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COVID lockdown's $1bn tourism blow

Central Bank of the Bahamas.

Central Bank of the Bahamas.

• Bahamas 'net travel consumer' for first time in history

• Two-thirds of fiscal deficit incurred in last 19-20 quarter

• National debt near $9bn at end-June as ratios soar

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas lost around $1bn in tourism earnings at the COVID-19 lockdown's peak as this nation became a "net payer" for travel-related services for likely the first time in its history.

The Central Bank of The Bahamas' report for the 2020 second quarter, which covers the three months that took the brunt of the Government's pandemic restrictions, lays bare the extent of the economic and tourism-related devastation that was inflicted by revealing that this nation spent $3.5m more on travel during this period than it took in.

This represented a $980m negative swing compared to the same quarter in 2019, when The Bahamas earned almost $1bn in travel and tourism-related receipts to expose the full extent of the income and foreign exchange earnings lost during COVID-19's initial months.

Referring to The Bahamas' current account, which measures both this nation's trade in physical goods and services, the Central Bank revealed: "The services account position reversed to an estimated deficit of $251.4m from a surplus of $723.2m in the prior year.

"In particularly, net travel - the largest segment of the services account - recorded a net payment of $3.5m, vis-à-vis a net receipt of $976.5m in 2019, primarily reflecting the pause in tourism activity due to the COVID-19 pandemic."

Given the tourism industry's near-total shutdown for the three months from April to end-June, which included the peak Easter holiday weekend, the huge reversal from 2019's year-over-year position is not surprising. Tourism only gradually re-opened in certain niche markets on June 15, with the Central Bank report for the first time giving an insight into how much ground The Bahamas has to make up economically.

And government borrowing to prop up the economy, cover its fiscal holes and boost the external reserves was also responsible for The Bahamas' capital and financial account surplus for the 2020 second quarter more than doubling to $473.3m as opposed to $167.8m in the prior year.

The Central Bank confirmed this was "attributed to a surge in debt-financed inflows to $438.7m from $87.3m in the prior year. Specifically, COVID-19 and hurricane-related Government external borrowings, including a $250m rapid financing instrument proceed from the IMF, contributed to net public sector receipts of $286.2m, following a net payment of $11m in the preceding year".

The tourism and economic shutdown also resulted in The Bahamas' merchandise trade deficit, which measures by how much this nation imports more physical goods than it exports, shrinking by $175.6m or 28.1 percent to $449.5m for the 2020 second quarter compared to the prior year.

"The $391.5m (57.7 percent) reduction in imports to $511.8m outstripped the $215.9m fall-off in exports to $61.9m," the Central Bank said. "A further breakdown of trade flows showed that net non-oil merchandise imports declined by $102.9m (21.2 percent) to $382.4m, while net payments for fuel purchases fell by $98.8m (49.5 percent) to $100.9m."

The Central Bank's report also proved helpful in revealing that some $534m, or some two-thirds (67.8 percent) of the Government's $788.1m full-year deficit for the 2019-2020 fiscal year, was incurred in then final quarter of that period as revenues plummeted amid COVID-19 while spending ramped up to cope with the fall-out from that and Hurricane Dorian.

The Government's most recent "fiscal snapshot", covering the April to end-June period, largely focused on the full-year performance and did not break out the fiscal fourth quarter figures that contained the majority of the 'red ink'.

"Provisional data on the Government’s budgetary operations for the fourth quarter of fiscal year 2019-2020 revealed that the deficit increased to $534m from $79.3m in the comparative fiscal year 2018-2019 period," the Central Bank report added.

"Contributing to this outturn were revenue losses and higher outlays for health and social welfare related to COVID-19, along with a rise in spending for post-hurricane reconstruction works. Specifically, total revenue reduced by $406.7m (55.2 percent) to $330.5m, while aggregate expenditure rose by $48m (5.9 percent) to $864.4m.

"Tax revenue, which constituted 90 percent of total receipts, contracted by $379.5m (56.1 percent) to $297.4m. Specifically, underpinned by revenue losses from Hurricane Dorian and the COVID-19 pandemic, VAT collections—at a dominant 41.9 percent of total receipts—reduced notably by $169.2m (55 percent) to $138.5m."

The Government was forced to undertake some $300m in external foreign currency borrowings to fill the fiscal and external reserves holes, the majority of which was obtained from the $250m IMF facility.

"The direct charge on the Government grew by $300m (3.8 percent) over the previous three-month period, and by $664.2m (8.8 percent) year-on-year to $8.191bn," the Central Bank said of the consequences for the national debt.

"The Government’s contingent liabilities were lower by $3m (0.4 percent) over the previous quarter of 2020, and by $21.6m (3 percent) on an annual basis to $714.8m. As a result of these developments, the national debt - inclusive of contingent liabilities - grew by $296.9m (3.4 percent) over the three-month period to $8.906bn and by $642.6m (7.8 percent) relative to June 2019.

"As a ratio to GDP, the direct charge rose by an estimated 12.7 basis points on a yearly basis to 68.1 percent at end-June. In addition, the national debt-to-GDP ratio increased to an estimated 74 percent, compared to 60.9 percent in the same quarter of 2019."

The magnitude of that more than-13 percentage point increase has once again propelled The Bahamas beyond the 70 percent debt-to-GDP threshold that is regarded as a 'danger zone' where a country's debt repayments could increase sharply and result in a rapid downward spiral.

As for the Government's foreign currency debt, this hit $3.789bn at end-June as a result of its latest borrowing forays. "On an annual basis, obligations advanced by $348.7m (10.1 percent)," the Central Bank added.

