By NEIL HARTNELL
Tribune Business Editor
The Bahamas faces "a deep recession" due to the "unprecedented crisis" caused by the combination of COVID-19 and Hurricane Dorian, the International Monetary Fund (IMF) has warned.
The Fund, in approving this nation's request for an "emergency" $250m loan to meet the government's need for "urgent" foreign reserves support amid the tourism industry shutdown, said the economic fall-out will be deep and unsparing for The Bahamas.
It added that the $250m loan was equivalent to 100 percent of The Bahamas' so-called special drawing rights (SDRs) in the IMF, meaning that this nation has effectively leveraged its entire "shareholding" in the Washington DC based Fund to access a low-cost foreign currency loan at an interest rate of 1.054 percent.
Nevertheless, the IMF appeared to back the short-term policy measures taken by the government to prevent the Bahamian economy's collapse in the face of the COVID-19 pandemic, but urged it to "resume their ambitious reform agenda" of fiscal consolidation and improving the country's resilience to powerful hurricanes once the immediate crisis has passed.
"The COVID-19 pandemic comes on the heels of the widespread destruction caused by Hurricane Dorian in September 2019. Coupled with domestic containment measures, the collapse in tourism will cause a deep recession," the IMF said in its statement approving the loan.
"The Bahamas faces an unprecedented crisis as it battles the fall-out from two consecutive large shocks. It was just recovering from the widespread destruction caused by Hurricane Dorian in the fall of 2019 when the COVID-19 pandemic led to a sudden stop in tourism, causing a deep recession and creating large external and fiscal financing needs."
It added that its loan "will help meet the urgent balance of payments needs stemming from the COVID-19 pandemic, boost resources for essential COVID-19-related outlays and catalyse additional support from development partners".
While all are agreed that The Bahamas has been plunged into recession, the only differences that remain are over the depth and length of the economic contraction. The Central Bank has projected that the economy will shrink by an amount equivalent to 12 percent of gross domestic product (GDP), or nearly $1.4bn, in 2020, while the prime minister himself has pegged this at anywhere between 14 percent to 20 percent.
Standard & Poor's (S&P) has estimated a 16 percent contraction, with both its and Dr Hubert Minnis' projections placing the contraction at almost $2bn. However, Tao Zhang, the IMF's deputy managing director and acting chair, said the multiple unknowns surrounding the COVID-19 pandemic meant the Bahamian economy's outlook was uncertain.
"The Bahamas was just recovering from the widespread destruction caused by Hurricane Dorian in the fall of 2019 when the pandemic led to a sudden stop in tourism, generating sizable fiscal and external financing needs. The economic outlook remains subject to an unusually high degree of uncertainty," he added in a statement.
"The authorities' policy response to the COVID-19 crisis is appropriate, including the timely adoption of targeted fiscal measures to boost health spending, support jobs and vulnerable segments of the population. Once the present crisis subsides, significant and determined fiscal consolidation will be needed to achieve the targets specified under the Fiscal Responsibility Act."
Mr Zhang urged the Central Bank to closely monitor the commercial banking industry's loan arrears increases even though he backed the decision to provide borrowers with temporary relief to help shield them from the COVID-19 fall-out.
"The Central Bank of The Bahamas' focus on maintaining an adequate level of international reserves is welcome. While efforts to maintain the flow of credit in the economy are warranted, the temporary relaxation of prudential regulations should continue to be accompanied by close monitoring of non-performing loan (NPL) classification and prudent risk management practices.
"The disbursement under the [IMF facility] will help boost resources for essential COVID-19 related outlays, strengthen reserves and catalyse additional support from other international financial institutions, development partners, and the private sector.
"Looking beyond the crisis, it would be important for the authorities to resume their ambitious reform agenda including enhancing public financial management and state-owned enterprise (SOE) governance, advancing revenue administration reforms and continuing to improve the effectiveness of the anti-money laundering and counter terrorism financing framework. Strengthening resilience to natural disasters also remains a priority."