By NEIL HARTNELL
Tribune Business Editor
The Bahamas stands to lose $2.7bn in tourism revenues if the COVID-19 pandemic shuts down stopover visitors for the rest of 2020, Royal Bank’s (RBC) former top Caribbean economist is warning.
Marla Dukharan, analysing the pandemic’s likely impact on the region, revealed that this nation stands to lose up to 83 percent of its high-yielding land-based tourists if the global crisis lasts through year-end in a “worst case” scenario.
Should that play out, her research suggests The Bahamas’ annual revenue earnings from stopover visitors will plummet to $548m from $3.244bn in 2019 - a drop of some $2.7bn, which again highlights the potentially catastrophic fall-out from COVID-19 for this nation’s largest industry and the wider economy.
Ms Dukharan said the “best case” and “base case” scenarios for The Bahamas were a 60 percent and 80 percent drop in annual stopover visitor numbers, respectively, the latter of which mirrored the Ministry of Finance’s initial estimates albeit for a four-month period. Both assumed a complete loss of cruise ship passengers.
Should the COVID-19 pandemic clear up quickly, the former RBC chief economist said The Bahamas will only lose 50 percent of its 1.78m stopover visitors and half last year’s revenues. That, though, would still drop 2020 stopover earnings to $1.627bn.
As for the “base case”, The Bahamas would lose 64 percent - or nearly two-thirds - of its annual stopover visitors, slashing earnings from this sector to $1.088bn. That would result in a more than-$2bn drop on 2019 figures, further exposing the country’s dependency on a single industry and relatively few source markets for almost half its economic output and employment.
Ms Dukharan’s figures also appear to be in line with those of two Inter-American Development Bank (IDB) economists, who projected that The Bahamas could suffer a catastrophic 26 percent gross domestic product (GDP) cut if the worst-case coronavirus scenario comes true,
Warning that The Bahamas is potentially exposed to the most severe economic contraction out of all Caribbean nations, the IDB duo said it would suffer the loss of a staggering $3.337bn in economic output (GDP) based on the $12.739bn current GDP estimates given in the revised mid-year budget forecasts should the worst-case scenario they mapped out become reality.
Under a scenario where The Bahamas lost 75 percent of its normal tourism activity during a coronavirus outbreak that lasted until the end of the year, they estimated that this nation could suffer a 10.5 percent GDP loss just from the impact on its major industry alone.
And the wider effects would more than twice as great, with GDP or economic output slashed by more than one-quarter or 26.2 percent as the ripple effects from the tourism impact are felt throughout the Bahamian economy.
Ms Dukharan, meanwhile, in her March 30 research paper that has been obtained by Tribune Business, said the COVID-19 pandemic is the greatest economic shock that The Bahamas and wider Caribbean have suffered for a century.
“The socio-economic effects of COVID-19’s sudden-stop represent the most significant shock we have experienced in about 100 years, with global implications that we can’t yet imagine,” she wrote. “In the last two weeks, global financial markets have gyrated unbelievably, international travel and shipping have all but collapsed, supply chains have buckled, and the global safe-haven - the US Dollar - has strengthened to the highest level in three years.”
Given that the Bahamian dollar is pegged to its US counterpart, Ms Dukharan said this nation’s currency will also have appreciated in value thereby undermining its external competitiveness. “Note that all the currencies pegged to the US dollar would have strengthened against other major currencies in similar fashion, meaning that their external competitiveness would have deteriorated,” she added.
Warning of an ‘L’ shaped economic recovery, the former RBC chief economist warned that the probability of downward pressure on economic activity continuing for “many years to come” is “growing higher every day”.
Pointing out that the Cayman Islands is the only Caribbean-based territory with sufficient fiscal and monetary headroom to employ counter-cyclical policies in response to COVID-19, Ms Dukharan said: “The Caribbean is one of the most heavily indebted regions in the world, which puts us in a vulnerable position to start with.
“Tax revenues will decrease across the board (hotel and lodging taxes, arrivals tax, departure tax, airport tax, consumption tax, sales tax, VAT, income tax, corporation tax, etc.) while demands on governments are rising as containment actions and the necessary social protection measures will put further strains on fiscal accounts.
“Countries should in first instance draw down their credit lines with multilateral lenders, before they turn to commercial sources,” she added. “As credit spreads continue to widen with investors reallocating funds toward more secure assets, high-yield and emerging-market bonds are particularly vulnerable, which translates into higher borrowing costs for regional Governments, and credit rating downgrades add to this pressure. Also important to note for the region is the impact fiscal accounts have on external accounts, with government spending largely inflating imports.”
Darrin Woods, the Bahamas Hotel, Catering and Allied Workers Union’s (BHCAWU) president, yesterday voiced concern that the COVID-19 pandemic will prolong the suffering of workers and their employers by taking the tourism industry into the slower part of its annual calendar.
“My biggest concern is that we don’t know how long this is going to last,” he told Tribune Business. “We pray for something to break sooner rather than later. We don’t want to get too far into the good months and end up in the low months. Then what? It would have a negative impact.”
The September period through to Thanksgiving is traditionally the slowest period for the hotel and tourism industries, with staff typically told to take vacations and prepare for reduced work weeks during a time that includes the peak hurricane season and Back-to-School.
Many observers believe that the 2020 third quarter, which includes September will be the earliest that The Bahamas’ major US tourist source markets will start to recover from the pandemic. Mr Woods said the industry will have to employ “creative advertising and offerings” to entice visitors who have cancelled or rebooked to visit during this period.
“All it does is that it extends it further and it goes deeper,” Mr Woods added of COVID-19’s economic impact on tourism. “The slow months will be extended by three to four months. It’s very concerning but, at the end of the day, it’s going to happen.
“If we were certain as to what was going to happen we’d be able to adjust to that, but because we don’t know when this is going to break and how it’s going to break, we cannot plan and the uncertainty is just creating more hysteria.
“People get hysterical when they don’t know what’s happening from one day to the next. It’s difficult to preach to the man when he’s hungry. The uncertainty is the biggest concern.”