Global Oil Slump Can Lift Virus 'Pall'


Robert Myers


Tribune Business Editor


Private sector executives yesterday said the coronavirus was casting "a pall over everything" amid hopes that the substantial fall in global oil prices will cushion the impact for the Bahamian economy.

Robert Myers, the Organisation for Responsible Governance's (ORG) principal, urged Bahamas Power & Light (BPL) and transportation-related businesses to "be smart" and pass at least some of the savings from the steepest fall in global oil prices since the 1991 Gulf War along to end-users.

"The upside is, as we see today, crude oil prices have taken a beating so they should be able to offset, if they are smart, the cost of travel with lower oil prices," he argued of the airlines. "If they're smart, they're going to see significant cost reductions off the back of that.

"They're taking a hit but oil has taken a 27 percent drop today [yesterday]. That could mean, if BPL is smart, that they could have some savings on fuel costs that could be passed on and help ease the pressure on businesses, the government and the economy. Hopefully they're smart enough to pass this on and take it all for themselves."

BPL's fuel charge is supposed to be a straight-forward "pass through" to consumers, meaning that this acts just to recover all associated costs and therefore Bahamians should see some relief here. However, there is a conspicuous lack of public trust in the state-owned utility monopoly.

The timing, and extent, of any savings will also depend on when BPL does its fuel purchasing. Global oil prices were inching up in early trading in the Far East today, with the West Texas Intermediate (WTI) and Brent Crude indices standing at $32.61 and $36.33 per barrel, respectively, but the figures may still be low enough to relieve some of the coronavirus gloom.

Prices plummeted after Saudi Arabia ramped up production, instead of cutting back to meet falling demand, after Russia refused to reduce its output.

Rick Lowe, an executive with the Nassau Institute think-tank, told Tribune Business of the coronavirus: "It seems to be like a pall over everything. It's like a dampener. It's all everybody can talk about. I'm not concerned about it. My only worry is that so many people may be at risk at one time. How will the hospitals and country cope with 300-400 people sick at one time?

"That'll be a problem to be dealt with when it happens. If they [the US] shut down our cruise ships we'll see what impact that has on our economy. It's kind of scary. I've never seen the world react to a virus like this."

Mr Myers, meanwhile, told Tribune Business he was neither surprised nor disappointed that the Central Bank of The Bahamas formally confirmed it will not initiate a "direct stimulus" to mitigate potential Covid-19 fall-out.

Ruling out any monetary policy action, such as cutting the Discount rate to lower capital costs and ease borrowers' repayment burdens, the regulator said in a statement: "The Central Bank is not able to provide direct stimulus to counter negative fallout from Covid-19 as such intervention would need to boost foreign exchange earnings capacity.

"Tourism, the principal foreign exchange earning sector, is exposed due to the prudent international public heath safety stance around travel. The Bank's focus, however, is to ensure that the economy maintains access to foreign exchange to satisfy necessary import needs.

"The external reserves will help provide this buffer, as balances are at historical levels and can withstand larger drawdowns than normal. The Central Bank's policy responses in this and other regards will remain closely co-ordinated with the broader fiscal management strategies to preserve economic stability."

Mr Myers, in response, said: "I'm not surprised because their holdings [of foreign currency reserves] are going to take a hit. But it's a shame we don't have more control over interest rates. We're going to have to figure out how to stimulate economic growth, and they ought to start talking about it now."

The Central Bank's statement warns that tourism earnings, which are almost certain to be substantially reduced due to the Covid-19 outbreak, will be insufficient to replenish the foreign currency outflows caused by the extra consumer borrowing sparked by any interest rate reduction.

The external reserves stood at just over $1.86bn at end-January 2020, and the Central Bank's primary monetary policy objective has always been to maintain these at levels necessary to support the Bahamian dollar's one:one peg with its US counterpart.

The Central Bank, meanwhile, said the Bahamian commercial banking system was well-positioned to absorb any unemployment and reduced income/debt servicing capability that may result from Covid-19's economic impact. However, it warned consumers to limit their discretionary spending until the threat had safely passed.

"As travel plans continue to scale back globally, The Bahamas can also expect some negative economic fall-out," the Central Bank added. "It is difficult to put an estimate on the amount of economic harm that this could do. However, Bahamian public health defenses will play a key role in shaping confidence around travel to The Bahamas, and the path that the economy takes to recover from any setback.

"Given The Bahamas' proximity to the US, the aggressive American public health responses should provide significant benefit, both from a containment perspective and incentives to travel to destinations that are closer to the US mainland."

It continued: "It should also be emphasised that the domestic banking system is mobilised to provide the forbearance and accommodation for households that might encounter interim challenges if their earnings are disrupted. While a strain of this nature could aggravate the debt repayment challenges, local banks remain strongly capitalised to tolerate increased stress to their credit portfolios.

"The advice nonetheless to Bahamian families is that until the uncertainty subsides they should exercise prudence in their personal financial affairs, and keep a tight control on discretionary spending."


proudloudandfnm 10 months, 2 weeks ago

Think Franklyn would give a discount just because he's paying less?

Ha ha ha!!

Tell me anudda one....


John 10 months, 2 weeks ago

This Co-vid19 may be a correcting mechanism to the markets that have spent years trying to artificially inflate the price of oil. And in a matter of days all the fat has been trimmed off the price. And the world’s dependence on China for everything has been exposed and will be stripped even more in the coming weeks as a shortage of essential supplies and goods become more visible. Prices on the other hand will escalate while prices on airline tickets, cruises dining and sporting events may tumble, at least in the short term. And of course persons who panic and go into a selling frenzy will lose big time and investors who gobble up these deeply discounted stocks and investment paper will benefit tenfold.


Porcupine 10 months, 2 weeks ago

What percentage of our population owns stock? This is merely another opportunity to concentrate wealth upwards. No surprises, hey? There are other trends that one can watch, such as, the epidemic of species loss and the poisoning of the earth and of ourselves. Perhaps the market would respond favorably to us exporting the last remaining conch out of our waters, and onto the plate of a billionaire. The market responds favorably to hubris, lies and selfishness. Not so much to the provable diminution of the earth's life force, to social justice or to economic fairness. Which one is supposed to be about Christian values? How could we get what we say is important, so confused? Such as a livable planet for our kids. No, we prefer to commodify everything, and call it just.


sealice 10 months, 2 weeks ago

you must be smoking some strong commodities......


Porcupine 10 months, 2 weeks ago

Thanks. I resemble that remark.


Sign in to comment