"In terms of the components, the Government’s outstanding liabilities - which accounted for 77.9 percent of the total - increased by $297.2m (11.2 percent ) to $2.951bn on a quarterly basis. In contrast, the public corporations’ debt stock fell by $8.8m (1 percent) to $838m."

"Elsewhere, the Central Bank reported that incoming private investment flows fell by $48.7m year-over-year to hit $40.3m. "In particular, net equity investment inflows declined by $17.3m (65.3 percent) to $9.2m, while net receipts from land sales fell by half to $31m.

"However, migrants’ net transfers abroad decreased by $2.8m (41.9 percent) to $3.8m, while net outward portfolio investments related to the Bahamas Depository Receipt (BDR) stabilised at $2m."

Comments

tribanon 1 year, 11 months ago

All hell is guaranteed to break loose when Turnquest is eventually forced to announce that government can neither afford to continue feeding destitute Bahamians nor meet the enormous payroll of the grossly over-bloated and very unproductive civil workforce.

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ThisIsOurs 1 year, 11 months ago

yep. We will be in trouble if 30,000 people are going hungry

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Honestman 1 year, 11 months ago

Government simply has to find a way of feeding the needy, that is non-negotiable. However, I agree with you that the country cannot continue to pay every civil servant a full salary when many are at home making no contribution to government efficiency. Thousands of private sector workers have been made unemployed, are working reduced hours or are working on reduced salaries. It is totally unjust that civil servants continue to be protected from all of this. We are in this together.

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observer2 1 year, 11 months ago

I think the government has a lots of excess borrowing capacity and will continue paying the civil service heading into the 2022 election season.

Our debt to GDP ratio is only 70%, most banana republics are above 100%.

So we have the capacity to borrow around $3 billion more. That’s at least 3 years worth of government payroll, travel and entertainment and “mismanagement “. The IMF, OECD and IBD are only too happy to lend as the developed countries print money under QE.

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observer2 1 year, 11 months ago

Also the government can readily borrow in the local B$ market. It needs to borrow to soak up the massive levels of liquidity due to businesses being closed. Any loans to the private sector will probably go bad.

The only fully functioning part of the Bahamian economy is the government and we all should be thankful to Minnis.

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tribanon 1 year, 11 months ago

Man, do you ever have it all wrong. You lend new meaning to D- educated. LOL

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PoompassMan 1 year, 11 months ago

LOl, this guy is as clever as ZERO . Obviously you have no idea what you speak of. The Bahamas per capita is down ridiculously per household and individual. The Bahamas debt ratio has exceeded 70% and this half wit is saying you can still borrow $3 Billion, look you obvious peasant brain , the country economy is barely about 3 billion , that means the countries revenue obviously can not go mush farther than the 70% debt ratio. We are already serving a $3 billion foreign currency debt by borrowing and kicking the can down the road , however the road hits a dead-end by DECEMBER 2020. Remember smart guy the external debt is already beyond $3 billion and we do not have over or near $2 billion in external reserves , so we are already at a 40% deficit . ( Currency at risk, get it) also the M1 supply if you do not know and i assume you DO NOT is just over $300 million in local currency , so you cant borrow money locally that does not even exist . Their is only 300 million plus local notes in circulation dumb wit ( obviously you have no knowledge of what you speak of or read the central bank notes on money supply , please read and educate yourself so you don't sound so obviously uneducated. In summary bedsides your low wit buffooneries , the outlook is a collapse of the fiscal books by December , external reserve threat will trigger external borrowings at or near Half Billion, using the last of the below 25% debt ratio space , coupled with external reserve non inflows then you have a collapse on the currency peg. By Feb 2021 the vaccine will be in a low stage distribution in the developed world ( NOT BAHAMAS ) , internal foreign flows will not recuperate because the western countries will be to busy dealing with their own problems and the chicken is starting to show the roost their, so forget tourism moving the scale and or meter . If that sector last it will be at least 18 months or more before we see any type of resurgence. In short the IMF , The World Bank and IDB and others are not exuberating the problem here , its Bahamians like you that seem to think everything is always some external foreigner trying to do us IN. Look at ourselves, bad and mismanagement , corruption , theft and plain ole bad ethic and work ethic and low grade productivity and low grade politicians coupled with a seriously low educated populace that's been dumbed down that always lookin for a hand out and blaming everyone else but ourselves, have got us here , This Pandemic just pulled the clock 10 to 15 years ahead of its time.

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benniesun 1 year, 11 months ago

OK.. according to your figures we have $9bn in debt and $3bn in foreign currency. So I assume that means $6bn in local currency even though the local circulation is only $300m. Well banks normally create money , so more local borrowing is possible at the risk of inflation. However that does not solve the problem of foreign debt payments. Foreign interest will gladly loan us money that they know we cannot pay back in order to get legal control of our resources (airport, docks, NIB, Hospital, BPL, etc). I disagree with your statement about the foreigners doing us in because that is exactly what they are doing and have been doing since inception. We are only a playground providing sleazy but glitzy services.

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proudloudandfnm 1 year, 11 months ago

Whatever they do it has to be real. Tourism will not rebound anytime soon, no matter what they try. Time to deal with reality.

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sheeprunner12 1 year, 11 months ago

OK folks .............. so how will the 242 mitigate its "tourism income replacement" disease for the next THREE years????? Some suggestions may be: (1) fish (2) forest (3) sand (4) salt (5) farms (6) aragonite (7) cascarilla (8) sponge (9) poultry (10) palmetto ...................(develop diverse local products and industries)

Government cannot remove its $800M civil service annual wage bill from the economy ...... it will lead to a certain collapse of the domestic economy for sure.

We have a big advantage ....... location to USA ............. and what is thriving? Sea transport industries ......... So develop that as a niche industry (or has Panama beaten us to the deal?)

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