook remains constrained by structural rigidities that include high energy costs and the bureaucratic burden that private sector agents face.”
Moody’s revised 2017 growth forecast is 60 basis points lower than the International Monetary Fund’s (IMF) own predictions, which were cited by K P Turnquest, deputy prime minister and minister of finance, during the May Budget presentation.
The rating agency’s analysis highlights the need for what Central Bank governor, John Rolle, described as the “planting of seeds” to ensure greater medium-term economic growth, given that Baha Mar’s impact has already been accounted for in Moody’s estimates.
Mr Rolle pointed to Fiscal Responsibility legislation and reforms to public sector financial management as changes that were needed on the Government side, but the Moody’s report focused on energy reform and improvements to the ‘ease of doing business’ as developments that were also essential.
It hinted strongly that reform efforts should be led, and guided, by the National Development Plan, adding that this “could serve as a platform to develop structural reforms that foster higher economic growth”.
“The Bahamian economy has underperformed since 2013, with signs the economy contracted for a third consecutive year in 2016,” Moody’s said. “The Bahamas lags ‘Baa’ rated peers in terms of its growth performance, being the only economy estimated to have averaged negative growth in the 2013-17 period.
“The economy’s weak performance in recent years has continued to reflect some of the lasting effects of the shock caused by the global financial crisis, which itself contributed to a recession in The Bahamas in 2008-2009
“One such effect was the impact of the crisis on inbound tourism flows from the US, which declined for the Bahamas since 2005, and have yet to return to their pre-crisis levels. In terms of domestic demand, private consumption has also been very volatile, affected by high rates of unemployment (averaging over 14 per cent in recent years) and the debt overhang of households,” it added.
“As a consequence, non-performing loans rose significantly, particularly affecting mortgage credit. Loan growth has decreased significantly as demand from qualified borrowers has fallen and banks have tightened their lending policies. This, in turn, has also negatively affected residential construction.”
Moody’s said the Bahamian economy’s performance had been boosted by Baha Mar’s construction during 2011-2012, but its poor performance since 2013 to-date reflect both the $4.2 billion project’s delayed opening and the impacts of Hurricanes Joaquin and Matthew.
Hurricane Irma’s churning in the Atlantic, and forecasts that it will head in this general direction, are likely to revive unhappy recent memories for many Bahamians. “The Bahamas’ exposure to climate-related events, in the form of hurricanes, is a structural feature of the credit which we consider manifests itself through low growth and growth volatility,” Moody’s added.