By NEIL HARTNELL
Tribune Business Editor
The Bahamas’ real GDP per capita is lower now than it was 11 years ago before the start of the global recession, the Inter-American Development Bank (IDB) has revealed.
The IDB, in its latest Caribbean quarterly bulletin, provided further evidence of how negative economic growth over the past decade has resulted in reduced living standards and quality of life for many Bahamians.
“The average growth rate during the past decade of The Bahamas (-1 percent), Barbados (-0.7 percent), and Jamaica (-0.5 percent) was negative and close to zero,” the multilateral lender disclosed. “As a result, real GDP per capita of these countries remains below 2007 levels.”
The IDB’s revelations further underscore the deterioration caused by the failure, spanning successive FNM and PLP administrations, to revive the Bahamian economy following the 2008-2009 recession and achieve higher levels of job-creating gross domestic product (GDP) growth.
The Bahamas was the worst performer of the three Caribbean nations mentioned and, despite the IDB sounding an optimistic note about this nation’s growth prospects for 2018 and 2019, it suggests this nation will still not fully recover the past decade’s lost ground over the next five years.
For the same report, drawing on recent International Monetary Fund (IMF) data, forecasts that The Bahamas will have one of the lowest annual improvements in real GDP per capita growth between 2018 to 2023 at around 0.5 percent. Only Ecuador and Bolivia are expected to fare worse.
The IDB report illustrates the extent of the task facing the Minnis administration to achieve higher economic growth at a time when it has imposed fiscal austerity measures in a bid to solve The Bahamas’ chronic debt and deficit problems.
Still, the IDB’s report said: “The performance of tourism-dependent Caribbean countries continues to improve. The Bahamas is recovering from the effects of hurricanes in 2016 and 2017 that led to higher public spending and interruptions in the flow of revenue.
“For 2018, expectations are for a recovery of growth (2.3 percent) and a substantial improvement in fiscal efforts (a primary fiscal balance of 0.1 percent of GDP compared to -3.4 percent in 2017) that will lead to a stabilisation of debt as a percentage of GDP below 55 percent.”
The IDB report said that while the economy “appears to now be on a stable growth path”, much depends on “significant capital projects” and foreign direct investment (FDI) inflows if it is to achieve the Government’s targets in the medium term.
“Sluggish growth in private sector credit is likely to persist even as the country moves toward establishing a credit bureau,” it added. “The increased usage of external debt proceeds coupled with a reduction in private sector credit impacted domestic credit, which contracted by roughly 4 percent, while private sector credit fell by 0.7 percent as of the end of 2017.
“For the first six months of 2018, domestic credit marginally improved to 0.9 percent, as private sector credit declined. Although there is liquidity, lending has been risk-averse because of high non-performing loan (NPL) levels, which were concerning at 8.9 percent as of June 2018.”
Turning to the external economy, the IDB added: “It is estimated that the current account deficit will be 12.7 percent of GDP at the end of 2018, compared to 15.7 percent a year earlier. Imports returned to trend levels during the year following a surge in the prior period to facilitate hurricane rebuilding activities and the completion of a major tourism investment project [Baha Mar].
“The deficit is projected to gradually decline in the medium term to 6.2 percent by 2020.The current account deficit has mainly been financed by private inflows. The country has been increasing its reliance on private capital inflows (9.2 percent in 2018), while FDI inflows currently stand at 2.4 percent.
“Private capital inflows contributed on average 11.6 percent of GDP, and direct investment contributed 1.7 percent of GDP during the 2013–2018 period. However, there is an expectation of a rebound in the contribution of FDI, with the medium-term forecast improving. Equity investment has gradually started to strengthen and is expected to reach approximately 2 percent of GDP at the end of 2018, then increase roughly to 3.3 percent of GDP in 2019.”
The IDB report added that higher interest payments on the Government’s debt were a growing concern, saying: “A decomposition of The Bahamas’ public debt suggests that interest payments are the main driver for fiscal year 2018.
“Higher interest payments also made important contributions to the change in debt, and its impact is expected to continue on par with growing payment obligations. Interest payments grew from 1.98 percent in fiscal year 2015 to 2.26 percent in fiscal year 2018.”