By YOURI KEMP
Tribune Business Reporter
The Caribbean Development Bank (CDB) yesterday gave the most optimistic forecast yet for The Bahamas’ 2020 prospects by predicting this nation’s economic output will expand by two percent.
Dr Justin Ram, its director of economics, told reporters: “In The Bahamas, although Hurricane Dorian caused significant destruction, the economy still performed fairly well in 2019 because visitor arrivals were still very strong. That’s good.
“For 2020 we’re forecasting a GDP growth rate of two percent because we expect visitor arrivals to continue to be strong as long as source markets, for example the US, Canada, the UK and other places where visitors come from, remain strong. We expect tourism arrivals to have a strong footing.”
Dr Ram added that “construction is likely to be a big driver of economic growth in 2020” due to the post-Dorian rebuilding in Abaco and Grand Bahama, indicating this would provide further growth momentum.
The CDB’s forecast, though, is far more upbeat than those provided by the Central Bank of The Bahamas and International Monetary Fund (IMF). The former, which revised its own 2020 GDP growth projections upwards to “flat”, having initially projected a 0.5 percent contraction, said much depends on whether economic activity on other Bahamian islands offsets the loss of Abaco’s tourism income.
The IMF, for its part, backed the Central Bank’s first prediction that the Bahamian economy will suffer a “mild contraction” in 2020. This places the CDB’s projections at the top end of the scale.
Recognising that Abaco and Grand Bahama suffered “substantial damage” as a result of Hurricane Dorian’s passage in early September 2019, Dr Ram said: “Nonetheless, The Bahamas recorded the highest ever number of visitor arrivals, reflecting pre-hurricane performance and increased airlift from North America.”
He added that prior to Dorian “the fiscal deficit was actually narrowing, but then it rose slightly to 66.3 percent of GDP as the Government attempted to meet the initial post-hurricane financing requirements”. Dr Ram said the fiscal blow inflicted by Dorian has “remained manageable” even though the $3.4bn damages and loss caused was equivalent to 25 percent of GDP.
“But what has been real good is that we only had about a 0.9 percent decline in the Bahamian economy for 2019, and that is despite the tremendous loss associated with Dorian, which was maybe around a quarter of GDP, which is quite significant,” said Dr Ram.
“The Government of the Bahamas has accessed financing already from the CDB to support its reconstruction and rehabilitation efforts. So we would have advanced a grant to assist with the rehabilitation after that particular hurricane. But, more importantly, towards the end of 2019 we supported The Bahamas by the approval of an exogenous shock policy-based loan, and that now gives The Bahamas access to $50m of financing. That policy-based loan is exactly that; it supports polices that help The Bahamas build resilience but also to maintain its fiscal prudence/
“Very soon we expect to be disbursing that $50m to The Bahamas and, once those funds go into the consolidated fun, the government will then decide how to utilise those resources - what type of construction activities and how to prioritise that.”
Dr Ram said the CDB has also supported the government with “the establishment of a delivery unit, which allows the overnment of The Bahamas to actively target where it wants to implement certain policy reforms and put things in place”.
He added: “We support that type of intervention and, in fact, we are going to support the government with repositioning that delivery unit so that it can prioritise reconstruction activities and manage how the money is being spent in an efficient way.”
The government implemented a “delivery unit” within the Prime Minister’s Office in May 2018, which was funded by the Inter-American Development Bank. The unit is responsible for delivering on six priority goals - the “Over-the-Hill” rejuvenation, land reform, energy reform and infrastructure, ease of doing business, education, and safety and security.
Dr Ram said spending on Dorian reconstruction activity is “not going to hurt economic activity” but instead will “spur growth, because now you are spending on reconstruction”.
He added: “The Bahamas has many islands, and it covers a large area. That has also provided a significant amount of resilience, because the main hubs of economic activity - particularly in Nassau - were maintained, so that drove economic activity. So that means that people who might have been displaced could also migrate within the Bahamas.
“So I think it is positive for The Bahamas, but we cannot forget that The Bahamas is in a very vulnerable place in terms of the environment. So the government needs to ensure that the right policies are in place for land-use planning, for building codes and the enforcement of those building codes.
“Then, on the fiscal level, the government is doing a fairly good job by ensuring it has Caribbean Catastrophe Risk Insurance Facility (CCRIF) coverage, and also having access to contingent credit lines so if a disaster happens it has access to financing that allows it to rebuild.”