By NEIL HARTNELL
Tribune Business Editor
The Bahamas’ 2020 economic growth prospects have improved to “flat”, it was revealed yesterday, with the Central Bank less certain that this nation will suffer a minor contraction.
John Rolle, its governor, said it “doesn’t want to be wedded to a number for the contraction”, having forecast last year that economic output or gross domestic product (GDP) was likely to shrink by 0.5 percent this year due to primarily to the loss of Abaco’s tourism product post-Dorian.
“A reasonable range would be the growth is zero or negative - some low percentage range,” he added, with the Central Bank’s monthly economic report for December 2019 also striking a more optimistic tone for The Bahamas’ 2020 prospects.
“Expectations are that the domestic economy will register a flat outturn in 2020, before experiencing an above trend rate of growth in 2021, as capacity is restored post-Hurricane Dorian,” its assessment, released yesterday, said.
“In this regard, sustained near-term improvements in the tourism sector are expected to be supported by activity within the New Providence market and the unaffected Family Islands, with contributions from Grand Bahama and Abaco strengthened in 2021.”
Mr Rolle reiterated that the economy’s 2020 performance largely depends on whether those islands not impacted by Dorian can pick up the slack created by Abaco and Grand Bahama as they attempt to rebuild.
“We see the economy is improving. There are just two sets of forces at work,” he explained. “Where the storm damage was avoided, those parts of the economy are still moving strongly ahead. It’s a question of whether the pace is fast enough to overshadow the missing pieces of Abaco and Grand Bahama. The underlying forces pushing the economy ahead are still present.”
Mr Rolle added that another key was whether tourism business normally destined for Abaco and Grand Bahama, especially the former island’s vacation rental market, would switch to other parts of The Bahamas and thereby enable the country to retain this source of foreign exchange income.
He said there were initial signs of “some pick up” in the vacation rental business on other islands post-Dorian, while the reconstruction efforts on the two hard-hit islands will “help to cut into the losses from direct visitor spending”.
The governor continued: “The economy could still contract in 2020, as neither construction efforts nor the pick-up in business elsewhere in The Bahamas might fully compensate for the absence of a meaningful tourism contribution from Abaco and Grand Bahama during the peak of the season.
“In addition, the dependence on imports for rebuilding is likely to cause a deduction from the GDP estimate, even though The Bahamas will have more than ample access to foreign exchange to pay for such spending......
“Now it is most important to ensure that the rebuilding happens on an efficient timeline, which from the Central Bank’s estimate would be signaled from a comfortable drawdown in the reserves during 2020 - even to the point that the balances fall modestly lower than they were at the end of 2018.”
Mr Rolle said foreign direct investment (FDI) projects continued to be active, with the Central Bank’s research report citing numerous projects on the table for New Providence. It pointed to the $50m renovation of the Paradise Yacht Club on Paradise Island, which will see it developed into a 48-room boutique hotel with a 45 to 50 slip marina, complete with cafe and roof-top club.
That project is billed as providing 120 full-time and operational jobs, while entities called Kovalitio and 360 Bahamas Ltd are also planning to invest $50m in expanding the Cove Resort. The Lyford Cay Club is aiming to expand its facilities with the purchase of 59 acres for $12m, while the Ocean Club Community Association is aiming for a $5m acquisition and renovation of the Beach Club.
The Central Bank report also referred to a $10m “glamping”, meaning a luxury or glamorous camping, resort in the Berry Islands by Yo! Island Ltd. Several investments were also identified for Exuma and Eleuthera.
Mr Rolle, meanwhile, said the Central Bank had also lowered its forecast for the ramp-up of non-performing bank loans post-Dorian given that the national ratio had continued declining post-storm to 8.1 percent at year-end 2019.
While acknowledging that the full picture would not be known until the repayment moratoriums provided to customers in Abaco and Grand Bahama end, which is likely to be this month, the Central Bank governor said the potential damage to bank balance sheets was limited because the industry’s outstanding loan exposure to the Dorian-ravaged islands was just 10 percent of their portfolios.
Mr Rolle also argued that Bahamians should “not be too alarmist” about the Government needing to borrow an extra $508m net post-Dorian. He said the focus should instead be on ensuring the monies are used to finance economic recovery so that the Government is positioned in the quickest possible time to start paying down its new debt.
“What’s important is how these resources are used to put the economy in a stronger position longer term so that the Government can then focus on getting the debt lower,” the Central Bank governor explained. “We shouldn’t be too concerned or alarmist about the Government borrowing in a situation like this.
“If the Government is unable to borrow easily it will have a more negative impact overall. What we want to focus on is borrowing to support the recovery, but afterwards focus on reducing the debt so you can borrow and people are willing to lend.”