People sit under broken palm trees outside the Leonard M. Thompson International Airport after the passing of Hurricane Dorian in Marsh Harbour, Abaco on Thursday. (AP Photo/Gonzalo Gaudenzi)
By NATARIO McKENZIE
Tribune Business Reporter
While the country’s mid-term growth prospects are still positive, the Central Bank has noted that Hurricane Dorian will have a negative impact on the economy in the short-term.
In its monthly economic and financial developments report for July, the bank noted: “Medium-term growth prospects are still positive for The Bahamas. However, the unprecedented devastation caused by Hurricane Dorian to the northern islands of The Bahamas and the disruption in travel itineraries to many airports during this period, will negatively impact the economy in the short-term.”
It added: “Rebuilding efforts in the aftermath of the storm and the return to normal conditions in several tourism markets which were not severely impacted, will temper these overall adverse effects. The pace of recovery of hotel room inventory will impact the speed at which the economy returns to normal. In the coming months, the measures implemented to rebuild and replace vital infrastructure, combined with efforts to assist those residents and businesses adversely affected by the storm, could hamper the Government’s fiscal position.”
The regulator noted financing needs are likely to be met in part by inflows from several multilateral lending facilities; thereby “mitigating the pressure on domestic funding sources”.
“In the private sector external re-insurance inflows are anticipated to cushion business and household financing needs, however recovery gaps are likely for impacted persons and entities without adequate insurance protection,” the bank reported.
It added: “The hurricane’s near-term impact on external reserves will materialize over the remainder of 2019 and most of 2020. Balances could still experience a net accumulation in 2019, as re-insurance and other external proceeds are placed on deposit for drawdown during rebuilding efforts. More of the net outflows against reserves are anticipated over the course of 2020, cushioned by the seasonal upturn in performance on other tourism assets. Nevertheless, reserve indicators are expected to remain above international benchmarks.”
As to the monetary policy implications the Central Bank noted: “Given the adverse effects of the hurricane on the domestic economy and the need to support the recovery effort in affected islands, the Central Bank has relaxed lending conditions on facilities extended to distressed households and businesses. For these impacted borrowers, commercial banks will be permitted to waive the Central Bank’s mandated 15 percent equity or down payment requirement on consumer loans, and to waive Page 6 of 14 the threshold debt service range of 40 per cent to 45 per cent on new credit, that accommodates hurricane recovery.”
The Central Bank pointed out that in these instances, lending institutions have been “encouraged to adopt flexible, but prudent credit assessment criteria, tailored to the particular financial circumstances of distressed borrowers”.