By YOURI KEMP
Tribune Business Reporter
Moody’s expects a 22 percent contraction in GDP in 2020, citing high unemployment and a near tourism collapse in 2020.
The rating agency, in their annual credit analysis of The Bahamas, said, “Tourism flow losses were almost 100 percent in the second quarter of 2020 and we expect this will remain the case during the third quarter. Unemployment levels are also expected to rise significantly (some official estimates put the rate at 30 percent of the labour force), weighing on household consumption. This will contribute to a contraction in real GDP in the range of 17 percent to 22 percent in 2020.”
Moody’s did say, however: “For 2021, we expect a recovery in US economic growth to over 2 percent, which, coupled with the fact that unlike natural disasters the coronavirus does not destroy installed capacity, should help tourism flows recover to 60 percent to 70 percent of their 2019 levels. While this would support an expansion in GDP of over 10 percent next year, there are still material risks to the overall recovery of the tourism sector.”
Moody’s warned again that structural impediments to growth like global competitiveness costs, noting particularly The Bahamas scoring poorly on the World Bank’s ease of doing business ranking on the categories of registering property, trading across borders and obtaining credit, noting that: “Even though the Free National Movement government, which took office in May 2017, established an Ease of Doing Business Committee in 2017, the country's overall ranking only improved by one place in the 2019 report compared to the previous year.”
High energy costs also remains a persistent problem for The Bahamas, with Moody’s saying: “The energy sector in particular remains a bottleneck to growth, with a business' ability to obtain electricity placing 87 in the 2019 Ease of Doing Business report.
“But the government intends to reform the sector by restructuring the Bahamas Power and Light (BPL), improving the electricity network and building a 220 megawatt power plant. Given BPL's weak financial position, an internal restructuring is underway and the company is also considering a bond issuance to refinance $320m in legacy debt, which would allow BPL to have more resources available to improve its infrastructure and eventually lower customer costs.”
Moody’s did, however, praise the government on taking action to reduce the vulnerability to climate change and said that while noting the exposure the country has to climate change events, which by the International Monetary Fund, is estimated to cost around an average annual 1.5 percent of GDP in both the public and private sector over the last 30 years, “The government established a Disaster Relief Fund, which was funded with $41m in seed money, to be derived from dormant bank accounts, and budgetary allocations once the budget is balanced.
The government secured a $100m contingent credit line with the IADB to provide liquidity in case of a natural disaster as well as insurance coverage with the Caribbean Catastrophe Risk Insurance Facility (CCRIF). This funding supported the government’s short-term response to Dorian.
“To improve its physical resilience, the BPL (Bahamas Power and Light) has replaced underground cables and strengthened overhead power lines whereas the government, supported by a $35m loan from the IADB, is in the process of enhancing its coastal risk management.”