By NEIL HARTNELL
Tribune Business Editor
The coronavirus and Hurricane Dorian are threatening to deal The Bahamas an “unprecedented” $4.4bn blow, with the deputy prime minister revealing yesterday: “The playbook is out the window.”
K Peter Turnquest, speaking to Tribune Business after revealing that the COVID-19 outlook is “tilting” towards projections of a $1bn loss for the four months to end-June 2020, described the pandemic as “hopefully a once-in-a-lifetime event” that was impossible for government planners to anticipate.
Agreeing that The Bahamas had never before in its history experienced such economic and fiscal stress, Mr Turnquest said the Ministry of Finance remained confident that - for the moment - the government can handle a projected $147m COVID-19 related fiscal hit from the additional $508m in net new borrowing recently approved by Parliament to finance Hurricane Dorian reconstruction.
Confirming that the government is seeking to remain within the expanded $677.5m post-Dorian deficit limit, he added that it was “reprioritising and rearranging” its financing to both “meet the health and security needs” of Bahamians and provide financial support to hard-pressed businesses and persons likely to either lose their jobs or income.
With Dorian having already inflicted an estimated $3.4bn in losses and damage on the Bahamian economy, Mr Turnquest said “there’s no denying we are in challenging times” given the potential $1bn hit that the coronavirus now appears ready to deliver.
“To have another $1bn in loss to the economy on top of a $3.4bn loss from Dorian is, for most people, unimaginable,” the deputy prime minister told this newspaper, “and the cash requirements and level of social assistance required is certainly unprecedented.
“It’s a very significant challenge. These are issues that we could not have originally planned for - even with the supplementary budget - but we have to reprioritise and rearrange our finances to ensure we meet our commitments and the needs of the Bahamian people.”
Referring to the coronavirus specifically, Mr Turnquest added: “This whole pandemic is hopefully a once-in-a-lifetime event and, certainly, I don’t think we’ve ever had a circumstance where this is both a local issue with the shutdown of businesses and an international issue with the closure of our major source tourism markets.
“This is uncharted territory, and we’re making the playbook as we go, quite frankly. I don’t think anybody has this kind of matter on their radar. Even when we had SARS (Severe Acute Respiratory Syndrome) and MERS (Middle East Respiratory Syndrome), they were not at this level and I don’t think we had any cases here. I don’t think we had any global shutdown like we do today.
“There is no rule book for this, and we had certainly not planned for this. The rules have kind of gone out the window in terms of the fiscal targets we had put in place as we had to create a response to this pandemic event that was unbudgeted and unplanned for. I don’t think anyone can honestly say they foresaw something of this nature.”
The Ministry of Finance projections unveiled yesterday by Mr Turnquest are in line with those from the Inter-American Development Bank (IDB). Revealed by Tribune Business yesterday, the bank’s economists said The Bahamas could suffer a catastrophic 26 percent gross domestic product (GDP) cut if the worst-case coronavirus scenario comes true.
This was based on a 75 percent fall-off in tourism activity lasting for the remainder of 2020 which, if it became reality, would see The Bahamas lose between $2.819bn and $3.337bn in economic output this year. The Ministry of Finance’s worst-case forecast, of a $1bn loss for the period to end-June 2020, matches the quarterly losses that have been estimated by the IDB.
Both used similar assumptions, with the Ministry taking the loss of 100 percent of The Bahamas’ cruise passengers and 80 percent of stopover visitors as the “high impact scenario”. Mr Turnquest said that while the impact for the four months to end-June 2020 “could be as low as $258m”, he added that recent developments “suggest a tilting of the possible actual outcome to this extreme scenario”.
That, he revealed, “could result in a total economic loss, including additional public sector spending requirements, of as much as $1bn. Of this total, a dominant $832m decline is projected for lost tourism related expenditure as a result of the reduced visitor count.
“The direct hit on government revenue is placed at an aggregated $108m,” Mr Turnquest continued, “$48m for direct border taxes paid by visitors, and a total of $60m for potential VAT and import duty losses. The expenditure requirements could reach $49m, of which we are funding $10m from dormant account fund.
“These resources would be used to address the health and social requirements arising from potential cases of the virus, and dislocations associated with job losses and the need to support small businesses.” The $10m obtained from the Central Bank’s dormant accounts pool would thus reduce the potential fiscal impact to a net $147m.
With tourism and other foreign exchange earners slowing to a trickle, Mr Turnquest said The Bahamas’ “healthy” foreign exchange reserves of $2.03bn at mid-March 2020 were projected to decline by around $900m during the remainder of the year. This, though, would still be “a manageable level” to support The Bahamas’ financial and commercial needs.
While accessing the International Monetary Fund’s (IMF) $200m Rapid Credit Facility was one option open to the Government, the deputy prime minister indicated this would be a last resort and that no further borrowing beyond what was approved in the supplementary Budget is planned at this time.
“Based on our high impact analysis we believe we can manage this situation with existing and supplementary borrowing already approved,” Mr Turnquest told Tribune Business. “But obviously this is a very fluid situation, and things can change if all of a sudden we have a spike in cases.
“That would change a lot of dynamics. If we have to have a total shutdown of the economy, that’s a whole new dynamic.... As far as we’re concerned we’re focused on the public health implications and making sure our people get the resources they need to maintain their health and security, and to recover the economy as quickly as this virus is brought under control.”
The deputy prime minister had earlier told the House of Assembly that the Ministry of Finance was continuing to monitor COVID-19’s impact on the Bahamian economy, and would adjust its response - including medium and long-term plans - accordingly.
“While the extent of the impact of COVID-19 on the Bahamian economy is still unfolding, the plan is to first utilise our existing contingency reserves and to reprioritise expenditure to remain within the limits of the recently revised borrowing envelope for the current fiscal year,” Mr Turnquest emphasised.
“Should it become necessary, the Government could consider among its funding support options accessing the International Monetary Fund’s non-conditional Rapid Credit Facility, with current eligibility placed at a maximum of $200m.
“Simply put, we have no plans to request additional borrowings at this time, as we are diligently managing the country’s debt levels. We will update these projections based on our ongoing monitoring and reassessment of needs.”
Mr Turnquest also warned Bahamians against expectations of an immediate economic and tourism bounce-back should the threat from COVID-19 ease within the next three to four months. “It is likely that such a rebound will be slow and measured,” he said, implying that travel confidence will take some time to be restored.
The deputy prime minister said the impact was likely to carry over into the new January 2020-2021 fiscal year, and said: “It is important to highlight that our upcoming budget must be informed by a reality that the Government will likely need to continue to use fiscal measures to boost investment and consumption, and mitigate against a contracting economy.
“Accordingly, while we remained tethered to our commitment to fiscal and budgetary responsibility, we will revisit our fiscal targets within the context of the fiscal responsibility legislation to determine the need for ongoing flexibility, so that the Government can adequately and responsibly respond to the emerging social, investment and other private support needs to minimize the negative impact on Bahamians and the broader economy.”
Equipped with a limited fiscal stimulus tool-kit, and the constraints imposed by the Hurricane Dorian reconstruction effort, Mr Turnquest unveiled a package of unemployment and social assistance benefits, coupled with a $20m in short-term loans for small businesses, in an effort to strengthen the Bahamian economy’s shaky foundations amid a near-total tourism shutdown.
On the small business credit package, the deputy prime minister said: “Eligibility would include confirming that the business has been in existence for over one year, a commitment to retain most of the existing staff complement, and a plan to utilise the proceeds of the loan to ensure business continuity.”
Besides an additional $11m for COVID-19 purposes, a further $4m is being allocated to food assistance and social support for Bahamian workers impacted by the virus. These vouchers, worth $100 “every two weeks” or $50 per week, will primarily be for tourism industry workers who have lost their jobs and/or incomes due to reduced work weeks, and provide eight weeks worth of benefit.
Mr Turnquest said the Government was also providing $10m for a “temporary unemployment benefit”, to be administered by the National Insurance Board (NIB), and targeted at self-employed persons in the tourism industry such as jet ski operators, taxi drivers, straw vendors and tour operators.
These persons do not normally qualify for NB unemployment benefits, but they will receive $200 per week for up to eight weeks. They must be registered with NIB. Persons who are temporarily laid-off will be eligible for NIB’s standard 13-week unemployment benefit, while sickness benefits will be available for those who catch or have to quarantine because of COVID-19.
Bahamas Power & Light (BPL) and the Water & Sewerage Corporation have been asked to defer bill payments for an initial three months for persons diagnosed with COVID-19 or quarantined, with Mr Turnquest warning that this was “not a free lunch” and unaffected persons should continue paying.
The Ministry of Works will also reorganise its capital projects such that they boost small business activity, while the Government also pledged to accelerate approvals for all domestic and foreign direct investment (FDI) projects “in the pipeline”.